Wednesday, July 12, 2006

Not Pretty

That was not pretty, even the media didn’t like it.  As trading began on Wednesday, the market had to deal with a few minor pains.  One of those, near and dear to our short tech hearts, was the downgrade on DELL which pushed that stock down over 4% by the end of the day.  Another was the news about the trade deficit widening, although that was less than expected; but, within that report was the fact that oil imports reached a record $28 billion up $4 billion from the prior month, 17%.  Don’t forget that this is May’s number and the report we read said the price of crude was just over $61 a barrel.  As you probably know, the price of oil is well over $70 a barrel now.

The stock market just went down and down all day long.  The NASDAQ indexes were hit hard with the DELL news.  At the end of the day the NASDAQ 100 index had broken through last October’s low.  This move pushed our Rydex inverse funds up to new 52 week highs on Wednesday as noted below.  When the indexes break through important lows like that, some pain is felt but there was no news story that pointed it out as far as we could tell.  The other indexes we follow have not broken their respective October lows but we believe it’s only a matter of time.

Over the next several weeks we expect the stock market to continue its decline but there will be rallies to confuse the traders.  This is only natural.  Our best guess is that stocks will decline and Treasury bonds will move up (rates will decline).  We are less convinced of the dollar so we are going to step aside from the BEGBX fund below for now.  We haven’t actually acquired a position in that fund but have been watching it carefully.  

The stock market is in the midst of earnings season and these have not been very good so far and any time we have an important report it could give the market a problem.  We repeat that we see very little upside in the coming weeks.  Our estimate for the position of the stock market is unbelievably still near overbought even after Wednesday’s trading so…

Be careful out there.

Dow Industrials:  11,013.18  -121.59
RYVNX:   23.69  (new 52 week high)
RYAIX:  25.09  (new 52 week high)
TLT:  84.66
BEGBX:  13.37  (dollar strong again today)

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