As we noted in our last post, gold and silver took a big hit in Monday’s trading both overnight and during the day. Gold got hit for over $20 and silver for over a dollar taking it down about 9% on the trading day. (This evening there has been somewhat of a recovery in those precious metals with gold and silver both up.) As for the mining stocks, the HUI fell 25.62 or about 7.5% with the 25 being in line with the $21 price drop in gold itself. The True Contrarian, link to the left, has a new post from this past weekend, indicating his pick for the low point on the HUI to be right around 248. The HUI closed at 312 today after a 25 point drop and was almost 370 last week. With 20% left on the downside, we necessarily wait. We recommend you do, too.
The market got off to a rocky start with DELL’s announcement of an SEC investigation of possible misstatements in prior financial reports. In conjunction with the announcement, DELL said it would suspend its current share repurchase program until some of these pesky financial matters were resolved. DELL’s announcement took about 1% out of the NASDAQ 100 in the early going.
As bears we don’t like to see Monday’s start off with a down opening on obvious news related selling. And, so it was, that shortly into the session the selling was declared over and a spirited rally took place on the back of a possible LBO of one of the chip companies, FSL, Freescale Semiconductor. When this news hit, there was much scrambling to get some of the other chips and tech in general due to the possibility of similar buyouts in those companies. We don’t particularly buy into the notion that there will now be a furious run to do LBO’s on other chip companies but of course we don’t know that for sure. This buyout came out of left field so others could too.
As we did our numbers this evening we noticed that even the volume was strong on the NYSE with over 1.6 billion shares traded, the most since August 9th over a month ago. Maybe the summer doldrums are over for now with trading volume picking up this week. The NASDAQ volume wasn’t quite that strong so we can’t make this statement for sure.
Tomorrow we get to hear about the July trade deficit and with oil prices as high as they were in July (and with July being a 31 day month as is August) we expect a fairly high reading. This number doesn’t seem to mean much in today’s analysis of the economic landscape, but for us, it represents just another reason that the media could look to as a reason for the market’s coming decline. There are a couple of other interesting data points coming out this week such as the refinancing index on Wednesday and the CPI on Friday. Stay tuned for further information.
Don’t forget that those early May highs are our guideposts. These little rallies that we have seen are just attempts at getting back to those highs. Unless they do, these rallies are basically meaningless. Yes, they have hurt our portfolio in the short run but we still are confident in the next major move being down and that it has already started—last week Tuesday being the high point.
Dow Industrials: 11,396.84 +4.73