Thursday, October 12, 2006

Bulls Party On

We’re going to spend a few minutes on the news swirling around the market but the real news is the market action. We’ll save that for a little later. In early morning news, the trade deficit jumped to another record just under $70 billion. This kind of number should be noticed by the people but of course it doesn’t really affect the trading going on these days. That’s a problem for another day.

The trade deficit was summarily dismissed because so much of the number relates to our voracious appetite for foreign oil and as you all know the price of oil has recently dropped about 25% so that should take care of the trade deficit almost single handedly. Last month the trade deficit was $68 billion and expectations were for the August month to be a little less than that at $66.8 billion.

We said last month that the number of days in July and August is 31 and we think this is something pretty basic to the size of the deficit. The daily deficit is right around $2 billion and with one extra day in the month, the deficit can be fairly accurately calculated. Well, the economists know more than we do so we’ll see what the September deficit looks likes next month.

Later in the day, the Fed released its beige book, aptly named for the color of the report. The three main items in the report were that the job market is tightening but hasn’t produced much in the way of higher wages, the housing slowdown has been sharp but the consumer has not slowed their spending, and the falling energy prices have provided some relief but not in the form of lower consumer prices.

The Fed is scheduled to meet again in October and will likely keep their short term target interest rate at the current level of 5.25%. The Fed has been trying to talk tough in the past week or so because they see prices moving up. The market is not buying the tough talk anymore and is rallying in spite of the Fed’s tough talk. Still there is only so much money around to buy stocks with.

Today, the stock market seemed to find a way to bust loose again with the Dow jumping nearly 100 points to just under the magic 12,000 figure. It’s almost difficult for us to type this number on the page. It seems that we haven’t even really had any kind of meaningful decline and now the market wants to go screaming higher.

We said we couldn’t get bullish on this market until the VIX went up quite a bit. Well, it will come as no surprise to you that the VIX has been going down, not up. You may consider us to be fools but we don’t think you should be holding onto your stock positions or adding to new ones in a market like this. This is not what we call bargain prices and would be equivalent to buying high. Remember the rule is to Buy low and Sell high. Have a great weekend.

Dow Industrials: 11,947.70 +95.57
VIX: 11.09
QQQQ: 42.23
RYVNX: 18.31
RYAIX: 22.24
RYCWX: 38.02
TLT: 87.60
BEGBX: 13.49

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