Sunday, October 01, 2006

Go Twins!!!

The past several weeks have damaged our portfolio but not our spirit.  The stock market is struggling for gains as shown by some of our momentum indicators.  The month of September was evidently not when the market started its epic decline so we are now looking to October for that start.  The market seems so strong to most observers but we just don’t see the technical strength that should be accompanying this September advance.  Instead we see weak rallies; yes, there have been rallies but they just haven’t sparked a big push to new highs.  

The SP 500 break of the May high was disappointing but does not damage the bearish case much.  If the Dow were to break the all time closing high, that would not really mean very much either in the overall picture.  The main reason for the little impact would be the total lack of support in the broader indexes (with the exception of RUT which led this advance for four years and now is struggling).  The NASDAQ indexes are well below the highs of this year and significantly below the 2000 highs.  

As we get going on the new quarter, we look ahead to the possibility of the market dropping and we want to say that the market will lead the news.  What we have been seeing so far is the complete lack of attention the market is giving to the events of the world.  When the market starts dropping, there will be any number of potential news stories to “justify” the decline.  

With the elections in an off presidential cycle, normally there isn’t much at stake.  This year, there is plenty at stake and the various players are starting to position themselves for the presidential election two years off.  We only bring this up as it relates to the market.  We think there is some interest in the market going up into the elections.  In order to get the market to do that, there must be sufficient liquidity to drive into the market.  We don’t think there is much chance the market can hold up to the election but you never know.

There are a few items of interest this week; the biggest of these is the jobs report out on Friday.  We thought the market had a good chance to top last Wednesday but the Dow peaked again on Friday last week.  The rest of the indexes seemed to find a ceiling from Wednesday through Friday.  We think the jobs report could be another target from which to high dive, but we still think last week’s strength on the back of end of quarter window dressing (mutual funds and others trying to make their reporting look good at the end of the quarter) will be undone during the early part of the week with a possible failing rally going into Friday’s jobs’ report.

Just a quick note on gold and the mining stocks:  Last Monday’s low in the HUI around 285 will probably be challenged again in the coming days.  We believe the test will Not hold and we will see even lower prices.  This is the reason for our reticence on the sector recently.  We do keep our eye on this sector because we think it holds the greatest potential to be long in the coming years.  We would just like to get good prices for it.  

Dow Industrials:  11,679.07  -39.38
VIX: 11.98
QQQQ:  40.65
RYVNX:   19.74
RYAIX:  23.08
RYCWX:  39.71
TLT:  89.39
BEGBX:  13.68

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