Thursday, May 03, 2007

Is This Pamplona?

Market Action:
Up another day and that’s even with the questionable earnings report from GM. Before the bell, GM reported that it had a 90% decline in first quarter profit, the reason? That would be mostly due to “housing market weakness”.

GM has a 49% stake in GMAC and that dragged down GM’s earnings. GM said it reflected a net loss of $115 million due to GMAC. Meanwhile GMAC announced a net loss of $305 million versus a profit of $495 million in the year ago period.

As you know, the market thinks the news is specific only to GM and that any housing related issues have already been discounted, to which we reply, fat chance. GM opened down on the day and just sold off the whole day, opening at 31.76 down from Wednesday’s close of 32.44, and closing down at 30.69, down over 5%.

Friday could be a make or break day for the Update. We have considered whether the market has a rational bone in its body and we need only to go back a couple of months to see a severe drop. It is the Update’s opinion that the stock market is ready to turn down and we have picked Friday morning’s jobs’ report to be the point of inflection.

With 22 of the last 25 days having up closings for the Dow, there is just a little bullishness, complacency and a huge amount of over bought. Yes, as the peaks fell back over the past month, it didn’t take long for buyers to come back in and push prices back up. Right now, we want to remind you of how the bottom fell out of the market only two months ago. There was little warning the day of the “subprime” meltdown. The rally we have been in currently has mesmerized the vast majority of traders but we think when the market turns, it will turn on a dime, much like it did back in late February.

We think that day is here and that Friday is it. The advance the last few days, with attendant Record Dow closes, met some sellers and has the potential to have run out of buyers. This is a drop kind of scenario with the major players, the hedge funds with all of their leverage (read that, borrowed money), ready to sell at a moment’s notice because they don’t fall in love with their positions, they trade them.

So, as we close for this Thursday and week, we are solemnly cautious and realize that the bulls could run Pamplona but on Friday they could easily be stopped by the bears. Time will be upon us very soon—good luck to all of you.

Dow Industrials: 13,241.38 +29.50
VIX: 13.09
HUI: 345.20
QQQQ: 46.59
QQQRS: 0.44
QQQRT: 0.68
RYVNX: 15.14
RYAIX: 20.40
RYCWX: 32.02
TLT: 88.24
BEGBX: 13.94

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