Wednesday, September 03, 2008

Stock Indexes Diverge

Top Line: Financial stocks were strong and semiconductors were weak so the Dow was up on the day and the NASDAQ 100 was down. This type of divergence is not a hallmark of a strong market. We continue to wait until the selloff occurs. Patience is in order.

The next four to six weeks will give the market time to find some sellers. In the mean time, we seem to be content with our positions. As the gold complex has moved down just a little, there may be some opportunities there as well, right now with GDX spiking to a low this week near 33.50.

The news on Wednesday came from the Fed's Beige Book, yes, it's a clever name based on the color that this report comes in. Anyway, the Fed said some negative things about the economy but said that inflation has been affecting prices but not wages so much. Thank them for this earth shattering info when you get a chance, brilliant. Oh, yeah, the analysis by the media was that the Fed would probably not raise interest rates at its next meeting...really???

The other news was from the car makers who still make cars but are having some trouble actually selling them. GM had a remarkable month of August with sales down Only 20% and said that with the overwhelming success of its Employee discount to all program was going to be extended to the end of September. We can't make this up.

As for the gold mining stocks, we noticed that the GDX fell to a low price again today on the back of a small pullback in gold. This may represent an opportunity to consider. Gold mining stocks have been hit very hard over the past two months, about 30%. GDX was trading under 34 today after being up around 52 in July. Our favorite trading vehicle is the mutual fund, BGEIX, but GDX works well, too. NEM is a gold mining company and ASA is a closed end fund that specializes in gold mining stocks. At the moment, we are more interested in being short the stock market but this is an excellent opportunity. We were hoping to see it go lower along with the rest of the stock market but that is not a sure thing.

FSI: 80.30 (lowest close since August 4th)

VXO: 23.15 -0.69 (heading up to 50, spike there sometime soon)

SDS: 66.11 +0.16
QID: 44.30 +0.90

Dow Industrials: 11,532.88 +15.96

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