Sunday, June 07, 2009

Birth/Death Model Provides Lift to Jobs

Top Line: We still expect a quick selloff (SP500 to 850) before we see much more buying. Our expectation for higher prices later this year remains in tact, that is, the SP500 going to 1234 on 9-9-09.

The employment report caused a burst of buying at the opening of trade of Friday. This was quickly swamped with sell orders but eventually the flat line of the past few days kicked in and the stocks idled the rest of the day. We don't think fundamentals are too important in this market but the lower lost jobs for May were created out of thin air in the birth/death model. This is something that estimates the creation of new small businesses or the dissolution of same and this past month it was responsible for over 200K jobs. We're not so sure about that number.

The real action has been in gold and T-bonds, both of which were down on Friday. Gold was down about $20 with GDX down in tandem. The TLT, a long dated T-bond ETF, was down under 90 for the first time since last fall. We have purchased a small position in TLT for a quick trade...possibly for a week or two. This is conjunction with our thought that the bonds have just gone down too hard, too fast.

Since our last post, we also were able to purchase some more UNG (see last post for details) with its breathtaking plunge below 13.50 on Thursday morning. We scrambled to get a trade in but had to pay more than 13.50. The price low was a good entry point. We think that UNG is so oversold that the upcoming correction should leave UNG pretty much unscathed.

The employment report may stand as the high point for the next few weeks. If we exceed that top, then our correction theory may have already happened or it may not happen. We fully expect the correction due to the bullishness that exists in the media and among traders generally. The public has become interested in the market again which is a sign of being overbought.

We expect that there will be a great buying opportunity, the last one for some time, coming up in the month of June for those of you who have not purchased enough stocks. We will watch carefully and try to provide timely information for you. We have decided to post twice a week, on Sunday evening and Wednesday evening, but if something like a buying opportunity shows up in between those days, we will likely post something.

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