Top Line: The stock market spent most of the day simply going down and we would say the trend has turned down. And, that we May finally be back in sync.
The news on new home sales was included in the "reasons" the market went down today but that doesn't really answer the question why sell stocks when new home sales aren't as expected? The market can think anything it wants and today it was in the mood to sell stocks regardless of the news.
Take a look at GDX and you will see that it has been on a mission lower the last week or so. Since Monday morning's spurt above 47 it has dropped to close at 41.87 today, a 10% move in three days. When we said we would consider buying it in 30's, we didn't think it might be this week. It's not in the 30's just yet but that's less than 2 points away.
You may have noticed the chatter about how the mining stocks have taken a beating when gold itself has only dropped a little. We say that the stocks move in front of the metal so we would expect the metal itself to drop following mining stocks down. We will see.
The catalyst for all of this is the strong dollar coming off its lows over the past few days. After the incredibly negative press on the dollar, the dollar refuses to go down anymore. The result is a sudden change in the playing field for commodities and the stock market. Even Treasury bonds have been strong the past few days, in spite of the huge supply coming to market this week.
It may be that GDX is too oversold to go down anymore but we don't recommend buying it at this time. We will take a look at it if we see a three handle (in the 30's) on it. Until then it's a falling knife and it should be avoided.
All we can say this evening is we are now glad to be short. A sudden drop is not out of the question. Take a look at our company, ING. They announced a restructure and the stock has lost 30% in three days. We wouldn't suggest that is how the overall market will trade but it is in the realm of possible. As we have noticed, there seems to be a lot of pent up selling.
The opinions we read today were quite bullish actually which we like. The headlines were that this is a buying opportunity not a correction??? This is different from what we have been hearing and should allow the sellers to continue their quest.