Sunday, November 08, 2009

Unenjoyment Report, 10.2% Unemployed

Top Line: Market action seems to be giving bulls more confidence. The market has always been a con artist and will continue to do so. We are very near a top/turning point.

Last Friday's employment report was dismal in that it contained a double digit rate for unemployment and continued job losses but at least this time the number was under 200K. Great. Still, the market opened down after the news early Friday and then bolted up as if to say that the job picture really wasn't as bad as 10.2% sounds. The market is usually quick to say it's the end of bad news so we're just gonna buy em, after all they are marked down from Thursday's close so they must be cheap.

We want to take a few minutes to explain our position in this game of the stock market. There is so little that media says that makes any sense and to assign a "reason" to trading presumes that if you could just predict tomorrow's news, you could have a good idea what the market was going to do tomorrow. Good luck with that. Even if you could predict the news tomorrow, you might not actually be able to do the same with the market's reaction.

What we have tried to encourage here at the Update is to try to see when an asset is trading at a good price for either buying or selling. Over the past few years, these extremes have been prevalent in the market. The problem is that the media is so strongly encouraging the current emotional state of the market that it is very difficult to go against them. What do they know? Do they know what is going to happen tomorrow or next month or next year? No. Do they know what happened Yesterday? Maybe. For today, they are just guessing that the news has something to do with the market. It does but not in the way they think. We would say that the Market drives the news, not the other way around.

We remain very cautious about this market as we have for the last couple of months. This is a state of mind because of how bullish the media has become. Gold is trading at new all time highs so there is a story for the media...gold has gone up so it must be Going up. We would ask, "Why?" And, if gold is at new all time highs, "Why doesn't GDX exhibit similar results?" GDX is supposed to Lead the gold, again, not the other way around. We read bullish analysts talk about how mining stocks will "eventually" catch up with gold's move. We are near term Bearish on GDX and gold Because GDX is not catching up it is signalling that the move in gold is not to be trusted.

In fact GDX has led the stock market over the past couple of years and should continue to do so. If you take a look at how gold has exploded the last few days and GDX is still holding under its former highs, you have a recipe for gold going down. Of course, we can't know when it's going down but we think the price is too high to justify a continued move up. This position is specifically because GDX has not Led. It could be very possible that gold drops along with GDX over the next few weeks and Then GDX leads on the way up. We would be willing and eager to change our actions based on our best signals.

As for the stock market, we think that the best guess is that we have a rally in the morning (Monday) and that may be the top of this move (we see the futures are up this evening which doesn't mean much but they could be directionally correct). The last post we suggested that the rally may be over but said it was a little short of its potential and of course it decided to rally. Predicting this rollover timing is difficult so we must concentrate on getting good prices.

Have a great week, we hope to be back on Wednesday evening.

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