Tuesday, January 15, 2008
Interfestering
It has hardly been a few days since I posted my bullish thoughts on GLD, but what a difference a few days can make... With such a sharp run up in GLD, things looked good this morning as it continued to make new highs... but there was a sharp sell off today, but more importantly, it was on HIGH volume... FOUR times the 3 month average. This is not a good short term sign, and I will be monitoring this closely with the expectation of cutting my gold position in half. Though I still feel it is a very good place to be in the long run, the recent price action has gotten a bit ahead of itself, and with the Fed Futures already pricing in a 50 bps cut, I can only assume such expectations are baked into gold as well... Long term investors shouldn't be too worried, but it looks like the short trade is more viable in the near future, probably indicating a new consolidation range. This will also have a negative effect on the more volatile miners with whom I have placed much faith... needless to say, I'm not trading to be right, but to make money, and thus it may be prudent to take some profits off the table and watch from the sidelines... This mean I will be cutting down on silver (SLV), DBP, HGU.TO and GDX if negative price action persists, all of which I have had a great run with over the last month... I expect GLD to move to 83-84 over the next few weeks.
The Good, The Bad, The Ugly
Didn't spend much time watching the markets today, settling instead for an informal lunch, matchmaking a friend from overseas with my father... but that is hardly why you read this site, so here is today's news.
It has been another bad day for the longs, with some extra face stomping, as the SPY gently broke through last weeks support. China (FXI, GXC), which I hoped to be making a bullish pennant, broke to a new low in its 4 month consolidation range, increasing the likelihood of some more selling pressure, though I wouldn't say the bullish case is over quite yet. GXC/FXI are an excellent example of why it is safer to wait for a pattern to confirm itself, before jumping in early with the expectation of some extra points.
Inverse Real Estate, Financials, Consumer Discretionary and Small Cap Value (SRS, SKF, SCC, SJH) had a great day, and surprisingly, agricultural commodities held up rather well (DBA). The Yen and Swiss Franc show excellent strength, and the Yen actually broke its 1 year high (FXY). Disappointingly, GLD was down a hefty 1.7%, but considering its remarkably fast run in the last two weeks, I would say some consolidation is to be expected. GDX took a market under performing hit, with at +3% loss that outta shake out some of the weak hands, as this too has had a rather dramatic rise over the last 3 weeks. Newmont Mining (NEM), though down on the day, was quite strong, as was Humana (HUM), both of which I expect to outperform in the coming months. I'm sad to see I was stopped out of BPT... I hope to reenter the position on strength, though the short term technical picture isn't all that great.
The horrific numbers from Citigroup come as no surprise, but the negative retail numbers are certainly worrisome for those expecting to find value in the retail sector. Thus I remain short consumer discretionary, financial and real estate sectors, with an expectation for precious metals and defensive stocks in general to outperform.
Fundamentally: The markets are beginning to see information indicating a spillover of economic malaise into otherwise untouchable sectors (the American consumer), and this will continue to weigh stocks down until lower interest rates buoy the economy. This will only increase the value of commodities, especially as Asian consumption rises.
Technically: The market seems far from oversold, and thus any trades to the long side seem extra risky... That said, be prepared for anything as the overall volatility continues to rise (as seen on the VIX) and the shorts get ahead of themselves, leading to the inevitable dead cat bounce squeeze.
Sentimentally: Investors should be starting to panic and traders will be able to take advantage of their misery.
Recommendations: Keep the portfolio market neutral, shorting under performance and buying out performance in the aforementioned sectors, always with a nice tight trailing stop to avoid any nasty surprises.
It has been another bad day for the longs, with some extra face stomping, as the SPY gently broke through last weeks support. China (FXI, GXC), which I hoped to be making a bullish pennant, broke to a new low in its 4 month consolidation range, increasing the likelihood of some more selling pressure, though I wouldn't say the bullish case is over quite yet. GXC/FXI are an excellent example of why it is safer to wait for a pattern to confirm itself, before jumping in early with the expectation of some extra points.
Inverse Real Estate, Financials, Consumer Discretionary and Small Cap Value (SRS, SKF, SCC, SJH) had a great day, and surprisingly, agricultural commodities held up rather well (DBA). The Yen and Swiss Franc show excellent strength, and the Yen actually broke its 1 year high (FXY). Disappointingly, GLD was down a hefty 1.7%, but considering its remarkably fast run in the last two weeks, I would say some consolidation is to be expected. GDX took a market under performing hit, with at +3% loss that outta shake out some of the weak hands, as this too has had a rather dramatic rise over the last 3 weeks. Newmont Mining (NEM), though down on the day, was quite strong, as was Humana (HUM), both of which I expect to outperform in the coming months. I'm sad to see I was stopped out of BPT... I hope to reenter the position on strength, though the short term technical picture isn't all that great.
The horrific numbers from Citigroup come as no surprise, but the negative retail numbers are certainly worrisome for those expecting to find value in the retail sector. Thus I remain short consumer discretionary, financial and real estate sectors, with an expectation for precious metals and defensive stocks in general to outperform.
Fundamentally: The markets are beginning to see information indicating a spillover of economic malaise into otherwise untouchable sectors (the American consumer), and this will continue to weigh stocks down until lower interest rates buoy the economy. This will only increase the value of commodities, especially as Asian consumption rises.
Technically: The market seems far from oversold, and thus any trades to the long side seem extra risky... That said, be prepared for anything as the overall volatility continues to rise (as seen on the VIX) and the shorts get ahead of themselves, leading to the inevitable dead cat bounce squeeze.
Sentimentally: Investors should be starting to panic and traders will be able to take advantage of their misery.
Recommendations: Keep the portfolio market neutral, shorting under performance and buying out performance in the aforementioned sectors, always with a nice tight trailing stop to avoid any nasty surprises.
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