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February 1, 2007


Another day, another multi-year high for the S&P 500. Just when things were looking juicy... big, red, bearish-engulfing patterns look like prime-cut steaks to me... the market hands us another ramp job. The action I fear now... and the reason my shorts comprise only a few small put positions at the moment... is a short squeeze that puts the first two months of Y2K to shame. Bearish calls are simply oozing from all corners these days, despite the financial media's efforts to quash them. Besides, if home builder shares can gap up 6% in two days surrounded by somber warnings from their CEOs that no bottom is in site, then anything can be bought right now.

The speculative frenzy in equities will only be deflected by sheer exhaustion or some exogenous catalyst. Markets are running on pure fumes right now. It's like when your car runs out of gas at the top of a big hill: you can just put it in neutral and continue to accelerate. You will only stop accelerating when you traverse the trough or when another car sideswipes you. Either way, the car decelerates fast.

Enough with the similes. Let's talk precious metals. Gold and silver saw modest gains and are still looking bullish. From a technical view, both metals broke out of crude cup-and-handle formations.

stock chart

A longer-term view of gold show the metal just broke out of a symmetrical triangle which implies a $950 target.

stock chart

And Newmont Mining, a laggard in the mining equities, is looking upward.

stock chart

Tomorrow morning brings us the January employment reports. Remember: less employment means companies are becoming more efficient and therefore stocks should go up. More employment means the economy is heating up and therefore stocks should go up. What could possibly go wrong?

Disclosure: Long NEM Calls


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