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February 24, 2006

A Big Setup?

Yet another boring day in equities is giving me the feeling that something important is about to happen. It would be characteristic of the market gods to lull us traders into a somnolence before slapping us with an important event. Perhaps we'll begin the sharp decline I've been expecting or perhaps the indices will bust out of their trading channels to the upside. We'll just have to wait and see. Were the market to pull off the improbable upside breakout, we would likely see a sharp upward spike as the shorts are mopped up. We bears must be keen to such a scenario.

The metals are performing in tune with my expectations. Gold and silver popped strongly today, up 2% and 3%, respectively. The miners moved up, as well, which means I probably won't get the opportunity to add to my longs in Pan-American and Newmont at the delicious prices I described yesterday. However, given the position sizes I already have, I can live with that.

Crude oil gained an impressive 4% on the heels of news about an attack on one of the large Saudi processing plants. Though the attack failed, the attempt reminded traders of the geopolitical risk that still pervades world markets. The size of the move in oil's prices tells me that there is still plenty of room for risk pricing. In addition, one of my favorite oil plays, Encore Acquisition, is at an oversold point and is testing support. Since the technicals imply a low-risk entry point, I took the opportunity to open a position today.

The charts of several other oil companies appear to display bullish technicals, as well. Upon request of several readers, I will be adding a Charts section to this web site in the next few days and will include some energy stocks as well as a host of other stocks I follow and/or for which I hold positions.

Lastly, the day would be incomplete without a mention of Research in Motion. Both bulls and bears were expecting a turning point in the history of this company today, but everyone came away empty-handed. The fact that RIMM rallied 5% on news that no decision was made may at least have tipped the hands of traders trying to make a buck off this case. Today's pop in RIMM's stock price was likely fueled by the short-covering activity of disappointed traders hoping for an injunction. This action tells me that no matter what happens, RIMM shares may be set up for a monster short squeeze. I've asked myself the question, "What is smart money doing around RIMM right now?" The only practical answer I can come up with is "Nothing."

Disclosure: Long PAAS, NEM Calls; Long EAC; Long RIMM Puts


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