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January 28, 2009

Billy Powell on the Piano

Equities finally produced a breakout from their intraday basing pattern, and posted a 3.4% gain, going out near the high print of the day. As expected the rally was initially stopped just shy of the 65DMA on the S&P 500. However, given the uptick in volume and lack of selling-into-strength on SPY, I suspect this move still has some legs to it.

spx chart

I still suffer from a bearish bias even when I think the market is in rally mode. It's funny that when the market drops without me, I feel like I missed an opportunity, but when it rises without me, I feel relieved... like it's winding up a soft pitch or reloading a missed opportunity. Perhaps that attitude is healthy in a bear market, but taking a less biased approach may open the door to more profitable trades. It's something to work on.

Today's Fed announcement was mostly a non-event since the bozos can't really drop interest rates below zero. However, their release contained a statement reiterating their desire to keep long rates under control through direct purchases of long bonds. In other words, they will be printing money directly into the Treasury, ergo inflation. One would think a statement of intent to directly monetize debt would give a boost to precious metals, yet exactly the opposite action transpired after the release. Why? In my opinion, it doesn't matter why. The fact is gold fell on news which should have driven its price up. So, perhaps that final wave of selling is just around the bend.

For those of you who subscribe to the indisposable nightly e-mails from Gary Savage, you know that Gary made a pretty good case for us traders to be wary that gold may have already printed a bottom. One never knows when the bull will return in force. We remain in a secular bull market for commodities, after all, and anyone who understands this fact should already have a core position in precious metals. I have had mine since 2004. But the charts have to convince me before I pile on the bets. I'm looking for a successful breakout above the upper boundary of gold's corrective phase:

gold chart

For those who are itching to be long metals at this juncture, sticking with miners will probably be a better strategy. I suspect they will outperform near-term. Mining shares were clobbered hard during the crash and that they got way out of whack relative to gold's price.

xau to gold ratio

A sad thing happened today. Billy Powell, the wickedly talented keyboard player of Lynyrd Skynyrd fame, died. He will be missed.


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