In the wake of Mr. Helicopter's tough talk on inflation in his Senate hearing, Treasuries rallied. Bond traders apparently ate up his reassurances that he didn't really mean what he said about running the dollar printing presses full-bore. Precious metals traders, on the other hand, think he's full of bologna. Gold and silver popped 2% and 3%, respectively, which sent mining shares soaring around 7%.
Technically speaking, this appears to be the breakout move gold bugs have been looking for. I am watching intently because an extended move in the metals here would tell me that the dollar rally is about to cough up, which in turn would signal and end for equities.
Speaking of equities, today's action was drudgingly similar to the passed several days, so I won't belabor my recent commentary. Instead, I'd like to take a look at one of my shorts: Building Materials Holding. This is a company I shorted along the lines of the housing theme. Whenever an industry moves through various points in its business cycle, suppliers to the industry tend to see more volatile earnings swings and hence more volatile stock swings. As a supplier to the home builders, I would expect BMHC to feel more than its share of the pain as the market cools. Let's take a look at the chart to see where we stand:
The chart pattern for BMHC since the end of July shows a classic head-and-shoulders topping formation (due to the interesting "head" formation, perhaps we can take this opportunity to invent a specialized form of HoS called the "Bart Simpson" HoS!).1 The bottom of the right shoulder acts to form a trend line as well as the shoulder line. We can see that the MA has been violated, and today's action busted the trend line, thereby increasing the probability that the shoulder line will fail. If that were to happen, I'd be looking for the stock to revert to the level of its gap move back in April, around the $50-$52 range.
This technical analysis, albeit rudimentary, is in agreement with the premise that the housing market is cooling, as given by macro analysis. Whenever the two forms of analysis are telling the same story, I feel much more confident in my trades.
Disclosure: Short BMHC
1 Special thanks to my friend Rich Klatt for the "Bart Simpson" chart nomenclature.