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October 17, 2006

Buy-the-Dip Still Prevails

Equities sliced lower early in today's session, gapping lower and sliding until about midday. The reported catalyst for the selling was the stronger-than-expected PPI number published this morning. The reasoning goes that with inflation coming in strong, the Fed is less likely to give us a rate cut any time soon. While a bit of a shift in expectations may have occurred, it is important to note that SPX futures were down 3 points before the report and only 4 points after the report. The heavier selling did not occur until after the market opened, so it seems a bit of downside was already in the cards, independent of the inflation data.

Where the inflation data did matter was in precious metals prices. Gold and silver were modestly higher until the PPI report, at which time both metals tanked about 1.5%. My eyes, however, were honed on the miners. Their shares saw a nearly 3% hit in the early going, and I felt that it was important for them to shake off the action in the metals and recover on their own, especially given the favorable earnings report out of Freeport-McMoRan this morning. Much to my delight, they recovered to close the day with a meager half-percent loss... not bad considering that metals stayed lower. I believe we will see some strong moves higher in precious metal assets in the near future.

As for equities in general, today's early action was encouraging, but the rally in the latter half of the session left me irritated. While I attempted to shield myself, by locking in a tidy profit in my Micron Tech short, from what is now a mundanely routine by-the-dip script, I didn't really want to see a bounce happen. In any case, the day ended lower, but we need to see some solid follow-thru to convince me the market is ready for its long-expected southern migration. With buy-the-dippers roaming the streets, the S&P 500 has not suffered 3 consecutive down days since it concluded a 4-day losing streak on August 9. I am hoping earnings season will have something to say about this void of selling.

Disclosure: None


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