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December 14, 2006

Don’t Blink

I turn my back on the market for the day and it sneaks a one percent gain in on me. So much for enjoying the fresh outdoors. The speculative environment driving the market since August has been phenomenal. In my 20+ years of market observation, I cannot remember a time when the market ground relentlessly in one direction for so long and in opposition to what the macroeconomic backdrop has to offer. I continue to believe that when this game is over, it will end violently. Perhaps some readers are weary of the forecast and would prefer I offer some short-term prognostications, but such is not my style. I have done quite well getting a tack on the macro view and trading it opportunistically, so I'm sticking to my methods.

Some of the biggest gainers today were your typical spec stocks, such as F5 Networks (8x sales), Google (16x sales), and Research in Motion (11x sales). Nothing justifies those valuations, but speculators don't trade based on valuation these days. They only trade based on what they expect the price to be a few days or hours from now. Retail was also solidly higher to the tune of about 2%. Traders continue to buy into the notion that the American consumer will persevere, and they back that view with the government-published figures showing growth rather than focusing on what the retailers themselves have to say. Wal-Mart, a bellwether consumer company, is languishing. Best Buy has revealed that sales of the big-ticket items fueling the latest boom are in jeopardy. Wall Street doesn't seem to care. The party goes on.

Newmont Mining edged higher again today despite the small drop in precious metals prices, but the desired breakout still eludes us. The declining volume on the latest move higher is not too encouraging, but I'm giving NEM much leeway to move here. Precious metals plays are positioned nicely for surprises to be to the upside.

Disclosure: Long NEM, NEM Calls


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