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January 30, 2007

FOMC Doldrums

Equities did what they do best right in front of a Fed meeting: churn. The Nasdaq 100 stayed within 6 points of par the entire day... a very tame session for this index... while the S&P 500 managed to tack on 8 points, despite negative reactions to earnings from some rather large companies like Proctor & Gamble and 3M.

As for the Fed, this month's meeting is not likely to produce any news. On one hand we have a Fed that is desperate to cut rates, but lacks the political expediency to do so. On the other hand is the Fed that continues to attempt support for the dollar via semantic showmanship. Despite the recent, sharp drops in commodity prices, the FOMC is still likely to express concern for inflation. They will toe the line as long as possible. However, if they drop the inflation language, it would signal they have opened the door to a rate cut in their March meeting.

Precious metals grabbed back what they lost yesterday and lent some solid support to mining shares like Newmont, which outpaced its piers with a 2% gain. Yesterday's post highlighted a bearish divergence in the chart of Pan American Silver. After an evening of pondering, I decided to shed my shares only if PAAS lost yesterday's low early in the day. My bias is actually to hold the shares because I expect precious metals to have a huge rally at some point this year. However, I am still one to respect technical signals in order to protect wealth. The shares broke higher, and I am still a shareholder.

Disclosure: Long NEM Calls, PAAS


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