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February 16, 2006

Hat Trick

When I left my trading screens with a little more than an hour to go in trading, equities were languishing and looking ready to roll over. As I gaze at the charts this evening to see how the day wrapped up, I am stunned. Strong bids came under the market and sent it soaring into the close. The bulls have pulled off a hat trick with their third solid performance in a row. The Dow now sits at a 4-year high and seems poised to make a run at its all-time high. The S&P 500 also sits just a hair off its own 4-year high set in early January. Tech stocks put in a strong showing, though the Nasdaq indices are a little further off their highs.

The big winners list includes a lot of stocks I would like to short when the conditions are more favorable for such activities: Apple, Research in Motion, J.C. Penney, CDW, and Texas Instruments, just to name a few.

The metals continued their flip-flopping ways, once again reversing the previous day's action. Gold was up a percent and silver, up nearly 2%. Miners caught stronger bids than usual with Newmont gaining a healthy 3% and Pan-American up nearly 4%. I hesitate to call a bottom due to all the mixed signals spewing out of the markets the passed two weeks, but I did start rebuilding my Newmont call positions this morning.

Housing stocks continued their rebound on a report showing record new home starts in January. An unusually warm winter month contributed to the figure, and traders, in their usual narrow-minded method of interpretation, treated the report as if it heralded a continuation of the housing boom. In reality, home builders were simply taking advantage of the weather to get a head start on construction of homes already ordered. Whether the houses were begun in January or later really doesn't make much difference.

Another report published by the Mortgage Bankers Association and released today shows that the number of new mortgage applications available for purchase dropped to a one-year low. Those following the trend of these applications will see that last year's low figure was really an aberration of volatility within an uptrend, whereas this week's figure is part of a sharp downtrend that began in July. If one follows a 4-week moving average rather than weekly figures, we are actually at a two-year low. Therefore, the housing market is continuing to weaken and is doing so at a faster pace than it expanded. The MBA report was nevertheless ignored.

Disclosure: Long CDWC Puts; Long PAAS, NEM Calls


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