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December 27, 2005

Holiday Redux

So much for a quiet holiday week. The major equity indices took 1% spills as big names like Intel, Yahoo, and Johnson & Johnson experienced weakness. Retailers opened the first day after Christmas firmly in the red. Wal-Mart, Best Buy, and Circuit City were all down 1% or more. The retailer weakness meshes with vibes I've been getting from various reports of pre-Christmas discounting and light foot traffic in stores. We should have holiday sales figures out of the retailers in a few days, and I don't think Wall Street will be pleased.

Oil slipped a couple percent today and took down oil services stocks proportionately. Encore Acquisition, one of my favorite in the sector, is now down 6% from where I sold it only a week ago, so I accurately sniffed out the danger there. I will be watching energy during 2006 to find an attractive point to start rebuilding my positions. However, I suspect that the surprise in oil in '06 will be a mid-$40 quote rather than a return to highs. If I am correct in my assessment that both China and the U.S. are about to experience recessions, demand for oil should be mitigated, and we will be presented with excellent prices for re-entry into the sector.

On the metals front, gold was up a percent while silver popped an impressive 2.5%. We may be seeing the beginnings of the secondary spike I've been anticipating. For some inexplicable reason, mining shares coughed up early gains despite continued firmness in the metals. Newmont Mining gave up an early 2% gain to close down a half percent, and Pan American Silver gave up an early 3% gain to close about even. Perhaps the shares were down in commiseration with equity markets, but a combination of lower oil and higher metals can only be good for the miners. I imagine the next earnings releases for these companies will reveal some upside surprises.

So week two of the 2005 holiday season has begun just like week one. Larger declines remain forefront in my expectations, but let's see if the bulls can rescue this week as they did the last.

Disclosure: Short INTC; Long YHOO, INTC, WMT, BBY Puts; Long NEM, PASS Calls


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