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February 5, 2007

Instant Replay

I'm not sure how much more boring this market can get. Watching the indices chop around in micro ranges... with a bias to the upside, of course... while the most overpriced equities on the planet (think Research in Motion) rise incessantly is nothing more than monotonous. The market has a way for delivering what is least expected, which leads me to believe that when volatility returns to the tape, it will not be gradual.

Precious metals were flat today while the miners edged up a bit. I am reading a lot of blogs whose writers are panning gold and silver (no pun intended) due to the drops in oil and industrial metal prices and backing their argument by pointing to an apparent head-and-shoulders pattern that formed in the first half of 2006 in the XAU. To them I say that HS patterns are very reliant on volume for a proper read, and since volume is unavailable for the XAU, their reads are sketchy, at best. I believe they will be surprised by the power of the next cycle higher. Precious metals will diverge from industrial commodities once it becomes apparent that Bernanke & Co will destroy the dollar to save us from a severe recession.

Speaking of technical reads, the Transports appear to be breaking out of a cup-and-handle formation, but check out the size of the divergences it must overcome:

stock chart

Given that shipping volume and rates are waning rapidly, one wonders what this trade is all about.

In a game symbolic of today's market, the Bears lost a Super Bowl that they could have won had it not been for sloppy execution. The team failed to gain any momentum off of big plays and constantly turned the ball over for big scores by their opponent. Sound familiar?

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