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June 5, 2008

Liquidity Pump

Okay, so I lied. Yesterday wasn't my last post before the weekend. I am on the road, but today's market action warrants comment. The most notable aspect of today's price movements is that everything was up. Oil blasted higher by more than $5, silver by more than 1%. In fact, commodities across the board were up over 2%. Equities also blasted higher (more on this below), and as Gary noted in his e-mail to subscribers tonight, even airline stocks were sharply higher (as were miners) in the face of rising oil. Perhaps the liquidity pump is in full force.

There have been a couple scenarios discussed on this blog with regard to the sell-off. The favored one was that the pull-back was a consolidation before we make a run at all time highs into election season. Bullish consolidations tend to end with blasts higher, which is what we got today, though the timing of this blast was not anticipated by this author. While I thought the SPX would find pause at its 65 DMA, I also thought we would find a full extension of this pull-back in the neighborhood of 1325, especially with the banking index breaking down. Both these facts were noted in yesterday's post, as was the fact that I was short. The impulsive look of today's move got me out of those shorts about an hour or so into the day.

The second scenario was that stocks were starting a new bear leg. This outcome is still not out of the question since major bear moves tend to be loaded with monster short squeezes. The tell-tale sign will be that today's gains fail, and fail quickly. If so, I will position aggressively short. If, however, we get a couple narrow-range, sideways days, I'd be looking for higher prices. The fact that airlines were up sharply with oil up $5 supports the short squeeze case.

For now, my only positions are precious metals related. I have a bit of silver beyond what I consider my core position. I'm going to see how things transpire in the equity markets for a couple days before repositioning myself. Hopefully, the market will tip its hand.


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