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January 13, 2006

Little Excitement

The bears made it two in a row today, but without much conviction. The last two days of this week look very much like consolidation, and unless any geo-political or economic surprises surface over the long weekend, I imagine the bulls will have the upper hand next week. Not much caught my eye today, the small exceptions being Yahoo, which fell a buck ahead of Tuesday's earnings announcement., and Newmont Mining, which soared nearly 3% to a new high along with gold.

Next Tuesday also brings us numbers from two other heavyweights: Intel and IBM. How traders react to their announcements will tell us a lot about current market psychology. Granted, psychology appears very positive in light of this month's super spike, but the spike was fueled by unclear hints from the Fed about a halt to interest rate hikes. This is already old news. We traders need to stay ahead of the game and always be on the lookout for shifting attitudes.

The dollar index gave up its gains from yesterday and continues to hold the 88.50 level it has been testing for over a week. The dollar has now been trending downward for over two months, yet U.S. equities, with the exception of a little spill in December, have held up well. It is possible that the dollar does not weigh on market psychology as much as it did last year… again, we traders need to remain aware of what factors are pertinent at any given time… but I think the divergence is due to other factors. Much like the unusual gold/dollar relationship during the second half of last year, where both gold and the dollar were going up, one of the markets will be wrong and something will have to give. I believed the dollar would fold in its game of chicken with gold, and it did. Now I believe stocks will fold in their game of chicken with the dollar. I believe they will flinch soon, but I don't know whether the spill starts now or after the markets tack on another few percent. Hopefully, next week will give us some clues.

Disclosure: Long YHOO Puts, NEM Calls


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