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December 20, 2005


Unlike yesterday, when the market slid into the close with a loud thud, today's market closed with resounding silence. An uneventful day was just what the bulls were looking for after yesterday's ominous clouds. Despite the sideways action, a few news items stirred up the pot a bit.

The dollar was granted a reprieve from its recent dive by relatively tame PPI numbers. Though I scoff at the knee-jerk reaction to these specious inflation numbers, I doubt that any sentient creature that shops and pays bills truly accepts that inflation is tame. Most likely, the dollar was oversold and needed a catalyst for a bounce.

With the metals already in profit-taking mode, today's dollar rebound helped send the PMs reeling. Gold fell nearly 2% to close its NY session under $500 per ounce, while silver got tagged for over 3%. This type of volatility is typical after a commodity endures a big run. Traders get over-extended, and their trigger fingers get itchy. I still believe there is a hoard of people lamenting the fact they missed the beginning of the gold and silver bull market, and they are seeking a palatable entry point. Perhaps sliding below the psychologically-important $500 level will lure some of those buyers, whom I believe will fuel a price spike larger than the one we just witnessed. We'll just have to wait and see.

GM endured another piercing decline today, cracking below $20 and trading at its lowest level since 1986. I share a bit GM's woes given that I have fully understood the company's predicament for some time, yet have failed to short the stock. GM announced a recall of 425,000 vans to fix faulty seatbelts. The cost of the recall, which GM did not divulge, in addition to potential damage to perception of quality and vehicle safety, will do nothing but exacerbate the company's financial crisis.

An unexpectedly high figure for November housing starts gave the homeys a bit of a lift today. After starting the day down a couple percent, the sector finished about even. I'm not so sure what traders are reading into the number, as new housing starts don't translate into profit until the homes are sold. The next couple months' figures for sales and unsold inventory will be keenly important.

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