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April 16, 2010

Stay Cool

Last month the Federal Reserve announced a hike in the meaningless discount rate the evening before opex. This month, the Securities and Exchange Commission makes public a lawsuit against Goldman Sachs right in the middle of the opex session. Coincidence? I doubt it. These announcements are insidiously timed to help the brotherhood of investment banks profit from low-priced options going into expiration. GS is being sued, but they are likely making a mint today. So, if the SEC is complicit in these manipulations, who do we complain to?

In any case, by keeping our cool, we can also profit from such manipulations. I've been holding off adding leverage to my precious metals holdings until after this overdue market correction took hold. Today's reversal leaves little doubt that the correction is now underway. As you can see, several of my favorite mining stocks are getting discounted, and a couple of them have already reached a short-term oversold conditions:

Silver Wheaton stock chart

Allied Nevade stock chart

Novagold stock chart

I have to admit I'm a bit disheartened at the relative underperformance of precious metals. Although I still believe a blow-off move is in front of us, it would have been more encouraging to see gold and silver hold smaller losses than equities. Nevertheless, my intention is to buy the end of the current equity daily cycle, which should occur once stocks drop a bit further and then form a swing low.


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