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September 8, 2006

Staying Put

Market commentaries on various news sites over the last couple of days seem to be professing two contradictory points. On one hand is the argument that stocks are starting to weaken because of fears over a slowing economy. On the other hand are the pundits who say the market is adjusting to growing fear over another rate hike. I mention this observation only to express continued amazement at how reactionary the media can be. We only had two down days, yet journalists are attempting to explain why such a thing could happen, as if every day were supposed to be an up day.

Nevertheless, there do seem to be rising concerns over interest rate policy, as evidenced by the bashings being borne by precious metals. Gold fell another percent, while silver got hammered to the tune of 3%. Newmont Mining and Pan American Silver were likewise hit for about 2% each. These moves are all very good news for those of us who have been waiting patiently for the completion of the consolidation period. Of course, it is entirely possible, if not likely, that the miners will lead metals higher as they have done in the past. A look at Newmont's chart shows it testing its lower triangle boundary today.

stock chart

This juncture may be a respectable place to begin building a position. My preference is to open position once the stock puts in a reversal day off the boundary, thereby providing further confirmation that the correct boundary has been drawn. I will be watching NEM closely.

One of my hopefuls on the short side, Wal-Mart, has been run up recently, including a 2.5% ramp in today's session. The only explanation I have for this action lies in the sharp drop in gasoline prices over the last two weeks. Wal-Mart management placed heavy blame for its most recent earnings miss on high gas prices. Apparently, traders bought into that notion and have become optimistic that currently falling prices will lead to a recovery at WMT. I wonder where Wal-Mart's management will place blame for their next miss if gas prices remain lower.

Overall, today's action appeared very much like oversold consolidation. The action was muted... unable to regain yesterday's opening on the indices and occurring on light volume relative to the previous two down days. Monday, therefore, will represent a proving ground for both sides and could set the stage for the coming weeks. For the time being, I am staying put on the market (pun unabashedly intended).

Disclosure: Short NEM Puts; Long WMT Puts

 

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