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November 29, 2006

The Hangman Cometh

Sometimes I get very uncomfortable when things are playing out as anticipated. Equities saw the fool-the-bulls rally discussed in my previous two posts, but just between the several hundred of us, I would have much rather seen the market get on with the selling. I was planning to add to my shorts one way or another... and I did so today via index futures... so at least this scenario provided higher selling grounds.

The rebound in the S&P 500 looks eerily similar to rebounds of the last several months, so if I am correct about this bounce being a head fake, the market is doing its mendacious job quite well.

stock chart

The Nasdaq 100, though, put in a hangman doji with today's action (very similar to last Wednesday, don't you think?) and so looks ready to fall from the gallows.

stock chart

Popular financial media continue to delude themselves with unchecked optimism. A headline yesterday on MarketWatch read, "Buyers return to market" despite the fact that yesterday gains were only about a sixth of Monday's losses. This morning's headline on TheStreet read, "Stocks Up Off the Mat," but they failed to update the headline to reflect the early afternoon swoon to losses. I don't know… perhaps we bloggers are just too critical. Perhaps these guys are simply in the same business as most other news sources: entertainment. Tell readers what they want to hear. Increase traffic. Sell ads.

In any case, they do have to report the facts, even if the facts are woven within optimistic yarn. The facts that hit the presses tomorrow include November sales reports from most retailers, as well as the Chicago Purchasing Managers' Index. Both will give us new pieces of the economic puzzle.

This morning's stronger-than-expected GDP number appeared to be well-received by the stock market, though as you know, a bounce seemed to be in the cards. Where the GDP figure appeared to have a changing impact was on metals prices. Gold and silver both reversed early gains post-GDP as traders continue to behave in a bipolar manner over the future of Fed policy. Regardless of whatever banter the Fed wants to feed us, I don't see how anyone can believe we will see more rate hikes. The next moves will be cuts, probably aggressive, and when this scenario becomes patently obvious to the world, gold and silver prices will explode.

Disclosure: None


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