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June 20, 2008

Weak Fridays

The late rally that capped off Thurday's action... with the sole intention of providing insidious repartee to my mid-day post... turned out to be a head fake. Equities headed directly lower from the opening bell and took out yesterday's low within 10 minutes. Each of the three potentially bullish developments outlined last night were taken out and summarily shot, without trial. The S&P 500 closed solidly below 1325. The NDX negated a potential 1-2-3 reversal by bettering (worsening?) yesterday's lows, and the BKX failed to provide follow-thru on its bullish reversal.

stock chart

I now believe that there is a high probability that we test the 2008 lows. Whether we fail those lows likely depends on how many more sins SeƱor Bernanke is willing to commit.

If we dive to lows on the SPX, the NDX is going to have some catching up to do.

stock chart

Turning to precious metals, gold and silver have been sneaking higher over the past week.

gold chart

I'm not committing to the idea of a new upleg in metals until gold escapes its triangle. However, I can see a case for accumlation of PMs as the banks melt down. There is no question concerning FOMC action should more of the big boys need suckling, and the BKX says they do.

Thus far, mining stocks don't believe the PMs will pull it off. Their travails are best exemplified by the action in BVN shares, which have been a leading performer in this bull market:

stock chart

Next week the FOMC meets for another round of price fixing. I imagine the markets will stabilize a bit prior to the cabal's session, but expect fireworks afterward. The irony is that I don't think it really matters what they do as far as the near-term fate of equities is concerned. If they raise rates (they won't), equities collapse. If they hold steady, the current decline will continue its course. If they cut, we will see a brief rally until it sinks in that the reason they are cutting in the wake of all their hawkish talk about inflation is that there are serious problems afoot. Then the market will tank.


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