stockman-
On December 15 I commented that the oil sector charts looked to be topping and turning over. They are. I think we may get a good entry point/addition point here in the coming weeks and especially so if the equity markets start to peel off. The majors have nearly given up their November gains (appx 8%) while most others have given a third to a half back of 10-15%.

MarkM-

Good call. Where do you see support? The service companies look like they've drawn in too much hot money, but the majors and some of the gas stocks I have been scaling in. I am drawn to those which have pulled back and insiders are on the buy side. COT data still looks supportive for gas and oil.

My time frame may be a little longer than yours, and I am more concerned with relative return vs. absolute return as my cash levels cannot exceed current level.

stockman-
I have given up on day trading! Especially anything remotely resembling that with the golds!
I am awaiting a long term entry point there and should get it with the miners in the Spring. They are showing resilience here but I see it was no different in 2004 before the fall. The only change was their relative weakness this year in November. I think they all had hedging issues. Perhaps BVN still does. I have not liked the action in that for nearly a month.

I think the oils will do fine in 2006. Being early here is certainly no sin IMO. I judge support case by case. ECA, a fine company, is nearby. 40-42 would be excellent long term and here looks attractive. The Lima OH plant issue is overblown. They will find an alternative, even under new management. JMO.

Agree with you MarkM but your target price may not materialize. Cold weather to start soon (Next week) and there may be some pent up buying ahead. I like your idea and wish it gets to the level you mentioned.

dinov-

Agree with you also! If natural gas prices rise, 40-42 target is long gone. However, that would be a short term entry (now til March or so) and if looking long term I think better price then. Looks attractive here as I said.

Best...

stockman/dinov-

Well well, the Boys are back and oil and gold are moving today! Looks like I'm still sitting and waiting for Spring. Hope everyone got theirs.

Best....

ClaudeG/g034/others-
Does the Fed announcement change the gold dynamic? To me it means a "softer" monetary policy from here forward. No wonder gold rocketed. Now I wonder about my projected Spring entry point.

MarkM -

My $0.02 (which is what you are probably thinking):

Fed minutes today indicated that they are closer to the end of rate hikes.

The $USD declined off this news because of the perceived future interest rate differential change between the $USD and other currencies. Sure, over the last year gold has broke it's inverse relationship with the dollar, but IMHO, long term, the inverse relationship will take hold again. The dollar has rallied due to the rate hikes but today it broke down to the 12 month daily uptrend line AND a three month H&S that if broken, may signal more downside in the $USD and higher prices for gold because of all the things we have spoken about in the past; foreign reserves turning to gold vs. dollar, inflation higher than short term yields, etc.

The recent trade in gold has been tough for me. Meaning that I never traded out of my core position (25%) because the $USD looked to be topping, but also never got to add to some names that are attractive because they never came back like the metal did. There will be nervous times again for gold holders, I will add then, when I am scared to death to do it.

Seasonality is strong until February, so maybe late spring may be a time to add?? Who knows.

Doesn't the price volatility make you wonder if something is going to surface down the road? And I am not referring to jewelry demand in India.

Mark - I think the fed has been in the "softer" monetary policy game for quite some time based on BillCs M3 money supply curves, so IMO, todays announcement doesn't change the facts (rocketing money supply), but it does let all the market participants in on it, so I presume prices can rise quickly. For what its worth, the tendency for gold seems to be to extend 20-23% above the 65wk (303d) EMA and consolidate back towards it - since 02.

Personally, if I chase, I can win in the short term, but in the long run the break down in discipline leads to my giving up gains (perhaps in another trade) - learning to stay in longer is another aspect of discipline that I've just learned :) with this last run in commodities.

What a day. When I leave for lunch I'm 50 bps ahead of the market, I come back and I'm 25 bps behind the market.

I have to spend some time looking at the data in the morning. But my initial take is that the fed has blinked. Look at a chart of the CRB, gold, oil. They want to send a message that they're almost done? Damn, I'm glad I have the gold and energy on, but this is not good news for my bond position. Why would they send this message? Are they really so afraid of the potential home price / banking implosion that they will stop? If so- the imbalances will grow. Savings rates in the U.S will have no reason to rise. The dollar should go DOWN, commodity inflation continues and the long end should rise sharply taking stocks down as well. Have they decided that the 70's are preferable to the Japan scenario?

If so, I can't shake the feel that we are delaying a 'correction' which will only lead to a harder landing later (to collateral values- real estate). Could they be aware or fear greater problems in the bankong system than we can?

I didn't do much today, but I did add to my Arktos hedge.

stockman-

You and I are on the same wavelength there. I made a similar comment over at Ritholtz site. The Fed is being awfully generous here with promises it can't keep. Inflation will, I think, make a liar out of it come April. That's my guess. Good cover story for the Boys to run up stocks again. A little bit more and I will put more hedge on also. Still 70% cash with rest in healthcare and consumer staples.

g034-
Well, at least you HAVE a position! I am a bit green here. I traded out of mine when it hit $530 the first time. When things get vertical, I get nervous. Did you see AEM? Whoa! The miners are doing very, VERY well here.

ClaudeG-
I came to the same conclusion after taking my girls to swim lessons late this afternoon. Nothing like a little down time to reflect. The "looseness" was factored in already. Spring pullback may be at a higher level than I expected but should still materialize. I am wondering specifically about the miners though. They seem to "know" that $500 gold is the new floor, and bullion correction will not dent them as much I am guessing. Any of you have views there? I am thinking they don't get seriously dented unless the market pulls back.

I would call the divergence from the MA for gold to be greater than any seen in the last three years. I think this has some significance. Perfect storm of conditions? Bull market decoupled from the dollar? Does this mean it doesn't revert. I am banking that it still does but the case for it going forward is sure appealing. Checking my charts yesterday all the basic materials and metals were up big time on the news. The fed can't like what it is seeing and this talking out of both sides of its mouth leads to a loss of credibility.

All-

I have now read the minutes in their boring, lengthy entirety. (www.federalreserve.gov/fomc/minutes/20051213.htm)
There is absolutely nothing new in here despite what anyone, including the WSJ, says about new direction, easing, etc. It is all spin. We've seen this before. Minutes released, talking heads opine, markets shoot up on cue. AT EXACTLY 2PM, despite the fact these took me 15 minutes to read and an hour to digest. They will raise in measured steps and check the data very carefully going forward. THAT IS ALL.

Dang! I was hoping that the correction had started so I can place all this cash. I was SO CLOSE on some of my names. (stockman- Some of those big oils looked pretty good there. However I was on vacation all last week.) This just prolongs it.

When I look at how extended gold appears and want to resist the urge to reduce... or I close my eyes and ADD to energy... I re-read this Rainwater comment-

"What concerns him most is the conflict that he thinks an oil shortage will precipitate. What happens when people get blindsided by prices rocketing past any level they have contemplated--especially when you factor in other challenges America faces? "We've got a lot of things going on simultaneously," he says. "The world as we know it is unwinding with respect to Social Security, pensions, Medicare. We're going to have dramatically increased taxes in the U.S. I believe we're going into a world where there's going to be more hostility. More people are going to be asking, 'Why did God do this to us?' Whatever God they worship. Alfred Sloan said it a long time ago at General Motors, that we're giving these things during good times. What happens in bad times? We're going to have to take them back, and then everybody will riot.' And he's right."

If go down this path there are few beneficiaries and many casualties. Commodities win, countries (currency) that hold those commodities win. Countries (currency) that consume but do not hold- lose.

I don't see where yesterday changes much. Give it a few more days and we can see if this is more than just short covering. Rydex cash was curiously unchanged yesterday. New highs common stock only not impressive.

One thing that may stick is bigger moves- a sizable increase in volatility?

stockman-
You may be right about that. I have never seen Big Oil make moves like they did yesterday outside of Katrina/Rita, nor the % increases in some of those gold and materials share prices.

Today gold is selling off sharply in NY and after rising to near $535 overnight is down to $526 and dropping vertically. VOLATILITY.

To answer g034, is the Iranian situation also spooking the markets? Will that be the big mover? OT, does anyone follow James B Stewart ("Common Sense"-SmartMoney) He hails from my hometown and we have best friends in common. Had some uncommonly good calls last year.

Best...

BCA update "Outlook 2006: More Upside In Equity Prices"

http://www.bcaresearch.com/public/story.asp?pre=PRE-20060104.GIF

Their prior note appears to be the basis for this call:

http://www.bcaresearch.com/public/story.asp?pre=PRE-20051219.GIF

When a respected firm such as BCA takes the other side, best to be open minded and monitor technical action. If it happens I'll consider adding beta, reducing cash.

For now, I do like some low-beta long term charts of laggards from 2005. Continued to scale into high quality names which have broken above downtrend lines here.

Thanks Stockman - there is one paragraph that caught me by surprise -

"While profit growth is likely to slow from its recent strong pace, this should be offset by an expansion in stock market multiples."

It isn't clear to me why multiples would increase in the face of decelerating growth or recession - I'd expected it to be the other way around. Do you know what their hypothesis is? I could imagine rate-cutting driving rallies, but 'real' rates are already negative anyway.. ? ?

ClaudeG-

See their report dated Dec 19 for the chart that shows a negative correlation that usually occurs. Note that was NOT the case during the most recent easing. So, this is food for thought, it may or may not happen this time but it is a piece the puzzle. If the belief in the relationship holds on the street it could help make a rally more sustainable (tradable?) than I had expected. I am far from bullish for 2006, but we should consider opinions and data from respected sources ESPECIALLY when they oppose our own. Most investors are guilty of reading primarily those views which agree with their own- a human or social habit that can be dangerous for investors. So I am just passing it along.

It has been my belief that we are in a long term phase of contracting valuations. If we soften this year but avoid slipping into recession until 2007 (at least)... could BCA be right? Yes. If so I cannot 'sit out' the year, I need to monitor charts for break out in stocks and sectors that I like.

In addition Don Coxe has suggested a market that looks alot like 2005 is possible as bond yields could fall quickly if the economy really weakens. So no big bear, no big bull either. When I saw BCA's comment and added it to Coxe's... I had to ask myself- 'if not for your negative bias are there charts of stocks and sectors that you would be buying for a trade today?' Answer: yes.

"U.S. stock market multiples typically compress when the Fed is hiking. Right on cue, the trailing P/E on the S&P 500 has declined to 19 from 22 since the Fed began raising interest rates in June 2004. Robust earnings gains have offset the multiple contraction, allowing the equity market to rise more than 10% in the past 18 months. We expect the Fed to step to the sidelines as the U.S. economy gradually downshifts in early 2006. Will that pave the way for stock market multiples to begin to rise?"

Regarding stock market multiples: the law of mean reversion has yet to be repealed, therefore, I expect valuations to contract over time.

Re: Gold, the $USD broke the trendline and neckline I mentioned earlier, IMHO we will see gold move to extreme overbought conditions and surprise many.

g034/stockman-

I think the Fed has a real political problem here. Welcome, Mr. Bernanke, it's your Fed now. From what I have been seeing $550 gold here looks possible. I still think it reverts to the mean, but at a level that also surprises.

stockman, your comment re charts and sectors is interesting. I too am guilty of this having passed on some names since "they will be that much cheaper later". Then they go up 10-15%. Very safe plays at technical bottoms too. Very little downside. Just need to trade them.

I have been looking for tradable ideas. I have some but have yet to pull the trigger.

But mean reversion does not usually occur in a straight line, so we may have to accept some counter trend moves?

Gold and energy are a fire. With so much of the market earnings growth coming from commodity companies and those companies trading at very low multiples... is it possible that we could see a 'revaluation' of commodity stocks? If we are in a secular trend for energy and metals and the consensus view is rising towards acceptance THAT THIS IS SUSTAINABLE could we see multiples double on the NEW GROWTH stocks even while the broad market multiple contracts?

And while the fed backing off could be negative for my bonds can you think of a better thing for Gold, Oil, Nickel, Gas, Silver, etc.

Couldn't we see another year of a market which is essentially flat but where some sectors have outsized returns?

The beta in these stocks is such that one can maintain a pretty defensive allocation to 'safe' investments and still capture an attractive return.

stockman-

I think these themes are certainly possible. You could have the metals producers go from single digit multiples to 12-15. That would be something, eh? Then you could have 50-60% returns from what are considered "high values" today.

But as far as reversion to the mean goes, you are right that nothing goes in a straight line. These conditions are made for stock pickers. Yes a general pullback would be ideal. We can all make money from a 14 multiple. But if you develop tradable themes and stick with them you can beat the market again, as I am assuming you did this time. You may not make 20%, but that's a very good year by any standard.

Yes, beta in energy and gold and other metals can give you a years worth of returns in a month. I think that's what you have to be looking at.

Stockman - what an interesting thought.. if we are at the start of a >decade long move in commodities, and 2002 was the beginning, we could see multiple expansion in those stocks during the next cycle.. especially if the pullbacks are somewhat orderly (relative to 80s/90s), which they very well could be given that the secular influence is different today (in commodities) relative to 82-02. No doubt oil will drop during a recession episode but the stage seems set for multi-year multiple expansion even in the face of anemic growth..

g034-

I looked at that chart and I see what you are saying but I think support is right here and I would not be surprised at a bounce back here. If it doesn't then I would be inclined to support your view that technical damage has been done and the greater chances are to the downside.

In laymen's terms, please? Trying to follow and learn, but the technospeak is sometimes extremely difficult to follow... from the average uninformed investor's standpoint, i have the general sense that the market is going to underperform, the dollar is going to remain stagnant, and cherrypicking is going to be the order of the day. so i'm in goldminers and other metals, and the run up in the last three-four months is termemndous. ordinarily, i'd take those returns and hop off the bandwagon. but something tells me that, long term, we have much more upside; and timing the swings doesn't work so well when you have limited charting skills. are you all forecasting a late winter pullback before a move higher north for this sector?

EJ-

Most commenters on this board believe: 1)
the markets are due for a correction from historically high PE ratios but that years of flat action (muddle through)is also a possible scenario; 2) the metals (all) are in a bull market which will see corrections, some sizable, but that the trend is up; 3) the dollar is in a long term bear market but could remain rangebound as well in the 85-92 slot; 4) inflation is higher than the reported CPI; trading is difficult but a few good ideas are better than scattershot approaches and seem especially so in the last two years (no trend).

If you are positioned already and don't get nervous at volatility then I would say you are set. Others have timed in and out (of gold), with some success but that isn't for everyone and may not always work. It has for the last three years but as they say, things work until they don't. Markets change. The late winter pullback you mention has been a historical retracement of 20% or more in January/February by the gold bullion. It affects the miners as well but I am wondering just how this time as are others. All we really know is that things don't go up in straight lines.

The discussion g034 is leading about the dollar and possible implications is not technically difficult. He is speaking of trendlines; I was talking about support lines. I see his on the chart; he probably sees mine as well. One of us is wrong, at least for now, since this is part art and part science. Investopedia has good basic chart courses that you could read in an afternoon. They are very useful. (www.investopedia.com) Bill also has some lessons about charting under his heading Trader Tools and Trend and Cycle Analysis.

Bottom line is that if you have been positioned for 3 or 4 months you are in at very nice points (IMO) and are likely outperforming no matter what your cash levels.

Best....

All-

Okay, I see that overnight we are getting that little rally in the dollar so gold is pulling back a little. For an alternative take to buy and hold on the golds watch Sid Mokhtari CIBC Technical Analyst (and a good one) on ROB TV yesterday.

For the energy sector (stockman), he sees possible retest of September/October highs and technically I agree. This is short term (1-2 month) tradable I think. Risk reward ratio here is probably 3-1, right at the edge of my acceptable values. OPEC will step in on lows so fundamental support is there as well as technical support off Friday's (stocks, some) floor. For stockman (Rainwater), OPEC/ Ukraine/Russia/ Iran, all provide "interesting" upside catalysts.

thanks markm. surprisingly, i gleaned most of that from your other posts, but needed the clarification, which was very helpful. no need to try to time it, IMO. i will keep a watchful eye, but i'm going to hold rather than swing trade.

Re: $USD

I am looking for a breakdown technically because fundamentally I see that the yield curve continues to point towards an economic slowdown. I also see that the cash out refi's will, in all likelihood, not be near what they have been the past few years. I also see that the repatriation of dollars ended. If this is, or will be true, the tax revenues of the US will drop and the deficits of the US will continue to rise and in the long run, this is what will drive the dollar lower. In the short run anything can happen, but this is what I am seeing fundamentally and I am simply looking for confirmation technically, which we will discover soon enough.

g034-

I agree. All I was saying was I saw immediate support. Your view mirrors mine. Long term the downside is a smarter bet. Tomorrow or even later today this thing could break down and we could have confirmation. We've seen it before. This may be a dead cat bounce off of weak support.

stockman- How about the breakouts in some of the Basic Materials stocks?

Great remarks and discussion here. The only addition that I can make to the above remarks is on the potential effects of the new Iranian Oil Bourse on our Dollar, on Gold as a place to move no-longer-needed Dollars, and on the price of Oil in general as any price difference between the different marketplaces becomes a souce of possible hedging and arbitration. Here is an article, among many, that sets the situation nicely. If the link doesn't work for anyone, I will try to copy over some of the pertinent parts.

Killing the dollar in Iran
By Toni Straka
link

Thanks spot for the great reminder. The new Oil Bourse is on my list of why the dollar should fall in 2006, but this is so obvious that I wouldn't be surprised if it ends up being a great countertrade (squeeze the $usd shorts) when the Bourse opens. Only thinking of possibilities...

BTW, doesn't the administration want a falling dollar to help correct our trade imbalances? Just watch prices and see which view gets confirmed.

g034-

I think that is a double-edged sword. US needs the carry trade to work in order to keep the Great Financial House of Cards standing. Letting the $ devalue would help structurally but the Chinese would dump the Treasuries and the whole kit and kaboodle would be down the drain. That's why I say, "Welcome to town Ben Bernanke. Here's the keys to the house I built."- Alan

MarkM-

I am not a technician so my terminology may not fit with official definitions.

What I am looking for right now are stocks which have a good seasonal set up and are not a place where 'hot money' currently resides. All within a sector or group that I can make some sense in owning currently as 1) potential profitable trade or 2) potential hedge vs longs with acceptable risk or 3) potential accumulation candidates for longer term (12 months).

Seasonally- 1Q trade and/or 12 month potential. Many times stocks which fall from favor in a calendar year are victims of 'window dressing' in October (fiscal year end for most mutual funds). Then after 10/31 they get a break and rally. Usually they will suffer again in December as tax selling kicks in.

From XMAS I am looking for that stock to 'break out' from the downtrend that has been in place for the prior year. Managers looking for opportunties to position for the next year are looking out for these 'January bounce' candidates and can sometimes get the ball moving nicely.

I like those that have a nice monthly chart on MACD and RSI (rising from oversold levels). On the daily I am most interested if they appear to have turned up relative to the SPX and have clearly broken downtrend lines.

Trading small caps this has worked quite well for me over the years. Inappropriate to mention those names here. However good large cap examples include: AVP, ACV, CLX

Hot money? Rydex Consumer Products- out of favor
Rationale? Rotation candidate in event recession fears rise. High quality, low beta.
Monthly chart? Positive MACD, RSI
Daily? Downtrend broken and rising relative to SPX
Time frame? 3-12 months

Not all stocks fit perfectly and my best results have come from small caps.

I scale into these and I prefer buying basket rather than single name.

Chart of the Day has a great chart up ($) showing the very negative historic relationship of INVERSION and the SPX.

Text:

"As we enter a new year, one of the big financial stories is interest rates. For example, the Fed suggested yesterday that the end of rate hikes is near and the market subsequently soared. Today's chart illustrates an important concern – a flat yield curve. The most recent daily data has the 1-year T-bond actually yielding more than the 10-year T-bond. As today's chart illustrates, a flat yield curve is a very rare event. For example the yield curve has been negative for only two brief periods over the past 23 years! The inverted yield curve has been a bad omen for the stock market and the economy. The last occurrence of an inverted yield curve occurred in 2000 and the rest is history."

This carries more weight than the BCA argument IMHO

stockman-

Interesting approach. I read the BCA article and just couldn't agree with it as the most likely scenario. More than that, I didn't feel I could trade it. You have to be comfortable with what you are. I read opposing views but I find the macro case oh so compelling to be a pessimist here. That and about every other billionaire screaming "Trouble ahead!".

That being said, I want to trade. I want to trade gold, oil, alternative energy, metals and foreign equities. I'll trade US Equities if the case is compelling for a shorter window (6 months). I do not want to be carrying any US Equities I need to be long term on. That is against my philosophy, but right now it's my reality.

The thing that I don't get about the asia times article is that it seems to suggest that as soon as the IOB opens people will stop trading oil in Dollars. Is OPEC oil going to be traded on this? If not then it seems the dollar will not immediately weaken significantly.

Regardless a weak dollar is sure to push up the cost of Oil for the US. Consequently I have a hard time believing that Ben won't push rates up, or at least have us thinking that he might, for fear of gas moving back towards 3 dollars. Fed tightening is definately a double edged sword, but the US consumer will really have a hard time with really expensive gas.

leo v/stockman-
Take a look at the consumer stocks today. Look at WMT, KSS, JCP. They are getting hammered. Think 4Q sales were good? Now this is one day, certainly, but when they turn decidedly south I think the game is up.

Well I don't have much exposure to retail. But the names I have are barely down, my GLD on the other hand...

Did I just hear Dr. Doom to be on CNBC tomorrow? I think they are having him on to talk emerging markets. Wonder whether he'll touch on Gold and our future government leadership (China?).

"The borrower shall be a slave to the lender." – Proverbs 22:7

Tomorrow may be "interesting" if we get a second day of the dollar rallying to see what tune Goldie and the Miners will sing.

No retailers in my portfolio but I would take some of those names if they start giving them away. A little bit closer and it's put writing time.

The seasonal pattern I mentioned earlier also fits VZ. Lows in October; relief in Nov; tax selling in December. Now breaking out of downtrend on volume. Anyone who wanted to sell was cleared out in Q4.

Long: VZ

Rydex cash-

At the Oct mkt lows = 1700
After spike in November = 1200 (500)
Now = 1400 +200
(and markets at multi year highs)

AAII-

Bull:bear ratio spiked in November 3.5:1
Now: .75:1
(and market at multi year highs)

In spite of investors raising cash and getting to bearish extremes the market has held tough.

COT data remain negative-

Commercials are at a short extreme while specs are at long extreme

While they have been wrong ytd it has paid to follow commercials in the past

stockman-

Contrary indicators? January rise in store?

Or a Bull Trap? I am 1) surprised 2) underinvested and 3) getting the year off to a poor (relative) start

And there is obviously buying power building up in those numbers which could take the market higher short term.

stockman-

There's plenty of trading days to make it up! Take Bill's ETF portfolio as an example of how quickly things can change. I am not as invested as I want to be either but being very disciplined in this market. Your VZ was a very safe play but I am concentrating strictly on names and sectors I want. If it isn't a name I want in a sector I want at a price I want then I don't take a position.

The COT data is interesting vs the AAII data point.

stockman-

Got to write some puts on names I want today. Added ECA on weakness yesterday. If not for vacation last week (stop-outs), I'd have a nice little energy portfolio right now.

Gold just refuses to die here and let ClaudeG and I back in. Your board should look much better today.

I was about to recommend the chemicals the other day and lo and behold they come out of their months long slumber. Reminds me of VZ.

Long ECA.

well today is better than yesterday but i believe i will trail the spx by 50 bps even after today.

looks like we must be pulling some cash back in here with the jump in the ndx. funny how psychology works. the higher the prices the more bullish investors become and the more nervous bears are.

for managers that are underinvested they are forced to buy in to avoid underperforming even more. this will be interesting.

the employment data would seem to be saying that BCA is correct about the fed. if so has to be bullish for commodities.

i'm looking at some stocks that are concentrated in land holdings in hawaii and california. if the fed pauses they could be due for a strong rebound as well.

dr doom on cnbc now.

I wouldn't worry about day to day trailing an index. Too short a data point. Monthly much better. You have to like your stocks vs the Index. Give them time.

If S&P breaks through 1280 decisively then this could be significant. Has to hold it and move on.

Volatility in gold a set up for more? Have to think that $540-5 is resistance here. Retest of $500 may be farther away. Whenever it comes I will jump in all the metals then. I do not want to chase and for longs very prudent to raise stops here IMHO.

Let us know what Faber says.

I noticed that Diageo is having a good week...I guess Bill is having a good time ;-)

well I guess you have to give them credit for putting him on, but they sure didn't want to elaborate on his comments. 'Bernanke will have no choice but to print money, any economic weakness and they will start the presses... the economy is only supported by rising asset prices so they will print money to support asset prices... but if the DJIA is going to 30000 then gold is going to 2000, 4000, 10,000... you pretty much want to invest in anything accept U.S. dollar assets...'

Yes, I noticed that! He started off slow but apparently the willpower then broke down and he is now in full form! He's getting his wish on gold but 9200 Dow seems a bit farther off. Go Bill!

Stockman, you make a terrific point.. I live in California and so have pondered my fate vis-a-vis the housing market. What I can't figure out is that in the 70s, rates were soaring and so were home prices. So the link isn't as direct as people might think. Further, the coming slowdown/recession will bring low rates and high money supply. The "M3" flows from banks into google and directly into our local home prices via massive insider selling :)

Seems like the root cause is expanding $$$ supply and it could well keep going as long as the money supply does. Kind of a bummer if you're not part of the asset inflation.

ClaudeG-

I am particularly interested in California and Hawaii due to the rising affluence of Asians AND the likely decline in the dollar relative to Asian currencies.

The publicly traded entities which I am looking at have traded down 25-30% off their highs. I believe Jim Jubak has written up one that holds substantial Calif RE (see his MSN list) and the other would have shown up due to insider buying activity in November with holdings in Hawaii.

So, Faber makes me wonder about my Arktos hedge here ... could the fed induce a continued rise in financial asset prices as well as RE values in order to prime the economy as needed? As he stated it would mean much higher gold prices as the dollar would decline but it could be fatal to short positions such as Arktos.

May have to reduce that after we get a good sell off.

stockman/ClaudeG/g034-

This is where forming an Investment Club/Team/Whatever to exchange ideas and information would be of great benefit. That way you could correspond in another channel.

MarkM-

Rather than making comments on Bill Cara site? Sounds like you communiacte more directly with Bill, is that what he would prefer? Less OT comments, more direct communication with one another rather than on site?

I believe that is what the new Cara community will be about.

So in the mean time should we avoid OT comments or conversation? An on line (community) site works better for me. Today I am out at home and I can use email or the site, but on days that I am at the office I cannot use personal email.

i believe the general topic is 'inflation' and gold, oil, home prices, any rally in DJIA - we're sticking on that topic quite well :)

stockman-

I don't think Bill prefers direct communication at all. Takes too much of his time. And I wouldn't want to distract him from his next call on golds or oils! But look at this thread and see how active and informative it has become. It's not tied to any post really.

g034 has it right. There needs to be a community board. But more than that, I think that a "public" forum stifles exchanges that are right below the surface of some of these comments. My take. I may be misreading things here. That is where "teams" or such comes in.
Then I would have shared what I was thinking about say LYO and DOW and how I was going to play WMT, just to throw out names.

But people have different ideas about these things, especially when it comes to money and some people don't like to have conflicting views because it prevents them from moving forward, so I appreciate that as well.

stockman-
Oh, I see something in your latest that I didn't before. I think you misunderstood the nature of my comment or I wasn't being clear(probably the latter). I think what is going on here is great. Or else I wouldn't have about 15 posts in this string! What I was referring to was reluctance to mention names. Perhaps that is because we want to avoid cheerleading and I agree with that. But we are all looking for ideas and that is where teams or groups or whatever would help out.

MarkM - Whatever you do, don't mention TRE...

g034-

:)

And before the thread ends and we hand control of the site back to Bill, just to be polite and all someone has to say something about S-T-E-L-C..... No, I just can't bring myself to do it...... (backs away from keyboard)

I think if you're discussing companies that fit with Bills style it is ok to post names. I presume people will post names when we break out into sector-specific forums.

Well at least that one trades in volume! many stocks that I trade personally are light- under 50,000 shares/day. I don't mind mentioning names that are large cap and/or trade in volume (and have done so).

Does anyone know when the community section will become active? I agree MarkM that we are all looking for ideas. Even views that do not agree with my own help me to understand someone else's thought process and sometimes see risks or bias in my own view.

You guys are much stronger on technicals than I so your insights on potential danger and/or opportunity points are appreciated.

Meanwhile I have stock (4 legged) to tend to. Adios.

if idea trading is ok here. i picked up qsii, chk (dropped right after i bought) today. lrcx yesterday. I am looking at ibm. this break out took me by total surprise....now i am having problems accepting the rally or trusting it. i guess i conviced myself the market was going down....crude appears to be breaking out again and the market is make new highs.

btw i sold goog @315

Hey Bullring - a part of the 2000 run happened after the yield curve inverted and the storm clouds were visible. I bought into "soft landing and business spending will carry the load" hook line and sinker, personally. Analysts were on TV making a case for QCOM to hit $1000/sh back then which is similar to now for GOOG ($2000/sh on market watch today).

Thats all the history I have to work with, but IMO, the rally is real technically (until you look at summation index or get into the guts of the thing), but not "real" fundamentally in the sense that prices are rising as earnings are decelerating. It is that divergence that eventually flips the game from panic buying to selling.

NT also out with a note on fed/jobs- "December Employment Report - Weak Payroll Numbers Strengthen Case For Pause After January FOMC Meeting"
http://www.ntrs.com/library/econ_research/daily/index.html

ClaudeG-
I like the fact that history is important to you as it is to me also. I recall Dow 772 and can tell you exactly what I was doing on Black Monday in 1987. If it weren't for history (2002-05) I'd be convinced that some of the new data says that gold doesn't correct here (dollar collapse, hot money).

stockman, that is the new "bad" data being spun to make good data. It's the new alchemy.

ClaudeG-
i do remember qcom and as i remember it went to about $800 the day before its 4/1 or 5/1 split i can not remember which. I started trading around 1997. I had more guts than brains back then jumping into positions, but many of my best trades came from a lack of thought. I never did catch qcom, but i was into cmgi. remember that one? back to todays market....i still do not see that this market is going forword too much more without a strong pull back considering the conditions, but the unknown variable in this market is the money gov. is printing.

MarkM - I love market history, it never quite repeats but pretty close at times. I know Bill posted parts of his diary from that era. Also there is an insightful sight called contrary investor that has their own market musings archived. It is really fascinating to me because I was swept into it (like I noted before) and wasn't really in a position to notice these things.. the parallels between now and 2000 are fascinating and we have the advantage of knowing how that story ended... seems the bubble was preceded by massive M3 (for y2k fears) creating a rally that lacked breadth in a fearless environment. I see fearlessness today personally - check out the price action of companies that have warned/lowered like CAT, ATVI - they pop up and can even make new highs from the bounce.

The archive is @:
http://contraryinvestor.com/archive2000.htm

Here are some notables -

Jan 4 2000
The Fed credit/money creation machine must also come to an end or slow at some point. As of late December, the three month growth rate of M3 was annualizing at 16%. You've seen us chronicle Fed actions weekly in terms of credit creation. In fact last week was something out of a science fiction book. Fed credit expanded $24.3 billion in the one week prior to year-end. This is on top of multiple $10-20 billion weeks over the last two months. With Y2K supposedly passing like a ghost ship into the night, if this type of action continues, something else is very wrong. Couple this money creation with unemployment claims at a 26 year low and consumer confidence at a 31 year high and just what do you expect to happen to the general level of inflation ahead?

1/13/00
The Ultimate Perceptual Mistake?...One of the single largest debates between the bullish and the bearish investment communities these days revolves around what is really driving this economy. The bulls would have you believe that we have entered a "new economy" where technology driven productivity growth is catapulting us up to a whole new economic state of enlightenment. Ergo, valuation constraints of yesteryear are bound to collect dust in the annals of U.S. financial history. Our ability to technologically supercharge productivity guarantees above average earnings growth, below average inflation, and moderation(?) in interest rates for the foreseeable future. In a sense, the traditional or historical business cycle has been banished with the confluence of technology and deft Fed policy.

Conversely, the bears argue that valuations do matter, corporate earnings are being "enhanced" through accounting gimmickry and debt driven share buybacks, the public are voracious consumers piling up huge amounts of personal debt and depleting savings, and that ultimately a credit seizure will bring down the whole house of cards. For those of you who have been tuning in to our discussions for many moons, you know our feelings. Rather than rant and rave, we thought we would try to take a look at the very strong possibility that the majority of today's investors are mistaking a "new" business cycle for what is nothing more than the mother of all credit cycles. This time around, it may just turn out to be the ultimate perceptual mistake in that it conceivably could exact an incredible financial toll on the "new era" savings vehicle of choice - the stock market

ClaudeG-

Yes, fearlessness abounds. Some of the plays that I have seen that have turned out well are rebounds off technical lows without a compelling fundamental case. Yet there they are going up 5-10% in 2-3 days. I will check out that site.

Sounds like you are heavily positioned in cash, waiting to go bargain hunting. Since this is my money (read: non-professional) there is no need for me to have any of it in the market. I could buy collectibles with it for that matter and be happy. But what I really want is to see reasonable valuations so that I can go pedal to the metal. What do you think of the overseas markets? I think there is going to be a lot of money going to stable governments with sound fiscal policies, ie Canada and Japan when/if this credit bubble collapses.

Best...

COT data- Commercials continue to increase net short SPX; now at highest level since 12/2004
Large Specs continue to increase net long SPX; now at highest level IN 4 YEARS (yikes)

10 and 21 day put:call continue in the red zone.

As mentioned yesterday Rydex cash levels are off the xtreme lows and were not breduced into this years's rally as yet. Also AAII bull:bear actually is in bullish territory.

So, some contradicting contrary indicators.

"Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." 12/15/1917 John Maynard Keynes
http://en.wikiquote.org/wiki/John_Maynard_Keynes

stockman-
Technical indicators are turning green all over the board as indexes move out of trading ranges. All suggest bull but only lacking confirmation. Your data (shorts) implies otherwise and says that this is a CLASSIC BULL TRAP. Are the Big Boys setting us up?

Stockman - thanks for the COT data insight. Very interesting. In the sense that big market players are undoubtedly aware that growth is slowing, yield inverting, 4yr cycle bottoms (etc) this could be construed as a bulltrap - get as many people as possible to divert 2006 capital allocation now while times are OK. Also, since the nasdaq broke and tested the upper trendline of the 3 precededing tops I presume a lot of shorts are covering positions.

MarkM - I am a non-pro and can wait for the right opportunities like you mentioned - don't need daily bread from the market. I have a very modest amount of money in the market, but have the expectation that within a few weeks I'll be pulling the longs and going heavily short through rydex if things work out. I looked closely at WMT yesterday as I went through my list.. but I opted for RTH instead since my personal $-alloc-rules allow me to put proportionally more into an ETF. I also own 'coach' (a little sooner than I'd like to technically, but..). It will be fun to get the investment club thing going for sure.

ClaudeG-

Wouldn't mind asking Bill to team us up as we share similar philosophies. I love stockman's data sources from DecisionPoint and am thinking of subscribing. Very useful.

Wrote WMT puts on weakness. Didn't go it long. If someone wants to give it to me at 42.50 minus the premium I'll take it and hold it long term. Likewise HD at 37.50. Both can double in a bull market. Same with KSS. However, I see them rising from here and I may just get to take in some premium and will cover if I get nervous.

I haven't dabbled too much in the ETFs except for positioning in XLE before Katrina hit. I am thinking of "playing along" by going long SPY and QQQQ if I see that they are going to be run up ahead of The Big Distribution. Then again, I may just stay in cash.

Bull trap I believe, but we'll see if they can pull those Rydex and AAII traders back in next week.

On RELATIVE RETURN I commented earlier on this and it is very important to me. From my weekly journal:

YTD 2006 I am behind the SPX by 83 bps; a concern but still within trendline relative performance band. Trailing 5 years (through 12/31/2005) I am ahead by 5.57% annually. Why track portfolio returns so closely relative to the SPX?

This is a habit I developed after the bubble window and have tracked it carefully for the past 5 years. I post my total portfolio return (all assets not just positions), SPX total return (with dividends) and the spread between at the end of each week. I am aware of that number every day and even intraday. While one data point is not that important- the trend is very important.

What does the graph do for me?

It forces discipline. My objective is to outperm the SPX in rising or declining markets. If the long term return on the SPX is 10% then if I can achieve a 50% higher annual return I will be satisfied. I can see whether my objective is being met graphicly and identify the trend. It helps avoid allowing emotions and ‘the need to be right' to rule my thinking.

It forces me to question my conviction when I am going ‘off track'. Noone knows with certainty what tomorrow, next week or next year brings. I may be WRONG. The rules are always changing. The lessons (indicators) we are being ‘trained' to watch today are based on recent market action and will cease to work and even prove to hurt (lose you $) during some periods of time.

It reinforces my conviction when I am ‘on track'. Significant outperformance can be achieved by sticking with what is working. ‘Sitting on my hands' as Jesse Livermore said.

Funny you mentioned decisionpoint, I subscribed yesterday. I haven't found the rydex asset charts anywhere else and they seem very useful for sector analysis and the rydex dynamic funds are a part of my overall strategy this year (both long and short).

I'm a ultra-novice when it comes to options so I don't play that way for now. I presume that will change over time as my style matures..

Another excellent resource: http://www.sentimentrader.com

stockman-
By Rule of 72, if you outperform the S&P500 by 5.57% annually you will achieve DOUBLE the returns of that index every 13 years. Nice! I have only actively managed my funds for one year (mostly mutual funds indexes before that) but managed ( mostly in healthcare stocks) to beat the S&P by 4.1% this year. My in and out in gold was surprisingly unproductive, somewhat due to small positions. I had never played in gold before (and it showed!).

ClaudeG, do I understand that you will actively short the market should you feel it is about to turn, not just hedge longs?

MarkM - my long positions (small/few) are currently held in a tax-protected account but I will hold them if they stay in trend (RTH excluded). Coming out of a good wipe-out like we could see in a recessionary environment I'll get the names/sectors I want and hold them much more patiently (my gold05 lesson..). As much as I can I'm trying to identify those stocks now.

I am going to buy the rydex inverse fund if I get a technical buy signal (read: relatively low risk backtested entry with stop) that is confirmed with sentiment, cycles (etc). There is a fellow who writes on safehaven.com (Jim Miller) who does nothing but trade Rydex Nas100 dynamic funds and he did 40%ish on this last year (I don't subscribe to his letter). It is interesting approach because he only has to focus on one thing.. Buy/sell signals usually come from extremes on weekly charts (price and summation) and play off of the 20ish week cycle. So I guess that will be active shorting for me.. but I play very safe since it is counter-trend.

Greg Miller, not Jim Miller..

MarkM-

Thanks. We all operate differently but my point is more that one should develop some objective system of checks on your investing methodology. Most professionals and individuals underperform the market so it is not an objective to take lightly. Like any business having written objectives is important. A tracking system that you develop to fit your individual style and comfort can keep you out of trouble.

Some will stick with a 'system' or 'discipline' that is failing miserably (in light of market activity) and be blind to opportunities outside their 'system' until it is too late. This usually occurs at stress points. Stress meaning they are losing a ton of money OR they are sitting idle when others are making a ton of money. Eventually they cave and join the crowd running the other direction and compound their errors.

One of the greatest assets of the individual is their ability to be flexible. Professioanls are usually handicapped based on asset size, fund restrictions, firm policy or style box. The individual can be alert to changes in what is working and move in that direction. Rev Shark at REAL$ talks about this periodically and I believe he is dead on.

Now I am rambling. Food for thought anyway. Good luck!

stockman-
Is it rambling or is it an admonition? Hmmm....

Perhaps flash backs to my own trading 'tuition cost' (personal and financial). It has been a long hard trip for me. But then I'm a slow learner! Sorry if it came off wrong.

I love the game and it has been rewarding. But it has also been hard on my human relationships, and was expensive financially in the early years. Perhaps discovering the Bill Cara blog 20 years back would have been helpful.

MarkM-

You were mentioning International ideas, you probably saw this: http://www.bcaresearch.com/public/index.asp

A good (free) resource for ADR's is: http://www.adr.com/

You can search by country or industry and find the companies that trade here.

stockman - re International ideas. Here's an article with some content that might be some interest - expecially page 2:

http://www.thestreet.com/_yahoo/etf/etf/10260139.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

g034-

$USD chart looking grim. Instead of consolidating here it has broken below 89 a bit. One day rally at support didn't hold. Next support (WEAK) is around 86. After that, it's in uncharted waters. If it keeps falling, the Chinese are REALLY going to be upset. That is why everyone is coming out and saying they are going to consider diversifying their reserves. (Sabre-rattling) No one wants to be holding $USD assets wasting away.

What they would much prefer is that we step in to defend it, drive it back up toward 92 and take the edge off of gold. Then they will be able to add gold and other currenceies at cheaper prices ($500 and below). Once they do that, they can then tell us to sod off on the $USD, we have our protection, the euro, the yen, the DM, gold, etc. My take.

MarkM -

The $USD Head and Shoulders target is roughly 85.7. The September low is 86. The 50% fibonacci retracement off the Dec 04' lows is roughly 86.5. Those are the targets that I see in the dollar. If we hit those targets, the first uptrend line off the Dec 04' lows will be broken to the downside which could create more downside.

The current RSI (14) is 47.0, so if the $USD drops to the targets above, the RSI will be oversold which could create a bounce forming a new right shoulder which would create another H&S pattern with a target at around the Dec 04' lows.

Without Bill's crystal ball, this is purely conjecture, of course. (but this is how MY mind works when I am looking at charts - if any of Bill's readers need help with technical analysis, buy one of the books he recommends in the recommended reading section of this site, you will wonder how you got along without TA).

How does this fit in fundamentally? It's my view that the dollar has had and will continue to have negative issues, the key one being the currrent account deficit. The levels of the US current account deficit, measured as a percentage of GDP, has collapsed other currencies in the past. But we are no banana republic, we are the global reserve currency. Everyone knows this story. I think the timing all comes down to how long the Asians will purchase dollars, which I am guessing will be until their own consumer spending can sustain their economies without the US consumer. How long will that take? Years.

The US on the other hand needs the dollar to fall to correct the CA deficit. So, for conjecture's sake, how about a slowly falling dollar over a number of years. The Asian Central Banks will be diversifying out of dollars over time, including purchasing gold. This fits in with my technical thoughts and with the action of gold as the $USD rallied. This scenario will also placate the US politicians keeping them off China's back.

This is all old news, yet a good lesson. I believe that the last years dollar rally was due to; the short dollar story was so prevalent that too many short specs got involved and there was a short squeeze which started a countertrend rally to the upside. The black box traders saw a new trend and bought dollars along with foreign central banks which were plowing the $USD's that they got from the US consumer via the cash out refi purchases of asian manufactured goods. Also, currencies trade long term on things like the current account, but in the short term they can trade off of interest rate differentials. If the hiking is indeed over, the dollar will fall.

The trading lesson is that within a long term trend, you get counter trends. When you start reading about something, you are late to the party and the current party goers are handing you stale beer. That party is over at least until the next one starts, which is when things are quiet again.

This story is why I started buying gold a few years ago, not because I was smart, but because I couldn't figure out which currency was better - they all print money! So gold seemed like the logical choice and now that the public is catching on, the next bull move will begin. I think that's what Bill meant when he said that 2006 will be the year to make money. He probably also sees an equity market that falls to oversold and he can put that cash to work. Though, a lot of people think that...

In gold, you buy weakness and sell strength. Scaredy Cats not allowed!

Maybe I should change my moniker to LongWinded.

g034-

Yes. Very good thinking on gold and currencies. Gold was the currency neutral, safer play. I wish I would have been paying attention then but my money was being managed into the ground.

Russell is thinking maybe gold doesn't correct here. That would be very VERY unusual as it is overbought but things work until they don't. I am eager to hear what Bill says on Monday. Mokhtari says this is certainly the point at which it should as do others. But your fundamental case remains. Very bullish for the next several years. SO NEED SOME WEAKNESS SO I CAN BUY.

Price movement says to me that gold is stronger than people think. My core position and more is in place, but if it wasn't, I would buy into gold now and use any downside to add at key retracement levels - knowing that I may have to deal with downside risk in the near term, but believing in the long term.

I would rather deal with some near term downside than not be in when we find out that there is some issue under the surface that is driving the price higher, only to have to get in at $600.

If that was my case, I would be focusing on gold, not shares due to volatility and issues with company specific shares.

Easy for me to say, I know.

g034-

I think that's a reasonable course to take. But then again, you are talking to the guy who had a position around the $460 level and sold it out! I know that ClaudeG will be patient and wait. I would like to hear from Bill, the Gold Guru on this issue and perhaps he will weigh in on Monday. His batting average is about perfect.

go34-

I see Comex gold futures are at 514.20 at ADVFN. Since I am not familiar with the futures market, I am not exactly 100% sure what this number means or if I am reading this correctly. I had seen an article yesterday saying futures were down $10 so have the Central Bankers cooked up a weeekend surprise?

Link:

http://gold.advfn.com/?symbol=DJI%5EINDU&cb=1136743532

This shows the future prices it does not say the delay.

http://gold.advfn.com/futures/gold-futures.html?symbol=DJI^INDU&cb=ieSm

kitco also has good info on spot prices
http://www.kitco.com/
look at the chart on the right of the screen.
Market opens in Sidney in about an hour.

Andy

JohnMauldin 2006 forecast-
Bull on Gold but expects correction from this run.
Bull on energy.
Bull on long bond.
Bear on U.S. equities, expecting a 10% dip during the year.
Bull on global economy.

http://www.frontlinethoughts.com/article.asp?id=mwo010606

From a let-your-eyes-glaze-over-and-stare it seems that there could be a 4mth cycle between $USD lows.. I'm no USD expert, but given that the FOMC intentions have been somewhat distorted and looking at RSI/200dEMA it seems that there is a possible upside to it.. gonna watch.