Bill-

I have been defensively positioned during this whole move, so much so that several of my positions have moved against me. My diversified portfolio of cash earning companies, fully hedged, has been moving sideways for months, to the point that its chart says it is OVERSOLD. Three days ago its price started to move back up as did other of my hedging positions. My conclusion is that this rally has run out of steam and we are about to see a move down. My "gut" tells me it will be no more than a ST move, for now, working off this overbought condition after new highs are set and that the bigger move will await confirmation of all the early data that has been piling up that this is more than just a soft landing.

Some readers asked what the mining shares would do on a market selloff. I don't know except to look at history. In February of 2000 the XAU stood at 72 then melted down to 42 or so in October of that year. As Greenspan opened the floodgates to revive the economy, the miners did a sustained rise and more than doubled by August of 2003, reaching 91 on the charts. A choppy ride yet a profitable one.

I would expect Bernanke to cut rates aggressively as well. We have too much debt to stand for ANY type of deflation. The market already thinks they come by early next year. It's only the boys on the equity floor that seem to want to tempt fate here with their Goldilocks (now gone)and "soft landing" (rapidly evaporating) scenarios.

It is worth mentioning that today is the last day of 3Q'06, so that market could behave as irrationally as ever.

Kitco showing an interesting chart right now:

http://www.kitco.com/charts/livegold.html

Tensai, it looks like they had a data glitch.

"OPEC to issue statement by end of European trading today"

This could also affect gold trading today..

tradesman

Well based on today's strong econ data for Sep and weak consumer data for Aug... we better see some strong consumer outlays for Sep - otherwise - goldilocks is finished

Any inventory will have to be heavily discounted for Xmas.

I think OPEC may have to push that oil price a bit lower today... gotta get more money in people's pockets for Xmas...

tradesman

MarkM,

Re the XAU, I would say that the outlook in 2006 differs from Y2K in several ways. The trade deficit in 2000 was under $40b-now it's over $800b. Gold was not in a bull market in 2000. And terrorism had not yet entered our collective consciousness.

Would be interesting to see a graph of the USDX during that period also.

OPEC: Only Nigeria and Venezuela will cut oil output from Oct. 1 - wires citing spokesman - no further statement to be issued today

... as expected....

AGEdwards quotes the Congressional Research Service: War in Iraq is costing US taxpayers US$2 Billion per week! - If this were covered by a "security tax" on gasoline, it would amount to US$ 0.71 per gallon (based on July's peak usage).

With Vietnam, "guns+butter" led to years of inflation. It's hard to imagine that Iraq's "guns+tax-cuts+social security+medicare" won't do the same!

I guess we are going to have an "election put" on the stock/bond markets AND an "election cap" on the gold market that will end with the November elections.

As I have been watching events unfold for a number of weeks now, I can't come up with a better conclusion than this.

Ok, I guess I am a little slow on the uptake ;-)

If this is indeed true, then the money creation via all means (including non-traditional money creation actions, ie JCB bond purchasing) will be tremendous and very pro gold.

Just another reason for watching fundamentals AND technicals. You can't be successful without both.

RUT with a very narrow range day so far. Less than 3 points. Last day this narrow was May 9 '06.

Ya, getting a little bit nervous here with this RUT short -

But bonds are overbought and RUT is one of the more interest rate sensitive indexes.

It is obvious no funds wanted to touch RUT with end of month window dressing - why?

If no funds show up 1st week of Oct - its going no where...

Although - I can't imagine they would drive the DOW all the way this far without at least running it up a few 100 points or so more - past its all time high --> maybe Oil below $60 will do that next week - then I'd have to cover.

tradesman

Looks like the DOW will end Sept with a TD Sequential Sell signal (monthly). Last time this happened was Dec '99.

I thought we would be in a correction by now -- While wrong, I still think it is the right risk-reward bet for the following reasons:

-- Global leading indicators are pointing to further deceleration
-- Inflation is above the comfort zone
-- The housing market will continue to get worse before it gets better
-- The Fed is unlikely to cut rates at this point while inflation is at present level
-- Profits will be below market expectations for FY 2007 due to increased costs (wages and other) and lower pricing power.

All this together tells me to be short and patient. The "goldilocks" or soft landing scenarios have lower probabilities by the second -- and historically have happend very few times.

JP

PS: I expect miners to sell off with the rest of the market, although the long term bull in commodities is not over yet.

JP - can't argue with that...

Problem is many thought that for the last 2 weeks.

All but one of my shorts was stopped out.
It was only short-term long trades that were making me any money this week.

And those puts in my back pocket are already looking a little tattered.

BTW someone must have been listening to you about those miners - as everyone was sure in a hurry to dump those in the last hour.

It was a brutal week unless you were long the DOW.

tradesman

http://money.cnn.com/2006/09/29/news/companies/banks_housing.reut/index.htm?postversion=2006092917

Just saw an article that the housing slowdown will hit the banks. Duuuuuhhhhhhhh! Of course, I'm still smarting from being early to the put party for financials (AIG, MS, BAC, WFC). Anyway...it seems to me (warning, novice observation) that once some of the "bad news" starts to percolate through the mainline financial stocks, there might be some capitulation. I on the edge of my seat waiting for next week....watching the market is like watching a soap opera. Everyday a different, compelling drama.