07/03/06 - TraderMike: The Trend is Up - Enjoy the RideFolks!
Here´s a quick note to keep youin the know - I mentioned at the beginning of the year that we planned onbuilding a new and better website. I was in talks with a company a fewmonths ago, but they fell through as they gave me an initial estimate butsix weeks later they raised it by more than five times! This pushed theproject back by months. I now have a developer working on a new site andam very pleased with his work so far. He has done some great work in thepast and is a top notch developer of the software that I am using for thesite. I'm hoping to have it in beta testing by the end of themonth. I´m sure you´ll be very pleased.
There are a few changes I plan on making with the site. One is making areal time portfolio for you - one that will record the trades Ipersonally make in real-time. You'll be able to see when I buy aposition, sell, or add on to one. As far as I know there is no one doingthis kind of thing on the Internet. No one has this kind ofdisclosure.
I also plan on making a community blog where all members can shareinvestment ideas or ask questions throughout the day. I will likely add afew complimentary writers to the site and links to real-time updatingnews and charts. My goal is to build a unique investment communitywebsite - one not only centered around my writings and investment ideas,but hopefully one that will allow members to help each other too. Insteadof just talking at you it will be designed for dialogue.
As we are still developing the site I'd like to know if you have anyideas or thoughts about it. I've been spending a lot of time thinkingabout the site over the past few weeks and actually catching up with thetechnology that is now available. I've felt five years behind when itcomes to the Internet. But that's ok, because most financial websites areand when I look at them - even the large ones - I don't think they aredesigned with the members in mind. But that´s what I´d like to do. Sendus an email with your thoughts atsupport@wallstreetwindow.com.
Last week I called the recent Fedobsession "misplaced." And boy did that week punctuate thisremark as the markets rallied wildly following Thursday's Federal Reservemeeting. The DOW, Nasdaq, AND gold all broke out of their recentdowntrend resistance lines. This is confirmation that the trend is nowup.
Enjoy the ride. The next major resistance level for gold is in the635-660 area. We should get their by the end of July or beginning ofAugust. This would take the XAU into the 150 area. Once we get to thoselevels I'd expect gold and gold stocks to go sideways and consolidate forseveral weeks much like they did last year before breaking out for theirFall rally. Things look set to repeat and that will mean big profits ingold stocks.
Also, the rest of the market is set to rally for the next few weeks, butthat rally will likely be nothing but a bounce and will likely lead toanother decline in the Fall. We'll keep our pulse on the markets tomonitor its health and will consider taking short positions if it startsto weaken later this summer. Housing stocks still look like crap. But fornow the psychology has certainly shifted.
We've seen the market drop from fear of the Fed to now being encouragedby it. For weeks Fed officials have been affecting the markets by talkingof inflation dangers and hinting of higher interest rates. Then inThursday's FOMC statement they made it sound as if they are just asconcerned about the economy slowing down as they are interest rates. As aresult, the Fed funds futures lowered the odds of another rate hike inAugust to 25% from 75%.
One rate hike wouldn't be a big deal. For now the markets are looking ata more friendly Fed. And there are indeed signs that the economy isslowing. More negative economic data will only make the market go higheras it will increase the odds that the Fed will pause on rates.
This is what the market is going to focus on for the next few weeks. Andthe more likely it looks like the Fed will pause the more you'll heretalk from the "experts" that a new bull market is on the way.That's the paradox. The more likely the Fed pauses the more likely themarket will go up, but also the more chance it will top out. You see,after the Fed is done and the rally runs its course there will be nothingahead to keep the markets excited. Instead the economy will be slowingand earnings will falter, sending the market into a tailspin.
A Fed on pause though would unravel the dollar, sending gold and goldstocks to the moon. You could probably make money in the stock market bygoing long tech stocks and selling and going short the day the Fed pauseson interest rates. I'm not interested in doing that as I think more moneyis to be made in gold stocks, but that's the type of scenario that I'dexpect to play out one way or another.
The past few weeks have really been manic in the markets. How can the Fedgo from scaring the markets to fueling a rally so quickly. How can theyflipflop like this? Investors have been thrown for a loop. You can seethe frustration and confusion over the Fed every night if you turn on JimCramer's Mad Money if you look in his eyes and hear the angst of hiscallers.
The Fed seems to be inconsistent, but there is a logic to itsconsistency. There is nothing confusing about what the Fed has beendoing. The Fed has been obsessed with its image and has been trying tocontrol it.
When Ben Bernanke took over he already he a reputation for being soft oninflation. He has made various statements over the years to the effectthe Fed should print money to stop the economy from slowing. During thestock market bust of 2000 he said that the Fed had a "printingpress" that could make the market go up and said that if he were FedChairman he would drop money from helicopters if necessary.
During the first few weeks as Fed Chairman, Bernanke made some hawkishstatements on inflation that caused the market to drop for a few days.Then he told CNBC's Maria Bartiromo that he thought the marketoverreacted. But of course, the market rallied as a result. He then saidhe thought he made a mistake in talking with her putting another scar onhis reputation.
The Fed wants to pause. There are clear signs that the economy isdecelerating and the Fed is concerned with the slowing housing market.However, the Fed also has a reputation to keep, one that has been damagedby Bernanke's ineptness. The statements about inflation were an attemptto restore the Fed's credibility.
The last FOMC statement said that the Fed will look to the data todetermine its next course of action. If incoming data remains weak thenthe Fed will feel comfortable in easing on the interest rate pedal asthey believe they have restored their credibility with the toughtalks.
This is, in effect, the most political Fed I've ever seen. I didn't muchcare for Greenspan, but so far Bernanke has been ten times worse. All ofthe inconsistent statements have had a consistent purpose - damagecontrol. It shouldn't be too much of a surprise though as Bernanke's lastjob was as head of the President's economic team - a job that is nothingbut political as it basically involves selling the President's economicprograms to the public. I wouldn't want a past political operative ofeither party in charge of the Fed.
It's going to be an interesting summer - one that I'm looking forward to.I'm going to do an in-depth examination of the Top 10 Lists and go oversome recent developments in several of the gold stocks this week. This isthe time to properly position yourself for a summer rally. We need toanalyze the stocks and see which ones might lag and which might lead themarket.
If you have any thoughts on the website email us atsupport@wallstreetwindow.com.
Top10 Blue Chip Stocks With Market Caps Above $500 Million
Yamana Gold(AMEX: AUY, Toronto: YRI) 5/05/06 $11.25
Glamis Gold(NYSE: GLG) 5/22/06 $33.55
Bema Gold(AMEX: BGO) 5/22/06 $4.75
Agnico Eagle(NYSE: AEM) 5/22/06 $32.45
NovaGold(AMEX: NG, Tortonto: NG) 5/30/06 $14.00
Southern Copper(NYSE: PCU) yields 12.90% at entry point 602/06$87.60
Meridian Gold(NYSE: MDG) 6/02/06 $32.25
Eldorado(AMEX: EGO) 6/13/06 $4.21
Tanzanian Royalty Exploration(AMEX: TRE) 6/13/06 $6.40
Top10 Emerging Growth Stocks With Market Caps Below $500 Million
Paramount Gold Mining(OTC: PGDP) 4/24/06 $3.40
Eaglecrest Explorations(Vancouver: EEL) 4/26/06 $0.60
Battle Mountain Gold(OTCBB: BMGX) 4/27/06 $0.58
Blue Pearl Minig(Toronto: BLE) 5/09/06 $3.20
Alhambra Resources(Vancouver: ALH) 5/10/06 $2.78
Gold Reserve(AMEX: GRZ, Toronto: GRZ) 5/30/06 $7.27
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