Thursday, March 30, 2006

Market Review March 30, 2006

The market action in the past couple of days is definitely worth commenting. On Tuesday, the FOMC raised short term rates by 0.25% as expected by just about everyone on this planet. The accompanying statement indicated a proclivity to continue tightening. The market duly took a swoon, breaking the 1295 support level for the S&P. This was followed by a strong up move on Wednesday with an advance/decline ratio of 2 to 1. Even though it was accomplished by much concerted cheerleading by the “one more and done” crowd, and smack of a little quarter end window dressing, the action must be acknowledged. For now, I can only state the obvious: the S&P has found a new trading range of 1300-1310. The bias, especially the Nasdaq, is up. I have been public with my cautious views on the general market, and have established hedging positions. I’m still not changing my stance here: I will keep URPIX for now. As for BEARX, it actually went up 1 cent on Wednesday due to its gold component.

Speaking of the gold sector, I have not written about it of late. The reason wasn’t my last sale of Silver Wheaten (SLW) just before silver took off, rather it was because I thought the precious metal complex was due for a 6-month respite to digest the up move of wave 1 of III (in Elliott Wave parlance) from last May. Well, gold and the HUI has perked up, to put it mildly. As of this writing, HUI is up 3% at 340+; spot gold closed Nymex trading up $12.70 at $585.80/oz, while silver closed up $0.47 at $11.54/oz. Jack Chan, who has been spot on during this bull, wrote about the recent break out in this article (dated 3/25). As he pointed out, this scenario outlined in this post based on the HUI:Gold ratio may yet come to pass. If the HUI can take out the old high of 350, 390 is probably a given. I regard my current allocation (~20% of the actively managed accounts) to PM equities to be my core PM position. I’m on the look out for a couple junior miners/explorers if the situation warrants. My target allocation here is 35% for precious metals, of which 2/3 are for equities (including CEF), and 1/3 for physical bullion.

The other development today was the sharp increase in base metal prices, e.g. copper at $2.47/lb. I decided to bite and bought 200 sh of BHP Billiton (BHP, @$39.75) and 100 sh of Inco (N, @$51.60) near the open. These are intended as long-term holds. My target allocation for non-PM commodities is also 35%, of which half is earmarked for oil and gas companies, and the other half for alternative energy, uranium, coal, base metals and PCRDX.

As I continue to disclose my buy and sell decisions, let me stress again that none of this is meant to be an advice to buy or sell any securities. The intention of this blog is, as always, to inform and motivate you to start your own research.