Monday, May 15, 2006

Commodities bloodshed

First I need to make a clarification in case you missed my update in the comment section of the previous post. According to CME, the housing futures are to commence trading next Monday, instead of today as mentioned in the MSN article.

Now let me go straight to the subject of this post. Commodities took a hit to day -- this is probably the understatement of the month. Gold finished down over $30 and silver over $1. The HUI was down almost 7% at 343. Base metal stocks like BHP and PD were down 6+%, and oil stocks, and emerging market stocks... You get the picture. It's a fair statement to say that I had foreseen the decline, but the sererity of the plunge is still impressive.

I closed out a number of positions in the morning as planned over the weekend: N (Inco @ $63.91, +23.5%), IUCPF (International Uranium @ $5.2866, +48.2%), DVN (Devon Energy, 100 sh @ $58, -10.4%), CHK (Chesapeake Energy @ $30.83, -6.5%). For now I plan to hold onto the rest of my commodity stocks and wait for sunnier days ahead.

Despite all that carnage, my portfolios are down only around 1% month to date -- thanks mostly to the defensive actions I took last week. My investing philosophy mostly calls for long time holding in sectors that are in secular bull trends and swing trading only when clear signals are in place. In that sense, the recent flurry of activity is quite abnormal although necessary at this important market juncture.

The NASDAQ is very over sold right now, so a bounce is probably in order. I'll try to increase my short side exposure through USPIX (2x inverser NASDAZ 100 fund) by the end of this week. This Friday is options expiration day and I'm still eyeing the next Monday's debut of CME housing futures as a potential death knell for the market. On the other hand, the S&P held the support level at 1285 today and the Dow remains the strongest of the major indices. This is not an out-and-out correction yet.