Tuesday, May 30, 2006

Selling resumes

The results today bears no repeating, the only remaining suspense is whether it qualifies as another Lowry’s 90% down day. If there is any silver lining, even a thin one, it’s the volume which, although above Friday’s, was still below average. But volume only lends credence to, and by no means replaces, price action. Given such one-sided selling, slightly lighter volume after a long weekend is unlikely to prevent the bears from rejoicing.

I’m not sure where all the talk about the resemblance to ’87 came from. The macro environment may be similar to ‘87, but the price action resembles much more that of September 2000 in that the descent seems well controlled. Given the low volatility in this liquidity infused cyclical bull, I wouldn’t be surprised if this down turn stretches out in time.

Commodity stocks were strong in the morning after Paulsen was named to be the new Treasury Secretary (Much was written about how much money GS made on “fixed income, currency, and commodities” last quarter. Maybe that’s the real reason behind the dollar weakness?) But they ultimately ended lower, putting in a bearish reversal. As can be surmised from my writings earlier, I don’t think this is either the place or the time to be adding to commodity positions. Nonetheless, commodity stocks were stronger than the rest of the market which suited my cross-hedging strategy well. My main account at TDAmeritrade where most of the short positions reside actually gained 2% today.

I try to position and plan my portfolio according to my outlook which is usually for several months. I see myself taking little action in the next week or two. If the market surges miraculously I’ll try to add to my short positions at the top. If the selling continues, I’ll probably take partial profits in the puts and see if I will have equal luck with some cheap calls. For PMs, my goal is to add near the end of the “A” leg that I think might occur in late June to July at HUI=280 or below.

If I’m allowed to indulge in some fancy, big picture-wise I see the Fed over-tightening, further exacerbating the housing malaise, leading to the resurfacing of the “d” word followed with reinflation by the global monetary authority. I guess you can label me an "inflationist", although I will admit a lot depends on the Fed's reaction to deflationary pressures. Even though I’m quite fond of the Kondratieff cycle theory, I see this K-winter ultimately given way to the larger order of wave that is the West-to-East wealth transfer.

That’s it for now. Good luck and be safe!