Sunday, September 24, 2006

Random thoughts, Sept 23, 2006

I haven’t been writing about the markets lately. Instead, I have been reading two fantastic interviews of traders by J. D. Schwager: Market Wizards and The New Market Wizards. I was flatly not happy with the way I handled the last turn in the PM market, especially how I ignored my own money management rules. I hope to post some thoughts about trading psychology here in the future.

Meanwhile, let me just say that I haven’t liquidated my PM positions at all. My longer term bullish view is still intact. I should have exited perhaps half when the resistance at HUI=353.5 was violated (link), but I was too married to my own predictions of an immediate lift-off. To be fair, quite a number of other advisors were bullish at the same time – such was the market’s irony. Adam Hamilton has an excellent write-up on the whole situation this week. I’m now fully prepared for the HUI to test the June lows or even 260 from which it broke out last December.

This week’s weak numbers from the Philadelphia Fed seems to have finally put the weak economy front and center. The market held up well earlier in the week in the face of the coup in Thailand, the theatrics at the UN, and the implosion of the hedge fund Amaranth, but promptly swooned after the Philly Fed reported sharply dropping manufacture activity, as if to demonstrate again that fundamentals always trump one-time exigencies. The slow-down was not at all a surprise since real PCE has been on a southerly course since April. I expect a renewed deflation scare after the full scale of the housing debacle is realized. The Fed’s next action should be a rate-cut which should drive up the price of gold – that’s the theory at least.