Thursday, August 16, 2007

Has everyone sold?

After this afternoon’s miracle rally, a short term bottom in equities appears be in. Financials which led the charge downward were the big winner today. The Russell 2000 appeared to have made a double bottom with positive divergence. Small caps led the way down, and now they appear to be leading the way back up. It remains to be seen whether we’ll see new highs or just a relief rally. While the liquidity crisis may be slowly under control, I expect to see real losses in the financial sector. Likewise, should we have a recession, small caps will be hit much harder than their larger cap brethrens.

Gold, far from being a safe haven, really took it on the chin today. It was down $25 at one point. HUI busted down an eight-month, slightly upward channel.

Gold was part of a major sell-off in commodity related stocks today. The apparent trigger was the deadline for hedge fund redemptions. Anything that they were even suspected holding were sold down hard. The credit squeeze and the subsequent liquidity injection were the catalyst that gold bugs were hoping for to send the yellow metal soaring. So I’m left to wonder if that are anyone besides the most masochistic ones who hasn’t sold.

For kicks, I looked up the Alexa traffic reach for Kitco, the preeminent gold website. I was amazed to see well resolved peaks corresponding to Dec 03 and May 06 – previous peaks in the PM complex. Traffic, and popular interest by inference, has steadily declined during the current correction and now stands at a level last seen in 2002. There may be a conclusion somewhere, but I’m too gun-shy to say it…

Let’s remember that markets always do the right thing, just not at the right time.