Market Comments

The stock market was a bit more active this week; unfortunately, the action was to the downside. The DOW was down just under 2% for the week, and the NASDAQ was down 2.35%.

Ge and Citigroup both got whacked pretty good for the week, leading the DOW down. The two worst performing sectors were the Semis down – 4.15% and the Airlines down – 4.03.

Adding to the airline’s problems was the price of crude – up $1.10 for the week and fast approaching its recent high as the chart below indicates:

 

The airline stocks did not like the price of oiling rising back up near the old highs and broke well below their 50 dma, and below the 200 dma as well.

Chart Courtesy of StockCharts.com

 

Other standouts in the above market wrap statistics was the put/call ration up 22%, the VIX up almost 22%, and most telling was the NYSE advance/decline line which was down just under 200%.

The rise in the VIX means they are starting to get a bit concerned – same as the put/call ratio. The advance/decline line and the increased volume on the big down day Friday shows the path of least resistance has been down.

There was no eye-catching action in the currency or gold markets. Interest rates continue to remain in a flat yield curve. The gold stocks showed good resiliency on Friday but still remain overbought. However, in bull markets stocks can stay overbought for a long time, and continue to become even more overbought. Nobody every said the markets are easy.

We do not recommend any buying at this time, except in Nova Gold on pullbacks. Silver still looks like its in play and may well reach higher highs. Risk takers try PAAS and CDE on pullbacks.

The Iran situation appears to be saber rattling. Russia softened their position of Friday. Expect the geo-political situation to be settled without force. The Iranian Oil Bourse, if it does occur, will not have any major impact of the US dollar, although there are other factors that could weigh heavily on the dollar.

Later in 2006 and beyond we expect rising interest rates will not have a positive affect on the dollar’s exchange rate as envisioned by most. This could well be one of the market moving events of the next couple of years.

The other themes or trends we are looking forward to taking further advantage of are gold, energy, and commodities. Both gold and commodities are presently extended, and should provide better entry levels in the not to distant future.

We have been, and will continue to sell into strength in the gold stocks to book profits. As far as the commodities, we are looking for a lower entry point for BHP Midland during the second half of the year once the overall stock market correction is over.

The charts below of the oil service groups and gold look very much alike. Note the chart of the oil group, and the gas group, however. Both look very similar to the Xau and the Hui chart several weeks ago when we wrote the article The Charts Are Talking. Who's Listening? concerning the gold stocks just prior to their breakout.

 

XAU INDEX

Chart Courtesy of StockCharts.com

 

Oil Services Index

Chart Courtesy of StockCharts.com

 

Oil Index – AMEX ($XOI)

Chart Courtesy of StockCharts.com

 

Natural Gas Index

Chart Courtesy of StockCharts.com

 

Aggressive players can accumulate positions in the oil and gas sector, especially on any corrections. That’s a wrap for this week. See you all next week.