Gold Buy-Stop Executed, New Equity Shorts
Dow Jones Industrial Average 11,556
Value Line Arithmetic Index 2,127
30-Year Treasury Yield (TYX) 5.23%
20+ Year Treasury Bond Price (TLT) 83.35
Gold 1/10 Ounce (GLD) $71.60
The Big Picture for Stocks
The 4-year cycle calls for a bear market bottom in late 2006.
Technical Trendicator (1-4 month trend):
Stock Prices Down
Bond Prices Down
Gold Price Up (See below)
Our buy-stop was executed the day after the sell. So we are back in GLD on the long side as of May 4 at 67.15 per last week's newsletter. We didn't miss much of this explosive rally as the buy-stop put us right back in. We've captured 95% of the move in the last year. As we have stated before, precious metals look just like tech stocks in the late 1990's. Same song; different verse.
Every month I have a meeting with a bunch of guys that includes some retired money managers of large pension funds. At our last meeting, all of them expressed ignorance of the ETF's for gold that are listed on the New York Stock Exchange. These ETF's add a huge new market for gold buyers, namely pension funds. My friends' surprising ignorance that you can buy gold on the NYSE was further confirmation to me that we have a long way to go before gold is no longer an under-owned asset.
The Fed squelched the euphoria for stocks yesterday with their failure to assure the markets that their rate raises are nearing an end. The chances of a serious sell-off for stocks continues to increase. Accordingly, I have been looking around for individual stocks to short, in addition to our ETF shorts. I am looking for stocks with market multiples of twice the market, are overbought technically, and could have negative surprises ahead. Our first such idea is being added to our Special Situations list. Details on our website.
Here is an update on our hedge of being short RIMM and long PALM that we have had in place since December of 2004. We have a nice profit on both sides of this trade. And the trade still looks like it has more room to improve. Here's why:
RIMM's psr (price-to-sales ratio is 6.61) http://finance.yahoo.com/q/ks?s=RIMM
PALM's psr is 1.54 (http://finance.yahoo.com/q/ks?s=PALM)
This would seem to be a classic case of market psychology mis-pricing equities.