MARKET COMMENT
January 4, 2007
This is a sloppy way to usher in a new year of investing
follies. But, as subscribers know wanted
to close all my positions at year-end and go tramping in Patagonia
for a month. It seems that may have been
a good idea. But “ideas” come and go and
are hardly ever recorded accurately with only the “good ideas” being
cherry-picked from our memory banks.
The collapse in various commodity markets and ETFs associated with those sectors sends a lousy economic
message—hint, a serious economic slowdown.
But with so much liquidity still in the hands of hedge funds and trading
desks they’ll chase any money-making opportunity. Today it was go for tech and sell hard
assets.
We’ve been pointing-out over the past few weeks that it was
important for copper to hold support around $3, and recently noted that when it
broke it could prove serious. This price
action will probably result in some trouble for some fund managers and we’ll no
doubt be reading about it soon. Copper
is a primary metal for industry. A sharp
fall means there isn’t much demand and economic conditions are weakening.
[The following chart is the active contract and reflects
this sharp break with immediate support looming at $2.5]
[Below is the active crude oil contract for February and you
can see how warm weather “plus” the possibility of slower economic conditions can
negatively impact demand. Included is a negative psychological
spillover from the decline in copper and other commodities and a “get me out”
of the sector mentality.]
Sometimes you just have to step aside and wait patiently for
a better opportunity.
The beneficiary of today’s action was tech and safer income
sectors. The latter I understand while
the former was a herd mentality sparked by an upgrade in INTC early in the day
by BofA Securities.
Who are we to argue? But, it sure
seems ludicrous on the surface.
Well, I could go on, but you get the idea. This has been a pretty messy affair this
week. Tomorrow we get the jobs data and
notwithstanding other issues, it should be a market moving affair. Complacency and a willingness to shrug-off
bad news when loaded with cash have been the hallmark of the 2003-2006 bull
market. No one knows if this will
continue.
As we said over the weekend, we were going to take the train
ride in Ecuador
called Nariz el Diablo [the “Devil’s Nose”] which
winds up the mountain and reverses back down. [Oh, and if you’re lucky, you get to ride on
top as it hangs over the canyons below] The best part was the three hour drive from Cuenca to Alausi
thru the beautiful Andes. Since we didn’t get back until late we couldn’t
post a comment last night. But perhaps
you’ll enjoy the pictures.
Have a pleasant evening.
Disclaimer: Among
other issues, The ETF Digest maintains positions in: XLE, GLD, FXE, ILF, TRF, EWA, QQQQ, FDN and
DVY.