Wednesday, November 16, 2005

Channel Traders Fight for Control: Will They Win Again?


The current rally comes under pressure. As expected the S&P500 and nasdaq composite have met with technical resistance in the 1240 and 2200 area respectfully, as channel traders sell. Adding additional pressure is the fact that it is options expiration week. Volatility generally increases at this time as large traders rebalance their positions around expirations. However, as selling ensues bidders have come to buy the dips.


The stock market is at a real crossroads. Will channel traders win out again, or has their low volatility strategy grown old? Will this market break out out its long term trading range or lapse into its standard patterns? These questions are at the precipice of being answered by the market. In fact, the smart money has already begun to answer them. Institutional investors buying on the dips are holding the major indices at current levels. Smart money investors have had reason to buy this week. Inflation has come in lower than expected dropping the 10 year treasury yields below the 4.50% support level. Oil prices remain lower than the summer highs. And in the face of rising 3rd quarter interest rates and oil prices; 4th quarter earnings are expected to grow in double digits.

Our expectation is that stocks will continue under pressure in the short term then make a move higher into the end of the year. This assumes that the 10 year treasury rates stay below 4.65% and oil remains or falls from current levels ($58/barrel). That said, if rates and oil rise above stated levels or an unforeseen disaster takes place the market will likely move lower on the year. We continue with our current strategy of moving into new leaders. See our website at for details on the positions in our fund.

  • IAU - We recently added shares to our investment in the gold ETF. We continue to believe that structural changes in the global economy such as currency risk among non-dollar countries is increasing demand for gold. Further, greater demand for gold jewelry in China and India and the increasing difficulty miners are having extracting the metal add to demand. We believe that an investment in IAU is low risk with a potential for high returns.



Follow the money.

9:39 AM  

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