Riding the Flat Line

Riding the Flat Line:

This week in the Standard Portfolio we took profits of +3.5% in GLD, and in the Ultra Portfolio, we made realized gains of +6.5% in UGL and +1.2% in TWM. Since May 11th, we have posted realized and unrealized gains in 5 out of 7 of our trades.

Gold remains a trading vehicle rather than an investment at this time as its price is much where it was in February. But long term inflation should drive the precious metals higher and we will look for opportunities ahead to re enter this market.

Last week, the markets continued riding the flat line along the 940 level on the S&P with some big daily opening gaps up and down and finishing +0.6% for the week compared to last Friday's close. The reaction to "less bad" news was more muted than we've seen in past weeks and by all measures, this market remains significantly overbought and facing increasing headwinds in the form of higher oil prices, a stressed out consumer, and rising interest rates.

One way or another and sooner rather than later, the major indexes wil break out of this flat line they have been painting.

I've been biased towards the next move being towards the downside, however, as impossible as it seems, many of my technical indicators shifted this week from weakening trends back to positive and the short term trend is still up.

How long this will last, I don't know but there does appear to be more upside potential in the short term.

Markets can stay overbought for a long time and price action can have nothing to do with "reality;" but in the final analysis, the only "reality" is the tape.

The View from 35,000 Feet

Last week the Eurozone reported that industrial production dropped a shocking -21.6% for the most recent quarter, the largest since 1986 when this data collection began. And they have their own version of TARP, with their bank rescue package costing more than the entire Gross Domestic Product of Germany, the world's 4th largest economy.

On our own shores, the Fed "Beige Book" of economic activity this week described stabilizing conditions in about half their regions but that "stringent" loan conditions and a "weak" labor market persisted. The report also stated that they "don't see substantial increase in economic activity through the end of the year," and that wages are generally remaining flat or falling while commercial real estate vacancy rates increased in many parts of the United States.

But consumer confidence registered its 4th straight monthly gain, although was less than expected, and consumer expectations, what people expect economically six months from now, fell in June.

Initial jobless claims fell this week to the lowest level since January but continuing claims rose to a 19th straight record of 6.82 million unemployed with many analysts forecasting unemployment to reach +10% late this year or early next. Saving rates are up and spending for the year is forecast to decline by -0.7%, the worst since 1974.

It's hard not to be bearish when one reads the news, but I'm going to stick to our technical discipline. When we next get a "red flag flying," alert, I 'm looking forward to positioning our portfolios to try to take advantage of that and aggressively seek profits on the short side during any correction. A correction is certainly overdue and could be a great opportunity. In the meantime, it appears the general indexes want to continue moving higher for the short term.

The Week Ahead:

Some significant reports this week with market moving potential: Tuesday will be huge for economic data and Thursday we might see the first fallout from the recent GM bankruptcy in the weekly jobless claims report.

Monday: New York Empire Index.

Tuesday: May Housing Starts, May Building Permits, May Producer Price Index, May Capacity Utilization, May Industrial Production

Wednesday: May Consumer Price Index

Thursday: Weekly Jobless Claims, May Leading Economic Indicators, June Philly Fed Report

Sector Spotlight:

Weekly Leaders: Oil, British Pound, Brazil Index

Weekly Laggards: Real Estate, Taiwan Index, Hong Kong

This week I was in Frankfurt, Germany, where it is still "white asparagus season" which was truly a delight, and Frankfurt on a sunny day is a wonderful place to be.

I talk frequently about the importance of patience and discipline in our investing and I'm thinking a lot these days about a British World War II propaganda poster that was printed up but never used.

Its message is "Keep Calm and Carry On," and certainly that's good advice for us today and in the weeks and months ahead.

Disclosure: GLD, UGL, SLV, TWM, AGQ, EWZ, UWM

Comments

[SivBum:]

Agree that the trend is up but still not time to buy-and-hold. The hockey stick rise in major indices since Mar lows provides fun times for day and swing traders. Though VIX has fallen to 30, lowest since last Oct, but still higher than 15 during boom times.

Jun 15 10:32 AM