Traders Left Wondering and Waiting

Equity markets are showing strength on the back of challenging economic data, and more warnings from bankers about losses, write-downs to come, and so forth. There have been some positive earnings surprises (Hewlett-Packard (HPQ), for one), but in the main, traders are left scratching their heads why prices are firm.

My take is that Asia-Pacific markets are still frothy, where traders are looking for any encouragement to push prices higher so they can sell into strength. There is a considerable rotation out of high-risk stocks and industries as this process continues. For example, Wednesday, Garmin (GRMN) management guided lower after some terrific past quarter results and the stock sold down -7.2 pct on +417 pct average daily volume.

So, I don’t think traders are missing the significance of the underlying weakness, but they are quietly going about their business of using the media to hype certain industries and stocks for the moment as they sell into the higher bids.

As for the huge rally in platinum and palladium, and to a lesser extent silver, one has to think that (i) there are some short squeezes underway in the spot markets, and (ii) if the rally doesn’t come to a halt soon, then gold will join it and drive to $1000, despite any strength occurring in the $USD.

This rally could last into early March (PDAC is March 2-5) where in past years, there was a subsequent strong pull-back as the mining crowd were falling all over themselves in glee that metals prices were bursting at the seams.

Then there are the contrived actions of management to line up the profitability (paint lipstick on pigs as we say) at a cycle top.

For now, traders in precious metals have, from necessity, become day traders. Economic slowing, however, is the challenge to the top line. Rising inflation is the challenge to the bottom line. At some point, these forces will have an impact.