1/4/06 Pre-Market Notes

"Investors should start planning for a recession." That's the word from James F. Smith, finance professor at the University of North Carolina, Chapel Hill, NC. Mr. Smith's views are quoted because he finished first out of the 66 economists in a Bloomberg survey last year regarding forecasts about where interest rate yields would finish 2005. Now, Professor Smith says, "When the curve inverts, run for the exits. It will stay that way until the Fed realizes it caused a recession in 2007. Investors should start planning for a recession." Mr. Smith served as a Fed economist from 1975-77. His views are the exact opposite of Louis Navellier's MarketMail, linked in yesterday's blog. Differences of opinion are what makes a market.
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And what a market it was yesterday. Big numbers on heavy volume and happy days are here again, I see. But at the same time, I noticed that resource and energy stocks were up big, and the XAU gold index was up over 6%. The people who are driving the gold market upward are not betting on happier times.
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I finished 2005 with no trading positions, just core positions in my three mutual funds and the stocks I keep in the long term port. I initiated two trades yesterday morning, which I am still in. Went long on PCU, a copper play that has over a 9% dividend yield. Even when the trade is over, I may keep part of the position in the long term port to take advantage of the dividend. I have become fond of dividends in the last year or two. It is surprising what a difference they can make. Anyway, the reason I went long was because PCU made a new 20 hour high on the hourly chart and is trading above its 50 day moving average, so I bought the breakout. So far, so good. Since this is such a short term trade, based on hourly charts, I'll move the trailing stop up and keep my finger on the trigger for an exit on the short term position of the trade.
...The other trade was a short on XMSR. With the benefit of 20/20 hindsight, that already looks like a mistake since the stock was up big yesterday afternoon. But in the morning it was down and hit a new 20 day low. Since it is trading below its 50 and 200 day moving averages and has been making a series of lower highs and lower lows, I bought the breakout to the downside only to see it immediately reverse. But it still hasn't hit my uncle point, so still in that one, too. I don't pay too much attention to technicals on stock trades anymore, but as an old time techie, I do notice that the stochastic indicator is coming out of oversold, too, and that bodes ill for me regarding this trade. Basically yesterday the two trades offset each other and the core positions did well, so it was a good day.
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"...in 2005, people in the aggregate spent more than they earned -- the first time this has happened for a full year since the Great Depression," Dr. Irwin Kellner, MarketWatch chief economist. Good article. He notes that optimists think that businesses will pick up the slack when consumers start cutting back this year, but he doubts it.
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