Defensive Trading in Front of Rita Wreaks Havoc on Trades

Selling in front of Rita continued yesterday putting market players in a defensive posture. As we stated last week, this environment demands flexibility. Rita threatens to be as destructive as Katrina, and as such could strike a hard blow to the US economy and cause energy prices to spike even higher. Gold prices are extended, but after closer examination of the sector, we question whether the miners are still shortable here. We will need to see prices start to roll over before we would get serious about shorting the sector. Meanwhile energy prices are ramping up once again and big money is making bets on higher prices as many issues are seeing large volume breakouts in front of Rita. Prices may or may not reverse next week as profit taking hits the news (they certainly didn’t in the wake of Katrina), but right now the sector is very strong.