Wednesday, May 10, 2006
There are a couple of huge bull markets taking place right now and most people are missing out. Nearly every commentator we read is still hoping against hope for a rotation into the tech sector. The rising Dow and S&P continue to entice investors in with promises of a new leg up in the secular bull market. As they patiently await their shares to start climbing they will grow increasingly as selling pressures continue to erode good set ups. The frog is getting cooked ladies and gentlemen. Most have heard how a frog if placed in a pan of cool water will eventually remain in the water too long to its own demise if the water is heated gradually. This is what is happening in the broader market right now. A few blue chip companies are propping up the major indices and stocks beneath the surface are slowly and efficiently experiencing distribution. Yesterday the Dow and S&P rose on sick levels of volume. Volume is the fuel that drives the market and right now the market is almost out of gas. Driving home this point are the advance decline numbers. As the blue chip indices rose more than half of the underlying stocks were actually in decline. Even worse the put/call ratio on the OEX had speculators buying 5 calls for every put! Generally a put/call ratio of 2 calls purchased against every put reveals an overly bullish sentiment. 5/1 is more than extreme. Today the FOMC meets and speculators are making a huge bullish bet. But as we stated, there are a couple of huge bull markets taking place and most are ignoring them. Gold sliced through $700 oz yesterday and gold stocks firmed up on very nice volume. As incredible as it may seem this market still shows signs of accumulation and not a blow off top. Sure there will be corrections, but these will be buying opportunities. Oil likewise continues to put in a bottom and it too will likely make a new leg higher over coming weeks and/or months. The other bull market though is in ADRs (American Depository Receipts). Europe and Asia have a number of stocks that are in real bull trends – of the type we haven't seen in the US markets for over a year. Risk is comparably low in these trends and the reward is very promising. We are excited about these opportunities and are already profiting from them while the average investor continues to slowly cook in the pot of stew that smart money is serving up for them.