Wednesday, May 03, 2006
The bulls were able to hang on after Monday's thrashing. A near term floor may in fact be in place here. Once again however the tech sector is lagging the blue chips. The Dow and S&P are trading at multi year highs and threatening a break higher while the Nasdaq and semi conductor indices are trading at support. Relying primarily on Japanese candlestick analysis, tech has support and should turn up from here. We have a feeling however that it will be pulled along by the strength of the Dow and S&P rather than move up on its own volition. Nevertheless, the long term prospects of the market don't appear to be in danger of breaking down just yet and we may in fact have a nice trading bottom in place. If the Nasdaq rallies weakly, it may set up a good short scenario, but let's not try and project too much here as the market is always full of surprises. A lot of people are looking for the metals sector to break down letting the money roll back into tech. We think that just the fact that so many are looking for this scenario to take place means that it will not. The market does a great job fooling the largest number of people; it always has and it always will. Some of the silver companies took a hit yesterday but this had more to do with nationalization threats from the country of Bolivia than it did on actual supply and demand for silver. In fact, the metal itself has a new ETF that lets those without commodities accounts to buy silver directly. Note that this ETF (ticker SLV) traded up yesterday as the mining companies lost footing. It may be that a lot of investors are rolling their money out of the companies, which in many cases are not fundamentally sound, and into the metal itself. Meanwhile gold, the metal, and gold mining companies kept right on climbing yesterday. The ETF (ticker GLD) is probably getting pretty close to a trading top, but a number of mining companies are still in the process of higher base building and we can find very few divergences that might indicate the miners are ready to break down. That other commodity that has everyone gnashing their teeth when they head to the pumps, oil, likewise continues to move higher. We believe that $70 will now act as the floor and that there is no end in sight for the climb in this sector. Pundits may be right, we may be on the verge of a rotation out of commodities and into tech but until we see it actually happen it all amounts to just so much wishful thinking.