FYI | Oct 05 2006
By Greg Peel
Euphoria. That’s the best way to describe the mood on Wall Street overnight as an American public deemed to be largely underweight equities seemed to suddenly awake from six and a half years of slumber from the tech wreck to today.
A previous high is always a psychological barrier that, if it can be broken, will then be broken in style. There are no resistance levels in blue sky. It also helps when the Fed governor makes a speech that suggests while inflation and economic slowing are still being closely watched, things really aren’t that bad. Low mortgage rates and low unemployment will prevent a catastrophe in the housing market it seems.
It also helps that there is a mid-term congressional election in November. Conspiracy theory you say? No, it just turns out that the month of October is historically the best month of the year for the Dow Jones and the S&P 500 in a mid-term year. Hmmm.
(At least one observer believes the Dow Jones Index itself is being rigged by the Bush administration. See “Peely’s POV: The Dow Has Reached A New High. Or Has It?”, 04/10/06).
The Dow rallied 123 points or 1% to 11,850 last night, smashing the new record set on Tuesday. The S&P 500 chimed in with 1.2% and the “all is forgiven” Nasdaq surged ahead 2%.
While the Dow (30 industrial stocks only) may have broken old records, it should be noted that on Tuesday the S&P 500 (500 diversified stocks) was still 14% short of its 2000 high (that’s the year, not the price) and that the Nasdaq is still a long, long 55% from its highs.
There was a bit of short covering in oil overnight, which saw crude futures bounce 1.3% to US$59.50/bbl based on more violence in Nigeria and reports of an explosion at a Texas refinery.
Unfortunately this did nothing for the gold price, which has now broken through its 200-day moving average support and seems hell bent on retracing to US$550/oz at least, closing last night at US$566.60/oz. The smart money is now moving aside once more, as once again the upcoming November election is provoking queries as to why gold is falling fast while North Korea is preparing to fire. Hanky panky is once again suspected as a strong US dollar is needed ahead of – you guessed it – the November election.
There is also some talk of European central bank selling. A new year has commenced in the Washington Agreement, and there is nothing preventing renewed selling from Day 1.
GoldMoney.com’s James Turk suggests gold will bounce back over US$600/oz after the election, after which the suspicious sales will cease and the price will reach US$850/oz by year end. That seems a big call at this point. Look out for a more comprehensive gold report from FN Arena in the next day or two.