Buzz Bits: Dow and Nasdaq End in the Red
Your daily Buzz & Banter highlights...
Minyan Mailbag: Small Caps vs. Large Caps - Kevin Depew - 3:17 PM
What do you make of the outperformance of the small caps vs. the large caps since Jan 9-14? Even today there's a big divergence in performance. It seems like a trend has broken: Any fundamental reason you can think of?
It's due to short covering rallies. There has actually been a longer-term shift in small caps vs. large caps which we've written about for a few months now.
It could change, but for now this looks identical to the February '07 short covering bounce that failed to reignite the five-year-plus period of outperformance for small caps.
- Prof. Depew
UltraShort Oil & Gas on the Rise - Michael Paulenoff - 2:33 PM
The DUG (UltraShort Oil & Gas, ETF), my hedge postion against a nasty but well overdue correction in the energy names and indices, is beginning to climb... Let's take a look..
After two weeks of sideways trading between 47.00 and 43.00, today's strength suggests that the DUG has completed a base-like pattern in the aftermath of its vicious correction from the 1/23 high at 54.64 to the 42.62 low on 1/30. However, completing a base is still one significant step from transcending a new upleg. The DUG must hurdle and sustain above 47.10/20 to trigger upside acceleration towards a retest of the January high.
Click to enlarge
What's Up With Gold? - Lance Lewis - 11:55 PM
Editor's note: We asked Professor Lewis his thoughts on the recent selling in gold and the growing sentiment of others building short positions in the precious metal.
The XAU/gold ratio is once again at 0.197, last seen on the Jan 23rd low in the XAU and HUI, which was the lowest this ratio has fallen to since the August low of 0.192. Many want to be a top picker but they haven't gone back in history to see how gold was overbought and stayed overbought when it broke out to all-time highs. This is what commodities do, especially after 30 year trading ranges are exceeded
Another examples is the Agricultural ETF (DBA), where many food commodities are making all-time highs. Wasn't that overbought in December and In January? It made another new all-time high yesterday.
Anybody shorting gold here is asking for trouble (just as top pickers were back in mid-January when gold also appeared to be "overbought"), and as the XAU/Gold ratio's 25 year history shows us, betting against the shares with a ratio below 0.20 has been a particularly bad bet from a purely probability-based point of view, as you can see in the chart below.
Click to enlarge
Position in gold, gold shares
Looking Forward - Adam Katz - 11:19 AM
Editor's Note: We asked Professor Katz's thoughts regarding this morning's ugly ISM Non-mfg data and where's he's putting his money.
Honestly, I am in a lot of cash. We had a very nice month in January, but I don't think the negativity is over. That said…I'm trading Sonicwall (SNWL) and Quest Software (QSFT) to the long side ahead of the numbers this week. I've been shorting gold as I expect others will have to lower their rates (with the exception of Australia) and so I expect the dollar to bounce. I'm also long some FXP which is an ultra short on the Shanghai market which was pointed out to me by fellow Minyan Gerry Vos.
I'm going to continue to wait for my pitches on the long side as I think that by and large, a mild recession is now built into the streets' numbers.
Position in SNWL, QSFT, FXP
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