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Fleck Rap



Mamma and Baby Leave Papa Behind

In the early going today, stocks were under a fair amount of pressure, with the major indices down 0.75% to 1%, before stabilizing and putting together a rally in the afternoon that recouped most of those losses. The market did come in a little bit in the last hour, but finished pretty close to its best levels of the day. As per today's box scores, the net changes were pretty small.

In terms of beneath-the-surface action, financial stocks were quite strong and tech stocks again very heavy. To me, tech continues to trade very poorly. The tape in general seems to be struggling, though it just doesn't appear to want to crack just yet. That said, away from the well-known names, the magnitude of speculation is breathtaking.

Green-Hot Mamma

Two days ago, I noted a handful of highfliers, and today I'd like to update what's going on in mania land. When I mentioned to a friend that the dogs and cats were running it, he said, yeah, and so are the mice and fleas. In the last two days, MAMA ( has rocketed from $4 to $16. Its previous average trading volume was about 100,00 shares, and in the last two days, it's traded just about 60 million shares each day.

Junior Has a Growth Spurt

Of course, if mamma is doing well, baby ought to be doing well, also. And in fact, BABY (Natus Medical) has seen its shares run from $4.50 to $7. It, too, was a stock that tended to trade by appointment only, though today it traded about 10 million shares. Once I saw what was happening with MAMA and BABY, I checked out PAPA, but lo and behold, that company had been acquired, so there was no trade potential in PAPA.

Bears Read "Get-a-Bead Gazette"

When I put a summation sign under tech's labored action, rampant speculation, and the tug-of-war in the sound-bite averages, it suggests to me that we are very late in this game. However, that doesn't mean we can't have another blast to the upside. I think we'll probably know a lot more about where we are after seeing how the market reacts to what Intel announces tomorrow night (my expectation: it won't say too much).

Last night, Xilinx had good news and the stock went down, and Seagate had modestly bad news and that stock did not sink. We have seen a handful of tech stocks report good news, and not only not go up, but go down. So, I am hoping that between Intel's update and the employment report, we'll find out whether stocks are ready to go down right here and now, or whether they want to run one more time before we get to that point.

A Rap Roadmap, Refreshed

All the above is by way of updating my roadmap for 2004, which I started in the first column of this year. At that time, I opined that the environment would be very binary, meaning that stocks would either continue to go up as long as they went up, or when they went down, it would be quite a wipeout. And it seems to me that we are approaching the endgame, though given the fact that we've got more stimulus (in the form of the tax refunds slated to hit consumers' mailboxes shortly), this could go on for a while longer.

When you're groping for the end of a move, it's very difficult to catch the exact turning point. In this case, I think that getting close (if a little late) will be good enough, because the downside, once the stimulus has run its course, will likely be quite spectacular. I think we'll learn a lot about how much time is left on the clock of stock speculation once we see how the market trades, say, Friday and Monday.

Opportunity in Euro Woe

Turning to my roadmap for precious metals and foreign currencies, I'd like to preface that with today's action -- which was absolutely wild. The euro was plunging again, at one time down just about 2%. I stepped up to bat during that plunge and bought some euros for a trade. My reasoning: I think the decline has been overdone, and I don't think the ECB will cut rates tomorrow, which should set the stage for a trade back up in the euro. However, I feel that if the ECB were to cut rates, it would be so bullish for the metals (though maybe not instantaneously) that I am willing to accept the risk of being long the euro for the next couple of days (due to the great opportunity it might present in the metals). This is the first time I have owned euros since last year.

Turning to the Aussie dollar, it too was pounded as lots of motion was precipitated in the outside markets, trading down just about 3% near its lows of 74 cents, before rallying to cut its losses in half. I had recently added a small amount to my Aussie-dollars position and did not buy any today, as I'd really like to see what the next couple days' action brings before doing so.

My belief as to where we stand in the currency markets is this: We are pretty deep into the big correction that I was fretting about at the beginning of the year. Maybe this lasts for another month or six weeks. Maybe the euro is ultimately going to go to $1.17, $1.18. Who knows? In any case, I think we are deep into that process. I say that not so much because I am so desirous of owning foreign currencies but because it's an important piece of the puzzle as to where we are with the metals.

Silver Struts Among the Hedges

Speaking of which, gold closed down about a buck today to $392.70, after having been down about $6. Silver was a complete and total stallion, closing up 3 cents, after at one point having been up 10 cents on the day. The aforementioned puke in the euro is what helped to precipitate the lows in the precious metals, and it also pulled the rug out of copper, for instance, which was down about 5%. But copper didn't come back as well as gold and silver did, with silver being in a class all by itself today.

A dealer I talked to after metals trading closed said he was scratching his head at the amazing strength of silver. He noted also that "the right kind of people" were buying gold, i.e., there were producers taking back hedges. The feeling from him, whom I respect, is that gold may have another $10 left in it on the downside, but it will be a bit of hand-to-hand combat to take it down there (as speculators cough up their positions to producers reducing their hedges). In other words, all the right kinds of things are happening.

Latter Chapters of a Correction

Whether the floor is another $10 lower from here or has been seen, I don't know. But we are getting pretty deep into the gold correction, and the driving force behind it has been the tanking of currencies. The catalyst for the currencies' swoon has been the guys who run them trying to prevent them from going higher, which is bullish for gold, but isn't perceived that way right now. In addition, part of what's happened in the metals is that lots of people have chosen to trade around their position because it looks so easy. It seems so stupid to sit there during a correction.

Judging from the people I talk to and some of my email, I think a lot of folks have done this, and a lot of people are questioning the viability of the gold bull market, and wondering if the dollar bear market isn't over. To which I would say: That is the purpose of a correction -- to get everyone to modify his behavior or his view, and that is how bull markets leave people in the lurch.

While on the subject of gold, Pierre Lassonde, the president of our favorite gold company, told a gold conference yesterday, as reported byBloomberg, that the gold rally "hasn't even started." He said that the Federal Reserve "doesn't have the room" to raise interest rates, and that "if the Fed tries to move up short-term interest rates, it's going to kill housing, it's going to kill the automobile market, and send the U.S. economy into a deflationary spiral." Well, I don't know about the deflationary spiral, but most of what he said I would agree with. Even though the correction has been a bit white-knucklish at certain moments, we can't forget the reasons why we want to own gold in the first place. He has touched on a couple of them.

A Street Map Paved with Silver and Gold

Back to my metals roadmap, my gold position is fairly chunky. I have room to add to it if gold grinds lower, or I see some other things that I like. My Newmont position is at full strength, and I have bought some calls, though I haven't added to my trading position there. My Pan American position has been slightly modified. Regrettably, I own no position in silver bullion, because it just won't seem to let me in, though I do have a good-sized position in Pan American.

I would like to get bigger in gold and perhaps attempt to buy some gold calls. I'd also like to buy some more Newmont calls. I always try to have a plan (however wrong it may turn out to be), because when you are presented with moments in time when something that you like is plunging, it's best to be prepared and know what you want to do.

To sum up, I don't find myself in the crowd that's worrying about gold going back to $350 or $330, or that the dollar will have some enormous run because the bear market in the dollar is over. Those aren't my views. Could I be wrong about all of this? Sure I could. All we can do is take our views and process the information as we get it, and modify them as best we can. Hopefully, that will provide folks with food for thought as we go into what could be a volatile period in the next group of days, and provide some input as to what markets might be worth trying to capitalize on.

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