Market Update

NOTE:  This Trading alert was originally emailed to subscribers at Ritholtz Research & Analytics on Wed 9/11/2006 3:26 PM EDT;

This is posted here not as investing advice, but
rather as an example of a trading call for potential subscribers. We
expect to post future advisories in a similar manner — after the call,
but in the correct chronological location on the blog.

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There are lots of cross currents in the markets today; Lets do a quick overview of 4 forces that seem to be confusing traders today:

Energy
Gold
Housing
Semiconductors

1) Energy prices have come down appreciably. The good news is there’s lots of oil supply, and as prices come down that should help consumers. The bad news is the Oil markets may possibly be forecasting a global slowdown. Its still early to draw any conclusions, and I find myself marveling over the mere hint of celebration that Oil is "down to $66."

2) While we have been saying — for quite some time now — that Gold is forecasting inflation, there is another entirely reputable school of thought that says Gold has already forecast inflation, and is now predicting DEFLATION. 

Again, its too early to tell, but I find myself intrigued by the notion of a bout of deflation following all the recent inflation. This would be very consistent with a slowing worldwide economy. (If you bought any of the Gold stocks we discussed last week, make sure you honor your stop losses).

3) Housing continues to show signs of a long slow drawn out fade. In working on our Macro Housing  piece (!), I spent time over the weekend speaking with some very shrewd, long term real estate investors and agents. I agree with their consensus — they foresee a great buying opportunity — but much further down the road. 

4) The possible private takeover of Freescale and some good technology developments from Samsung have the Tech sector shaking off early woes. While the Above the June lows, but below the May highs, Semis have held up well under negative news  but haven’t made much progress either. 

The biggest question confronting investors today is whether markets are resilient in the face of bad news or complacent despite the obvious.

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THE MARKET CALL:   We continue to see signs of a weakening economy and a tiring market. However, we do not want to ignore developments in commodities. This should clarify over the next few weeks.

It is still a bit early to short — but not to late to keep raising cash. Maintain tight stop losses on long positions, and do not dally in getting more defensive.