FYI | May 17 2007
By Greg Peel
Warren Buffet, Edward Lampert and Carl Icahn are all billionaires’ billionaires, so when they start making large equity acquisitions the market takes notice. Last night Buffet doubled his stake in Johnson & Johnson, Lampert acquired 15 million shares in Citigroup and Icahn picked up 3.1 million shares in Anadarko Petroleum and 2.7 million shares in CSX Corp. If these guys are buying, it must be going up.
This news overrode most of what else was going on on the Street last night, although it seems that any good economic data is treated as a strong buy and any bad economic data is treated as a not so strong buy at present.
The day started poorly, as new building permits fell 8.9% in April – the biggest drop in 17 years. While this should have rammed home the ongoing sad state of the housing market – and thus the economy – actual construction of homes and apartments rose 2.5% (seasonally adjusted). The market preferred that one. Further incentive was provided when April industrial output rose 0.7% against expectations of 0.3%.
Crude oil’s US62c fall was also treated as a bonus, despite the fact that crude has been bouncing around this level for a while now. It turns out inventories grew better than expected, which hopefully means record high gasoline prices will abate. The fact that they hit a record doesn’t seem to matter – just the fact they may come off it.
The result was a 104 point rise in the Dow into blue sky, accompanied by a 13 point rise in the S&P 500, which is now only 16 points away from its highest close in 2000. Even the Nasdaq managed a turnaround of 22 points.
The gold market didn’t fare as well.
After Tuesday’s trading, gold guru Dennis Gartman said: “Should gold be ‘given’ at $665, it shall bode very ill for the euro, but very bullishly for the US dollar. We think forex traders, not just gold traders, should keep a very close watch upon that level then…. a very, very close watch.”. Yesterday Gartman was very excited, for despite trading down to US$664/oz gold rallied again to US671/oz. Gold had “held”. This implied the metal was forming a “solid base”.
Well Gartman will be writing his Wednesday market wrap as we speak, knowing that gold fell US$10 to close at US$661.40/oz overnight. His thoughts will be mandatory reading tomorrow. While it was a rally in the US dollar following the “strong” economic data that inspired the fall, there are still grave concerns about the extent of European central bank selling at these levels and the extent yet to come. But not everyone is in the Gartman camp.
MarketWatch reports Ned Schmidt of the Value View Gold Report noted that the average gold price in April actually exceeded that of May last year (the month in which the highest close was US$730/oz). This higher monthly close implies for Schmidt that “a new leg in the gold market is about to start”. He suggests using these oversold conditions as an entry point.
Peter Grandich, of the Grandich Letter, concurs. “While it’s the worst seasonally favourable period for gold (May-August), numerous technical indicators are screaming for a major bottom as early as today or on a wash-out to $650,” said Grandich. “The bullish sentiment among gold timers is almost nil – another bullish factor that says we’re close to a major bottom”.
Just how many “major bottoms” do we have to hit?
Base metals had a tough time of it last night, with copper and zinc both down around 3%. However nickel held firm after its lone 4% rally the night before. Uranium futures once again failed to trade, although the settlement price fell on a lower bid/offer spread, closing at US$130/lb – the lowest level since the contract debuted earlier this month.
Another interesting day should thus be upon us on the local bourse, with the SPI Overnight closing up 22 points.
