Wednesday Aug 16, 2006

Gold and the Death Cross

Taipan Group's Dynamic Market Alert

-- Gold and the Death Cross

-- Big Surprises from the Government Today

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Gold and the Death Cross

by Christian DeHaemer, Red Zone Profits

I’m running some short screens using a bearish Moving Average Convergence Divergence (MACD) indicator, plus a couple of proprietary validating signals.  This is chart pattern is called a “death cross.”  It shows positive momentum turning negative after a major bullish run.  The first five stocks on my screen were gold stocks.  Number six was a major Canadian oil company.

Note that today is August 16.  We have two weeks before Labor Day.  The summer is winding down.  Banana-nut-bagel-eating brokers will be soon changing their Speedos for Brooks Brothers’ ties and French cuffs. The mood of the street is changing.  The Fed has stopped raising rates.  Historically, this august body overshoots.  In fact, the Fed has never continued to raise rates after pausing.  (In 1997, they upped rates a quarter point before continuing to lower them.)

Barring unforeseen events -- war, chaos, famine -- this means that some of the “don’t fight the Fed” investment philosophy promulgated by crusty old gold bugs is no longer logical.  That leaves them with the tired chestnuts that “Indians like gold earrings” and “gold is last storehouse of wealth.” 

But I submit those arguments are the standard, and much like playing the national anthem before a football game will not affect the outcome of, say, the mighty Baltimore Ravens destroying the effeminate Pittsburgh Steelers, they are not responsible for the run-up in gold during the past three years. Given that gold has more than doubled over the past few years, there is more than enough room for a correction. 

The possibility of a reversal from the Fed in the spring, based on a slowing economy (a March cut perhaps) and the fact that small-cap stocks are overvalued after a six-year run, means that select undervalued large caps are where the money will go in the next three months. Remember, the markets always look forward six months. It is late summer. The paradigm is shifting. 

Today I turned bearish on gold and continue to be long on undervalued large-cap growth stocks. 

Big Surprises from the Government Today

by Todd M. Schoenberger, editor, Diligent Investor

Want to know how much influence yesterday’s Producer Price Index figure is having on today’s Consumer Price Index figure?  Zero.  Zilch.  Zip.  It has no influence whatsoever, and to go even further, the July readings in the PPI and CPI will have no impact on future policy changes by the FOMC.

This is because the Fed has another dozen-plus economic reports to analyze -- including the August inflation data -- before it meets again on September 20, and the repeated theme of a lag in the effects of policy changes will cause the FOMC to basically ignore this week’s price index figures.

But don’t share this knowledge with the traders on Wall Street.  They’re going to either rally the bulls or bring in the bears after the reading has been fully analyzed and the media pundits have banged the drum about the demise of the U.S. economic system or the wonderful actions by the rookie Fed Chairman.

So is this “bye-bye” to inflation?  The numbers are in and overall it looks as if inflation is in check -- for now.  The overall CPI rate rose an expected 0.4%, but the much anticipated core rate printed at a lower-than-expected rate of 0.2%.

Once again, the numbers are showing bullish signs that the U.S. economy is performing exactly how the Fed predicted, or more importantly, expected.  And, for now, inflation is moderating and the U.S. economy is growing at the exact pace this country needs to maintain a level rate of employment.  Unless the inflation numbers do an about-face when the next reports are released the second week of September, this Fed’s work is done.

And, since the Fed is most likely finished with the Greenspan-Bernanke rate cycle, we can now look forward to the easing moves the Fed will begin in the first quarter of 2007.  What a wonderful thing to look forward to.

Investors should begin to look at large-cap stocks and move away from small caps while we are between rate cycles.  Historically, small caps never perform well between these periods and large caps move into favor.  Look for high-quality, dividend-paying companies for your portfolio during these flat times.

-- Returning to the Fox News Channel:

Not to toot my own horn here -- we at the Taipan Group are models of restraint when it comes to crowing about our achievements, as you know by now -- but I have been invited to appear on the Fox News program Cavuto on Business this Saturday at 10:30 a.m. EST to discuss how geopolitical concerns and the new terror threat are affecting your portfolio.

As the most watched investment show on cable television, Cavuto on Business is the cream of the crop. From CEOs to politicians to Wall Street leaders, each week Neil Cavuto sits down with the captains of the nation’s industry to give you insight on what factors are impacting your money. Whether its lively debates on what stocks and sectors will be the next market leaders, or explanations of current trends and events, Cavuto on Business provides information on how you can make and hold onto your money. I hope you have an opportunity to tune in.

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Earnings Announcements for Thursday, August 17, 2006

Aeropostale Inc, Autodesk Inc, Biopure Corporation, Dell Inc, Gamestop Corporation, Gap Inc, Marvell Technology Group Ltd, Shoe Carnival, and Trans World Entertainment Corporation are releasing earnings.

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Unlock Dates for the Remainder of August 2006

8/21/06 – Mariner Energy is unlocking 33.3 million shares.
8/22/06 – Liquidity Services is unlocking 7.6 million shares.

Brought to you by Extreme Volatility Speculator (www.vixtrader.com).

Upgrades and Downgrades

American Eagle downgraded by Stifel Nicolaus from Buy to Hold.

La-Z-Boy downgraded by Morgan Keegan from Market Perform to Underperform.

Autodesk upgraded by Jefferies & Company from Hold to Buy.

Armor Holdings upgraded by Prudential from Neutral to Overweight.

BEA Systems upgraded by Prudential from Neutral to Overweight.

Dynegy upgraded by Lehman Brothers from Underweight to Equal Weight.

Shanda Interactive upgraded by Bear Stearns from Underperform to Peer Perform.

Brought to you by GRESSOR.com

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Quote of the Day

"Muslim fundamentalists consider the West weak, decadent, and no even conditionally ready to defend itself -- and rightfully so. Anyone who reacts to hostage takings and decapitations, to the massacring of those with different faiths, to eruptions of collective hysteria with the demand for a 'dialog of the cultures' doesn't deserve any better."

- Henryk M. Broder, August 16, 2006

TAIPAN TIDINGS

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