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Jordan Kahn, CFA of In The Money Jul 4, 2008 Email this article to a Friend  Printer friendly page

The ECB increased its key lending rate by 25 basis points, as was widely expected. But the dollar has had a strong reaction, and is up sharply vs. the Euro (and the Yen). This is helping take some of the steam out gold's recent advance.

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Oil is still higher on the day, just under $144, although it is off its earlier highs. But the energy complex is selling off hard for the 2nd day. All materials stocks remain under pressure, with ag, steel, and coal stocks weak for a 3rd day.

The big question is if the sharp selloff in the materials stocks is a signal that the commodity-stock bull market is over, or has at least topped for the time being. The other school of thought is that when you get into a viscious selloff, no stocks are spared. And when they finally get around to selling the year's big winners and leaders, then you are getting closer to a tradable bottom.

I am not sure where I fall in this argument, probably somewhere in between. I think that profit taking did have a lot to do with how sharp the selloff in these materials stocks was. I don't necessarily think that the bull market in these stocks is over, but I would not be surprised to see them hand off leadership to another group for a bit.

The nonfarm payrolls report showed the economy lost 62,000 jobs in June, slighly above expectations. The unemployment rate came in at 5.5%. While the media paints the picture of a deep and dire recession, let's rememeber that 10-20 years ago, an unemployment rate of 5.5% was unimaginable.

The market moved even deeper into oversold territory yesterday, and bearish sentiment is rising. The VIX hit 26 this morning, up +62% from its May lows. And the AAII investor survey today showed only 23.9% bulls, and 52.1% bears. This is the 4th consecutive week of more bears than bulls.

Now all we need is a catalyst for a rally. And I mean a real catalyst, not some weak GM sales report.

by Jordan Kahn, CFA (In The Money )

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