first majestic silver

Gold Glitters, but Petrodollars the Hub

August 30, 2002

Swooning along . . . the path of corrective action, Wednesday's stock market once more was hit, although there really weren't the news-related 'jolts' recent breakdowns were characterized by. That has some meaning to an otherwise soporific mood, as a plethora of market observers now ponder risks of a September downside cratering in the wake of the upcoming Labor Day weekend; holiday short-covering rout or not. As the tensions evolve next month, you could see sharp rebounds in Gold (already likely started), and evenOil, though the latter in particular could be of temporary duration. (Gold's trying to move above 3-month declining tops; Oil is near new highs now.)

From our equity perspective these couple weeks, there isn't quite the fuel around to sustain a serious upward move yet, because basic seasonality (which many are now noticing and worried about) departed from so-called 'norms' for months already; so just as the downside in June and early-mid July washed-out many investors in really dramatic capitulation waves; the ensuing projected recovery eliminated many shorts that had gone-for-the-bait of the downside earlier in the month of July (in particular).

With that group pretty much flattened, there's not the degree of technical covering or upside short-term fuel to loft the markets dramatically, and that's been especially so in the NASDAQ and Nasdaq 100 (NDX), which just recently breached daily technical points (which probably puts them in position to rebound a tad soon, but not much in the realm of grander moves, yet). As noted last night, up-down volume criteria has as a matter of fact been negative for these couple weeks, since all reasonable targets on the upside were reached, including our measures for the multi-faceted advance.

It is a given that sentiment would be negative, and investor interest minimal as we're approaching the Anniversary of the horrific attack on the United States. However with an opportunity for those concerned about that to have sold into strength or weakness of late, and hardly any buy-side interest, there's going to be a prospective opportunity to rebound the markets, probably starting Thursday, even if it's of a temporary nature. Today's story that the FAA's restricting 911 foreign-aircraft operations anywhere near Washington or New York City during commemorations of the great human loss, for several hours both in the morning and evening, both reminds everyone of the risks, and also incites a little nervousness as to whether there's are more specific worries.

Volatility was expected to increase as we got closer to 'the date', as well as after the market reached our shorter-term goals, as has been seen on both accounts. There is little doubt but that the media will be filled with not only reflections, but nervousness, as we arrive at that time, whether warranted, fanciful, or planted as warped hoaxes. It is also obvious that there's a certain degree of risk, which nobody can quantify. What isn't being noticed, is two-fold, that the overbought condition of the September S&P is being worked-off by the expected dearth of upside continuity, and that structural requirements for a bullish resumption are being addressed by this contraction; it's the only course to higher levels even in a best-case scenario (and we're not unrepentant bulls with some sort of pollyannaish view about the weeks coming up); and that this is potentially the kind of decline that can change-the-minds of the Johnny-come-lately bulls of mid-August, who went for the bait of the upside after-the-fact breakout, with the kind of gusto we thought would help prepare the market for pullbacks. Many who missed the July entry point swore they wouldn't miss one this Fall; we'll see about it as time goes on. Our suspicion has been (reserved for readers).

Now, clearly, things will hinge on events (or better, lack of them). One additional item little-noticed, is a new appearance before Congress on September 12th by Chairman Greenspan, to discuss the economy. That may address necessary stimulative efforts.

The search for al Qaeda members surfacing in the media today generally aren't new; but that doesn't mean aren't valid. Talk about OBL being alive also isn't new. Most of this is a quest by reporters to increasingly focus attention on terrorism and war risks, as we approach the date, and that's not unrealistic for them to do. It surely beats the complacency some have felt developing in the absence of major new attacks. That's probably the implicit message in the indictment of a group of Moroccan terror 'sleeper cell' members in Oregon (first surveiled after the terrorist-ranch story surfaced) and in Detroit. And it reminds us all that there is a 'clear and present' danger lurking in our midst's, if we fail to pursue and investigate as the Nation has increasingly been doing with slightly better efficiency. It's not impossible (as discussed here recently) that lots of the coverage of possible actions against Iraq, or even of the ever-persistent stress of the Israeli/Palestinian issues, are distractions to America's main issue: petrodollar struggles and the need for a unified struggle against those who would attempt to use a slew of issues to their purpose; the conquest for Middle Eastern money and power.

Is that pertinent here in a market discussion? Absolutely; as our view has been that it would return to front-and-center as we worked-through late August, and actually have market-moving capacities as we approach the post Labor Day period. Do we suggest now that September 12th will be a very big up day in the market? (Technical comment about where things stand on a daily vs. weekly basis are reserved for subscribers.)

Daily action . . . hence perceives the decline as being borderline about where it thus should be before some possible sort of pre-holiday rebound try (the extent of which is debatable this year, for obvious reasons ranging from the number of shorts out there to lack-of-interest ahead of the 9-11 Anniversary) is attempted. So, Thursday might in fact be sort of a down-up-dip-up session if all were to go just right. However, as noted earlier, any rebounds into the face of the upcoming holiday will have low relevance in a purely technical manner, and probably precede irregularity as it tries to extend later.

In terms of intraday action, the hotline (900.933.GENE or direct-dial access) did well for days, and was hesitant about the local-vs.-local slugfest on Wednesday; most of us thus retracted much interest in capturing moves. Thursday should be different; an attempt to decline early being a speculative buy, and then we'll see. In environments like these, capturing scalps requires serious nimbleness, because nothing, upside or downside, has much longevity, as downside breaks barely extend; neither do upside romps, either quickly 'fades', as no-one's there to extend runs. This changes for now.

In any event, as well as a recognition that things are going to be complex, sometimes declines in-front of Labor Day can catch bears a bit complacent, with a pop-up ahead of the actual holiday. That's what we want to be increasingly alert for on Thursday.

Certainly, having forecast the turnaround, and suspecting the recent shakeout after so many got excited on the upside breakouts, we were not about to encourage any chasing of advanced short-term prices, but taking a view of the overall structure as having improved slightly not only in the previous advance, but by virtue of the overall expected decline from the upside target goals from recent weeks. Relative stability of the Dollar is essential, and that's where so much talk about friction with Saudi Arabia was counter-productive to the intraweek efforts to rebound the market too. However, it's not a key factor right here, now that the entourage has moved beyond Crawford, and there is some understanding that the Saudi's quiescence is because they like the spot Saddam is in right now; whereas a regime change there might lower oil prices.

(Discussion of the wider war prospects and market impacts abridged for our readers.)

There is also the topic we've broached; petrodollars and political blackmail attempts using it. If anyone thinks there's not a connection between the (earlier this Summer) hints at funds being repatriated by 'certain Middle Eastern countries' and pressure on the U.S., they may be naïve. If one doesn't believe that there's been a connection in years past, between those funds recycling (because they originated here) into stock markets, finance deficits, and indirectly a type of 'demand' for their products (oil), they probably are missing part of the picture. It's also likely that the stamina of the current Administration, against accommodation for the sake of preserving a status quo, with Persian Gulf countries, has slightly had an impact of surprise on the Saudi leadership recently. Maybe they who should have pondered implications of funding (knowingly or not) those who brought terror to our shores, and would take them down with even greater enthusiasm, as their primary mission. Thus, there probably is not an overt or covert Saudi support of terror (contrary to some extreme conservative views), though there probably has been misuse of their funds to sustain those who would do us all in over time. The Saudi's need to remain on-board with the West, and that alone will be a powerful force against the forces arrayed against modernity. The necessity of some attempt at reforms there is one thing increasingly clear to them; a toss-up in terms of implementation, thus that's also a wild card in the world's possible financial future.

Remember, the entire Israeli-Palestinian dilemma is a secondary political issue for the terrorists, whose primary focus is that revolutions are typically-rooted in; lusts for power and money. The power of 'control' over the Moslem masses, and the money to be obtained if they controlled the oil fields. Since the U.S. (and its aircraft carrier, as Israel is sometimes referred to over there) is viewed as a spoiler of their efforts to be able to strike at the Saudi leadership, as evidenced in Saddam's invasion of Kuwait, it is quite likely that their perversely cruel minds viewed an attack on us as being part of the road to Riyadh. In that regard, it is not impossible that the terrorists, might have in fact little love for Saddam, but he's an enemy of their enemies, so they befriend him.

In a market-sense, a perspective on this is less a question of anti-Iraq initiative, than it is doing whatever is necessary to promulgate stability in the region, and petrodollar cycling maintenance. (Balance reserved.)

In summary . . the news continues to affirm our suspicions that geopolitics and terror risks, are back to the fore in terms of market-moving-capabilities, more than typical corporate stories, as this month advances towards the 9-11 Anniversary. It's a semi-holiday mode out there, with thin trading, and easily-ignited moves either way. There is likely to be a modest stagnation in secondary Q2 GDP reported in the morning. It's not seen as a key determinant of market direction, as most suspect softness Thus as the data comes out, it may set-up interim turnaround respites in-front of Labor Day.

As for the McClellan Oscillator, readings eased to +67 on the NYSE and modestly to +5 for NASDAQ markets in alternating mostly erosive moves; now hourly oversold.

Our prayers and thoughts remain with our troops fighting anywhere in the world, and as events of this week explicitly continue to remind us of various new risks the Allied fighting forces face, or may face, we try to keep in mind that the unexpected remains a risk as civilization cheers human progress, but worries about those trying to reverse hundreds of years of modernity. Since last week we didn't want to be too complacent, given the extended nature of things, as subsequent action revealed. In the new week we got the tricky start; and the down-rebound-failure idea; the final portion of which is a prospective holiday rebound prospect. Mid-evening, S&P futures up 150 or so.

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