Thursday, November 10, 2005


Earlier today I was happy to report a 3% move. By the end of the day, some of my aggressive friends and extended family accounts were up better than 7%. What a day!

Leading all groups were the airlines. The $XAL index was up 4.18% while CAL was up about 9%! Oil services, $OSX, was down 3.93%. The 30 year bond yield dropped 1.66%! Gold and commodities were down a little and most everything else moved up nicely.

My concern is in regard to how fast the bears have become bulls. An awfully large number of folks are now very sure that we are now well into "the year end rally". Caution to aggressive buyers; there are still 51 days left in this year; time for a rally, a pull back and another rally.

AAII sentiment numbers and put/call ratios have dropped off quickly. The total CBOE put call ratio has made a long gradual move over the past year to reach an average of around 92%. In the past few days, the daily number has gone from pulling the average up to pulling it down. Today, the number reported is 75%. In other words, four call options are being traded for each put option. This is not an extreme number but it is low enough to suggest caution.

The market today was very strong. Some of the speculation appears to being squeezed out of the crude oil market. The chair of XOM has suggested that as much as $20 of the price of crude is due to speculation. Wow! The official IEA forecast is for crude prices to trade flat for a year. One of the less well know facts is that China businesses were forced to burn diesel fuel to generate electricity for the past year. China has finally brought more coal fired electricity on line and the government has given consumers strong incentives to conserve.

Ironically, the growth in drilling rigs has been strongest in the US where undiscovered reserves are few and far between. The irony is that while US companies have been quick to respond and government controlled drilling around the world has been slow, the US Senate has taken our oil companies to task for making money. The good news is that the US government is going to largely stay out of the way. Yes, the government may continue to block drilling off the east and west coasts and off the norther coast of Alaska and the government may continue to block the building of domestic refineries but for the most part American companies are free to explore and to produce.

The bottom line is that while I am very bullish for the intermediate and long-term, I suggest holding off on new purchases for at least a few days. Of course, I like everyone else who tries to call extremely difficult short-term moves am apt to change my focus quickly; for the moment, I am a short-term scaredy cat.