As we said, we took Jack to basketball practice very early this morning. That provided us with an opportunity to watch the market opening. Spain had some serious debt issue alarms go off last night as their ten year yield exceeded 7%. Keep in mind that as a rule of thumb, a ten year yield twice the estimated GDP is not sustainable. In other words the country will eventually run out of money. (That is a little over simplified, but I am sure you don't need a semester's worth of sovereign debt economics.) So that bad news out weighed the relatively good economic news today and this week (excepting the Philly Fed report that came is a lot softer than expected.)

Now all of that was understandable and bode well for our VXX options we mentioned here last week. (For more info drop me a note.) BUT (Behold the Underlying Truth), the talking heads on Bloomberg (who I respect immensely) and CNBC/MSNBC/FOX etc are talking about trading patterns as an indicator of what the market will do.

Don't misunderstand me as I have gained a lot of respect for tea leave readers (Chartists). However, when analysts start paying more attention to chart patterns then fundamentals, WATCH OUT. There are quite a few analysts suggesting a continued rally because we have what is called a upward triangle pattern. A descriptive of a rally triangle is when the market makes higher lows at the same market highs. If you can't picture it, here is a picture of our current rally triangle for the DOW:

You can see that from October 18 we have had a series of lows, but from that low of recent lows of about 11,300. Those series of higher lows have move toward a flat line high ceiling of about 12,100. Chartists tell us that this pattern is a triangle and when the lower trend line breaks through the 12,100 flat line we should have a continued rally.

Ok I get it, and now I hope that you do. We just do not want to commit assets based upon a pretty little picture and not paying attention to the markets reaction to debt contagion from Italy, Greece and now today Spain.

If we look beyond the pretty pictures, it looks like the market got a little over bought on Wednesday and squeaked by another indicator, the 30 day moving average. That may have helped push the market down today as well.

Our main portfolio was down about 2.1% today, but we had no stop triggers cause a sell off. We honestly believe if we did not have all of the EuroNoise in the back round that we would be seeing a nice rally. The DOW Jones forward looking P/E ratio is hanging around 12.4 which is right in the sweet spot of 11.3-14.5 as a 50 week range.

Our play with the VXX is looking very pretty. Again these are there January $40.00 calls we just bought for almost all the portfolios and they are up 34%. (They hit 40% at one time today.) Now we are a firm believer of the old time adage, "Bears make money. Bulls make money. Pigs get slaughtered." However, we worked through lunch and did all of the econ scanning we could and see some serious problems with the Euro debt issue and we have not heard about the "chowder heads" in Washington about US debt. This VXX option has a natural double written all over it. Let's hope we are not getting greedy.

Is That Tarnish I See On Gold?

Gold took a hit today. We can not figure out why. We looked at Bloomberg's Global ETF Gold holding report and every ETF on earth, (Except for one small Swiss account) increased their holdings of gold over the last week. There are two possible explanations, but these are speculative. Rumors of a global recession would curtail industrial demand for gold. We also had a bump in the dollar and as such the dollar can buy more gold which drives the price down. That was several peoples opinion as to why Silver was down 6.7%. Oil also came down below 100 because of the dollar strength.

So will Gold collapse? We don't think so, but suggest you pay attention to it if it cracks through 1700 an ounce as there is not much support below that. (A bit of support at 1660, but wouldn't bet the farm on it.) Needless to say we have a sizeable position in GLD so we are doing our homework.

On the positive sign of gold, Bloomberg had a chart up today showing central bank purchases of late. In the last quarter global central banks have bought 148.4 metric tons of gold. That is more than twice as much from the second quarter this year and 7 times high than the same period last year. (You can get details from a report published by the World Gold Council.) Now what is interesting in the report is there is a mystery buyer. (The S&A Digest provides some insight into the identity. I know a few of you get the S&A Digest so I will admit my plagiarism now.)

China seems to bee the mystery buyer. The Chinese government encourages its people to buy gold. It is also the world's number one producer of gold. So with the dollar and Euro falling by comparison, the mid term and long term opportunities look good for gold. How you buy and invest in it would take another hundred pages, so DO YOUR HOMEWORK. We use GLD the ETN to manage our gold.          

Where Did All The Plastic Go?

There is a rumor floating around that the Big Three Warner Music Group, SNE Sony Music, and Universal Music Group, are planning the demise of the CD and are working on a download or streaming solution to music distribution. We don't necessarily buy into this rumor theory, but it would make sense for them to do so as they are loosing more and more of their plastic CD business to iTunes downloads and Amazon MP3 downloads.

This could be good news for the patient investor. The gross margin for this content will explode once these companies ditch the plastic and the middle man. Now would be the time to do the homework on these companies that are publically held. It will bode well for AMZN and AAPL.

Salve Lucrum