Market Update: 2008-10-22

After dropping another 15% today, I just couldn't help myself to sit back and not pick up some more gold mining shares today.  I bought more GDX, which is and ETF and moves similarly to the XAU Gold and Silver Mining index. As of today, the XAU has wiped almost all of the gains of recent years and there is major support between 60-70 that goes back for the past 25 years. Of course, that is if you don’t include the all-time bottom in the low 40s back around 2000. Bu it didn’t stay that low for that long.  Plus, the last time the XAU was under 50 gold was only $250/oz. Gold is over $700/oz now, so I see a huge disconnect between the gold mining stocks and the actual metal price. I think gold mining shares are in an extremely oversold state now, and I just don’t see how buying now won’t pay off over the next few years. After all, pretty soon the Feds are going to run out of ink the way they are printing dollars. I don’t see how gold can’t benefit from all the money being thrown at this financial crisis. I guess the hedge funds have sold about all the gold shares they have left, so I anticipate that soon we should have a bottom on gold shares.  Gold shares were the biggest winners of recent years, so unfortunately they are being unloaded by the hedge funds that have to raise cash to meet all their redemption request. Shows how much those idiots know, I think they are soon going to regret the fact that they threw the baby out with the bathwater!

The other big sector I am watching closely is the oil and gas services and equipment sector. XES is my ETF pick for that sector. I have already bought some, and plan to buy more as it falls further. I anticipate that commodities and related stocks will see their bottom around the same time that the S&P 500 bottoms.  Remember, my target for the S&P 500 is 775-800, and with today's new closing low of 896, we are getting closer. I still think that the stock market is ripe for a relief rally, and I anticipate it could rally by 20-30% by early January. But I don't expect the rally to be anything more than a sucker's rally, so I will most likely cash out of some positions if we do get the rally so that I will have cash ready to buy back in later in the winter or spring when the market falls back to our autumn lows for a test.

We will know more later. Until then, Happy Investing!