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Wednesday Wrap-Up

There was a stunning last minute drop in the Nasdaq (QQQQ) right at the end of the day.

Obviously today’s whole “rally” lacked any real legs in another very low volume day. Not much should be read into anything on today’s action but on a regular trading day I would be extremely concerned at such poor action when consumer confidence was up well over expectations.

I think on the whole, that the junior traders that have been manning the floor this week are generally authorized to sell but not to buy without specific instructions.

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As expected oil was a great play today, it would have been hard not to make a few bucks on a day when oil went up 3%. Notice that yesterday’s pipeline attack did not move the markets so “coincidently” today an OPEC minister makes a statement that drives up prices. It will be good to see $60 tested again tomorrow, especially on an inventory day.

Remember our old friend Hugo Chavez? I predict it will be his turn next to make a statement to spike the price of oil. Earlier this year he said this:

http://www.forbes.com/business/newswire/2004/02/29/rtr1280446.html

and this:

http://news.bbc.co.uk/2/hi/americas/4153318.stm

Chavez is one of those guys who directly loses $3M per day for each dollar oil declines so he is pretty motivated to maintain high prices…

The oil movements of the past 5 sessions (since last inventory) have been mainly manipulation in the face of declining fundamentals but they have actually achieved a technical (from a charting perspective) turn. Tomorrow will be key as an inventory draw down will spur a rally over $60 but I don’t see that happening.

My prediction for tomorrow is a smaller than expected drawdown along with shrinking demand snapping oil and gas back to yesterday’s lows until Chavez or some other OPEC guy drops another bomb on the market. Remember – $57 must be defended at all costs!

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Gold is looking to test $520 again and our old TOTD GG had a nice 4% day and our other TOTD in the sector, NEM, picked up another 3.5%. I got out of GG with a big profit and now I am looking at some gold laggards to invest in like PDG, HL or BVN.

CY woke up a bit today but I still don’t think people get it.

UARM – That stock is amazing! Having missed the private placement at $13 and not getting involved on IPO day at $25 (wisely I thought), I have been amazed as it has gone from $21 to $36 in the past 30 days. I feel like one of those guys who watched Google go up and up and up in disbelief but I just can’t buy in at this value no matter how excited everyone gets about it.

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BRKA is expensive and about to get more so as it heads into a challenge of the 50 dma of $88,500. Althought it may cross down a little below that mark on a disappointing year ernings-wise, people like Bill Gates are adding positions at this price. Mr. Gates, who took a director’s position last December, just bought another 80 shares, bringing his total to just over $330M.

If 2006 is not to be Berkshire’s year then the whole market is in trouble but my understanding is that Mr. Buffet and Mr. Gates feel the market is undervalued and BRKA will be a great leading indicator for next year. See this chart to compare BRKA vs. the S&P and the Dow and you can see a very nice correlation that bears watching.

http://finance.yahoo.com/q/bc?t=6m&s=BRK-A&l=on&z=m&q=l&c=%5Edji%2C%5Espx

I expect Berkshire to accelerate the share buyback program we talked about way back on 11/20 (“Et Tu Buffet”) when I called the bottom and the stock went from $86.4K to $91.2K over the next 7 sessions.

This stock may not be for you but there is also BRKB which is effectively the same stock trading at the very low price of just $2,935! I’m not suggesting you go out and buy this stock just yet but I am saying we should be watching it closely for signs that the market is making a move – one way or the other.

The hurricanes have left this insurance heavy conglomerate with very low expectations for this year and next and I think that an upside earnings surprise from Berkshire will really ignite the market but we will have to wait until early February for that.

Until then, the company is sitting on $47Bn in cash while invested assets have picked up a neat $5Bn in 2005, even after Mr. Buffet’s bad bet against the dollar earlier this year. So while earnings may be flat to down a bit due to the storms (this is one company I’ll allow that excuse for), a $5Bn rise in cash should help the shareholders sleep soundly.


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