Blue Light Special

Dow Jones Passes 14,000 for Record High- AP
Wall Street began the fourth quarter with a huge rally Monday, sending the Dow Jones industrial average to a record close. Stocks were buoyed by a growing belief that the worst of the credit crisis has passed.
Citigroup, UBS Warn of Loan Losses- AP

NEW YORK (AP) -- Wall Street began the fourth quarter with a huge rally Monday, sending the Dow Jones industrial average to a record close. Stocks were buoyed by a growing belief that the worst of the credit crisis has passed.

While the beginning of the new quarter was an incentive for institutional investors to buy, they also seemed to be motivated by a sense that banks and other financial companies generally weathered the recent credit market upheaval. Both Citigroup and Switzerland's UBS AG issued third-quarter profit warnings, but indicated the current period might see a return to normal earnings levels.

Meanwhile, the market was optimistic that new economic data might nudge the Federal Reserve toward another interest rate cut at its Oct. 30-31 meeting. The Institute for Supply Management said the manufacturing sector grew in September at the slowest pace in six months; the trade group said its index of manufacturing activity registered at 52.0 in September, below forecasts for a reading of at least 52.5.

"People are getting more confident there is going to be an October rate cut," said John C. Forelli, portfolio manager for Independence Investment. "To some degree, it looks like Citi kitchen-sinked the quarter, and that from here going forward will be calmer. That's underpinning the financials."

BULLSHIT!

Anybody that believes the above media induced government pablum is a fool. The credit crisis has only just begun and is far from being over. Two of the biggest banks in the world report BILLION dollar plus loses in the third quarter...yeah I think I'll go out and buy me a trailer load of their stock, great idea. Manufacturing is at it's slowest pace in six months, but that sure sounds like cash registers ringing to me. October interest rate cut? LOL, that's highly unlikely. The Fed already regrets the 50 point cut they gave us two weeks ago. That cut has done NOTHING to bail out homeowners...it's actually made mortgage financing more expensive. Another rate cut this month? LOL, I need to think of a good name for this fairy tale. One thing alone is driving the stock market higher...loose money and a FLOOD of liquidity.

So everything is fine and dandy on Wall Street. Time to dump your Gold and Silver and chase stocks higher. And as we wake up this morning it appears that all those Gold Bulls are moving to the other side of the boat to aid and abet the enemy. But as we've said for the past several days, Gold is tired and needs to rest and consolidate it's gains. The size of the overnight sell off is a bit surprising, but the sell off itself should surprise no one.

Now we begin to make plans to buy back positions we sold in the past couple days or add to our stash. I would not be too anxious to do that just yet. I expect that Gold will be "consolidative" for most of this month of October. Just keep telling yourself that Gold is "on sale" this month.

Gold this morning has retraced the breakout from the May 2006 high at 730.20. It might be a stretch to think this is all of a retrace we get, but a consolidation up here between 750 and 730 could be possible and just as constructive. I have a feeling though that Gold is going to revisit the 700 handle at around 707.

Silver this morning awakens with a new haircut. Silver is at this time testing the last line of resistance associated with the high set back in February this year. The 38% retracement of that high at 13.34. I suspect once the Comex opens we may explore vistas we blew past last week. Look to the 200 day moving average for support, but with the 50 day still below it, we may not get much. Silver could one last time visit the 12s, but I expect the 12.80s to be the line in the sand for the Silver Bulls.