Simplespread

Hills that look like mountains on stock charts, that is. From the top of "the market" on 15 March 2000 until today, gold and silver stocks have shown brightly. While the yellow metal has risen by 120%, the Metals and Mining sector has climbed over 250%. The Amex Gold Bugs Index (shown below), made up of 15 large mining companies, has rallied well over 400%.

During this same period of time, Metals and Mining has spent 40 of the past 75 months in the Top Ten sector rankings, 15 of those months at the top of the list. Truly, it would have been difficult to lose money in this sector so far this century. Now, who says that stock prices are random? Not us.

Strong sector, strong stocks, and a steady litany of higher highs and higher lows, and plenty of call options with lots of juice to sell.

The table below shows how well individual gold and silver stocks have performed.

As much as we enjoy the benefits of strong industries and stocks, we continue to believe that this 4-year rally is probably just that - a rally in a bear market. Leadership is in stuff - things you can dig up, step on, drill for. Energy, Metals, and Construction Materials have been leaders for most of the time since late 2002. That does not a healthy market make. It's reminiscent of the markets experienced in the 1950s. For the year of 1955, the five top industries were aluminum, coal, cement, machinery, and steel. Together, they were up an average of 45%. But back then, we were the world market, pretty much. Today, we end up buying the stuff from foreigners. So, it's not really similar to the 1950s after all.

This makes us wish we'd listened closer to Jim Rogers in the late 1990s as he was proselytizing about commodities. His later book, Hot Commodities, was another wake-up call in December, 2004 for the johnny-come-latelys.. Looking back at the past few years, there's been a ton of money to be made in the basic industries - certainly enough to make you forget about high tech and the New Economy of a few years ago. And it's enough to make you wonder why investors stick with index funds (and the closet indexers) that have barely squeezed out a percent or two per year since Y2K.

To sum up this week's commentary, we expect long-term index fund investors will continue to be disappointed with the returns they receive over the foreseeable future.

And as always, we recommend keeping your investable stock market funds in the strongest stocks in the strongest sectors only during those periods when favorable Simplespreads can be found. The rest of the time should be spent on the sidelines, collecting interest, and waiting for the next opportunity.

After four weeks of the slow grind upward, the market finally decided to let geopolitical rumbles and signs of a slowing economy weigh heavy on stock prices. But the Soldiers aren't beating a hasty retreat yet so the Generals still have a chance to rally them back into formation.

Metals and Mining continued in the #1 spot for the nth time this year. Same-o same-o. Transportation stayed in the #2 position for the third straight week. Number 3 position went to Aerospace/Defense. Tobacco, on the back of some good legal news on the smoking settlements lighted up to #4. A flash in the pan? Energy resumed its strong role in position #5.

Manufacturing lost a little ground down to #6. Real Estate continued to surprise in position #7 on the back of heavy buying of the REITS. Food & Beverage chewed its way back up to #8 by simply holding steady. Automotive clung on to the #9 spot thanks to GM's mighty come back. And Utilities rounded out the list at #10 by putting in a good week, relatively speaking.

The summer rally has stalled. New impetus must come from somewhere. Things don't look that bad, but they don't look good either. The best we can say is that the market rallied during the first part of the year. Then we had a serious selloff. Now, we're trying to put together some kind of a rally back up toward the old highs. Seasonally, it should happen. But let's not forget that this is the weakest year of the 4-year presidential cycle. That means nobody ought to get carried away with bullishness. And the charts don't indicate anything of the sort, either.

Sector	7Jan06 to 7Jul06	Week of 7Jul 06	Visual Chartist Commentary
Metals & Mining	+17.07%	-0.70%	Has rallied back up to equal the pause in May. Needs to continue on up from here to keep from falling prey to "double topitis." Does have some support underneath current prices.
Transportation	+12.04%	-0.79%	Major Airlines still looking good, equaling their 2004 highs. Air Freight has support a little lower to help it stabilize. Rails have good support below. Truckers are stuck in a rut. Shipping has rallied up into resistance.
Aerospace/Defense	+9.84%	+0.53%	The majors are holding the fort. Equipment makers are showing signs of wear.
Tobacco	+9.58%	+3.88%	Altria's spurt on Thursday lit the sector's fire. But with lack of volatility, not much here to chew on.
Energy	+7.48%	-0.25%	Uptrend still in tact. Simplespreads entered into during the past month or so with 10% profits should be looked at as to risk/reward metrics.
Manufacturing	+6.74%	-2.82%	Still rallying back from the shellacking it took since the top in May. Too bad volatility is lacking so often in this sector, as there are good stocks here.
Real Estate	+6.46%	+1.03%	Reminds us of "Whack-A-Mole." Just can't keep this sector down. But not much use to Simplespreaders for lack of volatility.
Food & Beverage	+5.43%	+0.26%	Pass the salt...and on the stocks.
Automotive	+4.96%	-0.88%	GM has evidently decided to single-handedly revitalize the sector's chart So, what did you do when the charts said buy GM at 24 and sell the 25 calls? You didn't believe, did you? Neither did I because all the hype said GM was going bankrupt the next week. Reminds me of a famous northeastern technician who boarded up his windows so he couldn't even see the weather outside. Now, that's really relying on the charts. And it's an instruction we should all remember. Plus, making money on a buy/write on GM ought to count double. Note to self: Charts are for buying and selling. Fundamentals are for talking.
Utilities	+4.77%	+0.42%	The only news worthy item here is how poorly Water Utilities are acting.
AND THE REST...
Leisure	+3.93%	-2.33%	Most areas are still in uptrends. Support held several weeks back. The rally has not had much power, so if we drop back down, support is going to have a harder time holding. If support breaks, potential leadership is in question.
Conglomerates	+2.60%	-1.20%	A mixed bag, for sure. Low volatility pretty much disqualifies any good looking stocks.
Banking	+2.38%	0.00%	Held up well today, but is of no interest to Simplespreaders.
Dow Jones Industrial Avg.	+1.92%	-0.53%	The Dow needs to hold here or else give up its idea of a summer rally. This is the first area of support. Not much under here to keep it from heading back down under 11,000 if next week fails.
Media	+1.56%	-1.55%	The sector still looks like a toss-up. It could go either way from here. We are at an inflection point. Let's hope it can push through to new recovery highs because we need some new leadership blood.
Retail	+1.21%	-1.49%	Definitely a "show me" situation here. Nothing to excite buyers.
Diversified Services	+0.82%	-1.82%	It bounced off supports like it's supposed to. Now "show us the rally."
Drugs	+0.25%	+0.48%	Maybe we should hold our breath, but can things be looking up? Keep your eyes on the charts. Some positive things are happening.
Chemicals	+0.16%	-1.16%	The rally is laboring.
Consumer Non-Durables	+0.04%	-0.94%	This sector is in danger of losing its reputation for holding up in a down market.
Telecommunications	-0.08%	-0.78%	A bit of a disappointment. GLW not acting well. It was a good buy/write a month ago, but is now acting badly.
Insurance	-0.93%	-0.44%	Skip it.
Financial Services	-1.83%	-1.25%	A bad week for the brokers.
Specialty Retail	-1.85%	-1.81%	Everything appears to be weakening.
Consumer Durables	-2.96%	-1.32%	Lots of overhead resistance in many of the charts.
Wholesale	-3.30%	-1.43%	Nothing here.
Computer Software & Svcs	-4.18%	-1.62%	No signs of constructive re-organization anywhere.
Computer Hardware	-7.11%	-1.30%	Same old story. The weak keep getting weaker.
Electronics	-7.36%	-3.14%	Can everything be in a downtrend?
Health Services	-7.80%	+0.20%	See that? A plus sign for the week. Wonders never cease. Any reason for the sector to turn up from here? Can't see any. How long can it underperform? But it will turn up sometime, right? Maybe.
Materials & Construction	-7.84%	-1.74%	Even the bounce looks sick.
Internet	-15.91%	-3.30%	"They also serve who sit and wait" - the blind poet Milton.
Statistical Data: TeleChart 2005