Educational use only. Never intended as advice.

I had a patient this week with something called 'Gas Bloat Syndrome'. Actually that describes both the economy and Wall Street's commentary. Energy prices rise (non-core inflation of course) and Wall Street pundits wax eloquent about trees growing to the sky.

Colleagues ask me if I am 'bullish' or 'bearish' and I say, about what. Although much of what I do is short-term in nature, I believe in long term themes, 1) water as the most important commodity, 2) metals as a hedge against endless currency debasement (the 11th plague, the central bankers), 3) homeland security investment in an era of The Hot War, 4) the outsourcing of American jobs to Chindia resulting in a rebalancing of global standards of living, and 5) ultimate deflation from low cost producers (see #5).

What price is 'fair'? I spoke to a family this week that was told that their insurer would not cover their chemotherapy ($1300 a month), which they could buy from England at $300 dollars a month, or ultimately from India at $50 a month. Now I believe that proprietary businesses are entitled to a fair profit, but if you can buy a life saving drug for 50 bucks in India, should the cost be 26 times higher in the US. Who's screwing whom?

Time will tell to what extent Merck was less than candid about it's Vioxx data. As a physician, I rely on accurate data from the pharmaceutical industry, and ultimately its regulation by the FDA. I'm not naive enough after 25 years of 'practice' to accept everything at face value, but trust in clinical studies stands as a pillar of the medical community.

The legs of the chair, allocation, fundamentals, technicals, and sentiment determine the ultimate direction of price. Allocation is hard to get at, fundamentals are mean reverting (see Jeremy Grantham's columns at www.gmo.com - registration required), technicals are more art than science, and sentiment is, well, frothy with bears an endangered species (http://www.schaeffersresearch.com/streetools/market_tools/inv_intel.aspx)

One area of research that I believe has possibilities is 'time extension' research. Most research is based on price extension, but getting back to Gann's themes, we note the importance of price, pattern, trend, and time. I have some proprietary ideas of what constitutes time extension and will list some of the areas that I believe are 'time extended'.

Time Extension Indices (overbought) - not advice, of course

Gold (I am long gold, but sold some calls against my NEM yesterday)
Silver
Mexico

Time Extension ETFs (overbought)

GLD
XLB
EWN

Time Extension Generals stocks (overbought)

MCK
TIN
WEN
NOC (Northrop Grumman)- maybe sharks never sleep, but stocks do. I don't wish that I were short NOC (today), but I may wish for it Monday.
NIKI (The Nikkei) Americans are pouring dollars into foreign investments...and the NIKI is very overbought.

OSX (Oil service) - weekly -love the drillers? They're at the top of their channel, so not 'touchable' by my standards.
XBD (Broker-Dealers) weekly- another overbought group
SOX (Semiconductor Index) - Intel (INTC) the 'Mother Chip' lowered the top of its range last week, and the SOX made a gazillion period high and closed lower than it opened.
DJIA (Dow Industrials) - Dow Theory anyone? The Indy's got a long way to go before it makes new highs, and has some problem companies, MRK, GM, along with the eventual realities of GAAP earnings with options expensing.
Dow Transports (weekly) Dow Theory part II...if energies are resurging and the economy 'could' slow in both the 4th quarter and 2006, it could easily show up in the transports. I guess we'll see soon enough.
Anything can happen in the markets. A well-respected hedge fund manager commented to me this week that the world is upside down, with investors seeing stocks as safe and bonds and risky. This type of behavior produces more 'compression' with a volatility blow off even more likely.

Of course, we're seeing more articles about selling options going forward into 2006. If I remember correctly (my son reminds me of these things), covered calls have the same risk structure as selling naked puts. But you wouldn't do that, would you?

Don't forget to check out some of the sidebar columnists, many of whom have invaluable (and often free) insight for you.

Just a little insight into the craziness around here. My wife works like a madwoman to finish the Melrose Basketball Boosters annual programs. My son is moving to his new digs in San Francisco this weekend, in preparation for his job as a hedge fund risk manager. My oldest daughter is working for G4 Networks in Hollywood, and moving to a new office soon. My youngest daughters prepare their college applications, get ready for the start of their senior hoop campaign, and both were named Massachusetts Coaches All-State and Boston Globe and Boston Herald All-Scholastics in volleyball within the past couple of weeks.

Needless to say, the tree's not up and the presents aren't bought.

Good trading and great risk management to all. Learn every day and do your own analysis with your hard-earned dough.

Best,

Ron