Schaeffer's Options Center

Today I went to lunch at Bob Evans (BOBE: sentiment, chart, options) , so now I want to take a look at this one a little closer. First off, the food was great and we waited for 15 minutes, and the place was packed – so things must be going pretty good on the fundamental side. Looking at the stock I can see the results, as the shares are up near their highs set back in March and up about 20 percent since early August. Interestingly, there aren't any options on this one, nor any analyst ratings. To me this shows there's a good deal of money still left on the sidelines from these two influential groups. One bit of skepticism can be found from the shorts, as they're all over it; it would take nearly eight days for them to cover all of their shorted positions. And in case you were wondering – I ordered the Homestead Breakfast and it was awesome.

Schaeffer's Investment Research is pleased to bring you Nell Sloane's "Daily U.S. Metals Commentary." For more about Nell Sloane, go to www.nsfutures.com. You can read this column each morning in our Commodity Center. Views and opinions expressed here are solely those of the author and do not necessarily represent those of Schaeffer's Investment Research.

Daily U.S. Metals Commentary for September 1, 2006

While Chinese gold was generally higher, part of those gains appear to have been catch up from the Thursday rally as European and U.S. traders this morning seem to have backed away ahead of the U.S. data.

Outside Market Developments:

With the metals markets mostly disjointed in the early action today and the currency markets failing to give off a definitive direction it is possible that gold and silver start the session out waffling around both sides of unchanged. While petroleum prices are somewhat higher this morning, weakness in natural gas prices and a lack of movement after the Iranian deadline suggests that the market is failing to see much in the way of direction from the flight to quality focus. However, the lack of outside market influence probably won't last long as the monthly U.S. payroll readings are expected to elicit a definitive reaction. In fact, given the sharp slide in the dollar at times on Thursday and the fact that the pound and euro seem to be poised to pressure the dollar further, it would seem like the dollar will have to get something solid from the non farm payroll report just to avoid renewed selling pressure, which in turn could lend support to gold.

Gold Market Fundamentals:

After rejecting weakness at the start of the week, the gold market has managed to skirt several interest rate threats, it has been able to forge gains in the face of sharp declines in oil prices and lastly it has been able to grind higher despite domestic and international signs of slowing. In fact, at times this week the gold market has been able to rise directly in the face of a rising dollar. Since geopolitical concerns and energy price fears have seemingly moderated this week and gold has rallied, some might suggest that the market is indeed benefiting from increased investment interest.

With several merger/buy outs announcement in the news this week and the press suggesting that more mergers and buy outs are likely, the bullish investment buzz might be expected to continue. Seeing more consolidation in the gold industry seems to leave the trade expecting less forward hedging and perhaps a general rise in prices, as producers are expected to be able to concentrate their impact on flat prices. In fact, seeing the U.S. employment figures denote just a little ongoing strength might be the best outcome for the bull camp as that might not lift the dollar and it could project ongoing physical demand for gold. Furthermore, the pause in rates by the U.S. Fed and the ECB certainly benefits gold and that in part probably inspired the end of month short covering that was seen yesterday.

While few expect more short covering today, a rise above $635 in the December contract might get a wave of technical players interested in gold. As suggested already the gold market has outperformed most expectations this week and has done so in the face of developments that could have held the market down. However, we doubt that the market is significantly overbought and lacking in additional buying capacity. However, the gold market probably needs payrolls to be good this morning, but not too good, or the dollar could become a barrier. Close-in support in December gold is seen at $630.6 and a break out up takes place with a rise above $635. The bulls have an edge but a new high for the week in the action this morning will put gold $20 an ounce above the week's lows!

Silver Market Fundamentals:

Once again the silver market has managed a new high for the move overnight and has managed to reach the highest level since May 31. In addition to talk of seasonal buying and increased investment buying, the silver market might also be lifted this morning by news that Mexican June silver production declined by 18.3 percent. With the Mexican June production tally at 182,000 kg, the setback in production is a development capable of supporting prices, especially if the investment community is already favorably biased toward the market. Like gold, the trade suspects that silver is being lifted in the wake of the pause in rates, while others are seemingly buying into the idea that seasonal forces are set to lift prices further.

Around the highs overnight, the December silver contract had forged a rally of $1.08 off this weeks lows and therefore it is likely that the market is becoming somewhat overdone technically. In the end, the metals markets seem to have been confronted with a series of negatives this week and still managed to rise. Given the big run up in prices this week, there is little close-in support on the silver charts until the old highs of $12.83 but the positive tilt in prices doesn't seem to leave the market overly vulnerable. We suspect that December silver will eventually solidify itself above the $13.00 level but before that is accomplished we suspect that prices will periodically fall back below $13.00.

Metals Technical Outlook – August 31, 2006

Comex Silver (December) August 31, 2006:

Momentum studies are trending higher but have entered overbought levels. The market's close above the nine-day moving average suggests the short-term trend remains positive. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. The market's close above the second swing resistance number is a bullish indication. The near-term upside target is at 1328.8. The next area of resistance is around 1318.5 and 1328.8, while first support hits today at 1287.5 and below there at 1266.8.

Comex Gold (December) August 31, 2006:

The major trend could be turning up with the close back above the 60-day moving average. A bullish signal was given with an upside crossover of the daily stochastics. Positive momentum studies in the neutral zone will tend to reinforce higher price action. The close above the nine-day moving average is a positive short-term indicator for trend. Since the close was above the second swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The near-term upside objective is at 638.5. The next area of resistance is around 636.8 and 638.5, while first support hits today at 631.6 and below there at 628.0.

*** This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of Hartfield Management, Inc. is strictly prohibited.