02/03/06 Market Update

Stocks:

Cracks in the armor? The market witnessed its first overall down week in the last 5 weeks. The negative divergence in the oscillators I wrote of last week proved to be too much for the continued advance. I originally thought that cycle and Fibonacci table’s date of February 6th as the most likely turning high point for the trend. Now that the market has declined into the 6th this pivot may be a short term support as the cycles oscillator (red and blue in sub-graph 3), should becomes over-sold by then on the daily basis. The market also has support from the previous tops line projected off the August 2005 and January 2006 tops just below current levels.

Russell 2000 -- Daily

Where as, these supports may provide the market with a short term turning point; the emphasis is on short term. The weekly and monthly chart oscillators still sport extreme over-bought conditions.

Russell 2000 -- Weekly

So, while we may see a short term bounce, it should be considered a selling opportunity as the weekly divergences remain.

Is this the top for the year? I really don’t know yet, but I do believe that 95% or more of the rally is behind us. The 4-Year cycle low awaits this market somewhere out by September of this year. Even with a three to four month extension from September we are at or near the statistically likely top between now and late March. It is a time to start lightening the stock allocations of your portfolio.

Bonds:

OK, it took until Friday, but the bond market did turn around last week as I expected. In fact, the price was able to jump the entire Gann grid span with just Friday’s price action. This is a strong sign and with the oscillator in over-sold territory we are probably witnessing the trend reversal now.

30-Year U.S. Treasury -- Daily

Gold:

The XAU dropped, again as expected in our last update, and still has plenty of room for decline. The Gann grid line provided support on Friday and there is a short term rising trend line at 145 or just below the current levels. I suspect the real target will be the intermediate trend rising trend line (red) currently at 139.94 and rising about .60 points per day.

XAU -- Daily

Because of the confirming oscillator peaks leading up to this recent top, I believe this is but a trend correction and we will ultimately see new high from this market. As the decline continues, we will look for a low risk juncture and a place to reenter this market.

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