02/10/06 Market Update

Stocks:

The market may have exhausted its downward short term velocity. The Cycles composite indicator (bottom sub-graph, red) is below the over-sold threshold and its shorter term components have turned up (red and blue in sub-graph three). The short term velocity indicator (blue, sub-graph one) has also turned up and one good up day should turn the 14 day (sub-graph one, red) velocity up as well.

OTC-Daily

With all these short term measures pointing up the market should have a good week, but a week is all we may get. The declining tops line should present resistance just above the current level, 2300 on the OTC. Even if this level is surpassed, the weekly oscillators are still moving down and monthly oscillators remain in over-bought territory. With only 2 to 4 percent upside possibility this rally should be traded or sold into, but is not ideal for new positions.

Bonds:

The 30-Year U.S. Treasury bond yields chart below reveals the Cycles oscillator breaking below its over-bought threshold (red indicator, sub-graph three) Yields are due to decline for the next 3 to 5 weeks. The declining tops line resistance appears to have held and the decline should pick up some velocity over the next week.

30-Year U.S. Treasury Bond Yield -- Daily

Yield targets from a Elliot Wave perspective should drop from to 4.42 at minimum and 4.2 for full extension. This suggests a 5 to 6 percent rally for the long bond and more than double the stock potential.

Gold:

While the gold stocks have had an impressive decline and are close to short term over-sold condition, the minimum expectation for the decline is still significantly below current levels. If a rally is sparked next week, use it to sell any remaining longs or to establish additional or new short positions. There is more downside action to come.

Gold Funds Composite -- Daily

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