02/17/06 Market Update

Stocks:

The market managed a breakout of its recent declining triangle with Thursday’s price action. For the NDX 100, below, Friday’s retest stopped perfectly at the declining tops line. The oscillator has plenty of room to the upside and the RSI has a slight positive position.

NDX 100 -- Daily

The daily charts have upward potential; but all is not clear. The weekly charts are still declining from over-bought territory and last weeks action on the S&P 500 below left the price at 1287.25 just a hair below the previous top of 1287.60 and potentially a double top. This could prove to be a move stopper or what we most likely will see is a continued thinning of the advance. Fewer and fewer stock participating, essentially shortening the train in preparation for a new direction.

S&P 500 -- Weekly

NFA’s Market Environment Index

We have bought into this signal with larger positions based upon the breakout and especially NFA’s proprietary market environment index with the short term reading a level 10 and the intermediate level nudged into bullish position by this week’s action. But, with the weekly and monthly charts pointing towards lower levels, we will keep a short trigger on our exit signal. I suggest you do the same.

Bonds:

The bond traders finally agreed with our signal. After almost two weeks of floundering the bonds sparked to the upside on Friday’s up move, making the trade positive.

The market gapped up on Friday with prices punching through the rising and declining Gann grid lines. Unfortunately, the close remained below the mutli-month support and resistance horizontal. A price close above the horizontal resistance should allow the bonds to run up along the rising Gann line. For this action to be meaningful, we really need to see upward penetration within this coming week.

30-Year U.S. Treasury Bond Price – Daily

Gold:

The XAU has made the decline to the rising intermediate trend line as I expect and wrote about in the 2/3/06 weekly update. With this target reached and a 12 percent decline avoided, we are looking to reenter this market for the ensuing rally. I would expect at least a 5 to 7 percent move over then next few weeks.

XAU -- Daily

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