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03/17/06 Market Update
Stocks:
In last week’s update I wrote of the expected rally which should produce a negative divergence between a higher price and lower oscillator readings and that we would stand on the sidelines until this situation resolved it self. The proprietary NFA Value Line model issued a buy signal for Wednesday’s market. From the low on the 9th to Friday’s close the price managed to move the entire length of the rising wedge on the charts. It can best be seen on the chart of the Russell 2000 below. I originally intended to make only the smallest token or a 20% position for NFA’s Conservative Growth private accounts. Now, however, I have decided to remain flat, out of the market until the price closes outside of the rising wedge, either to the upside or down.
I have posted, as always, the new signal on the www.GuerrillaFunds.com web site. The web site posts only the trend following models signals; but, I also use our proprietary predictive models to manage and allocate the privately managed funds we list in NFA’s recommended positions. There are very few times when the positions can not be logically deduced by the signals and fund rankings found on the site, but this is one time when we will not honor the trend following buy signal until, as stated above, the price can break out of the rising wedge.
Russell 2000 -- Daily
Within the chart above, we can see the price advance and retreated from the (red lower price graph) rising top, wedge line. The stochastic oscillator (upper indicator) is now over-bought and negatively diverging, meaning a series of lower highs as the price has advance to higher highs. Prices should drop below the 743.80 Thursday close price, our signal buy in price, and decline towards the lower wedge rising support which is also supported by the 50-day simple moving average. Will this support hold? I think not, still I will wait for breakdown confirmation before any short (inverse) positions are created. Remember, our goal is superior results with principal protection as first consideration; not high returns at great risk.
In the S&P Cycles chart, I have inputted Friday’s close as the turning point for the current 13-trading day, the 27-trading day and the 54-trading day cycles which are all due in this time frame. If this date turns out to be the high, then we should see the first leg of the decline between now and 4/12/06, with the 4/4/06 offering our first bounce. If 3/17/06 is not the high turning point then the wedge could continue with the 4/4/06 being a support line hold and 4/12/06 being the next tops line reversal.
Bonds:
The 30-Year U.S. Treasury showed some life into Friday’s close; but, the price remains quagmired within the longer term channel defined by the horizontal low support (blue) and the declining Gann grid (yellow). The vertical blue lines represent the 45-trading day cycle due in the current time frame. While the NFA trend system in on a short signal, here too, we will remain on the sideline until the predictive elements run its course and either a rise to the top of the channel is begun as they suggest or the lower limits of the trading channel (bottom red) are penetrated.
30-Year U.S. Treasury Price -- Daily
Gold:
The XAU has managed to find short term support and a potential Wave 3 low and, in spite of the room available for further advance, should run into resistance near current levels. This rally should represent a Wave 4 correction and not a new advance. Don’t be too hasty to get back in just yet. The upside is about 10 XAU points and the downside could be 50.
XAU-- Daily
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