03/24/06 Market Update

Stocks:

The Russell 2000 was our index of choice for the week. We had issued, then retracted the position buy for the small cap value funds. Monday’s decline generated a sell signal and it looked as though the 3 day rule was vindicated. However, after a one day drop the index resumed its climb. Not only did it move to the upper boundary of the rising wedge but penetrated on Friday’s close. It is hard to see, but the oscillator also penetrated the declining tops line. For the week, the Russell managed a 1% up move. Had I followed the signals, we would have almost doubled that. It is a lesson that I must repeatedly learn from time to time. But in high risk markets, such as this, caution is not always a bad thing. We’ll see if Monday bears this out.

Russell 2000

The Guerrilla Tactics Fund Targeting™ score pointed to the Russell as the place to be; but at the same time it revealed weakness in all other indices. But before you run out and buy the small caps next week, look at the chart below. Here is the NYSE (black), OTC (red), NDX (blue), and S&P500 (magenta) none of which were able to move back up to their previous highs. This is more of the inter-index divergence I wrote about over the last two weeks.

2006 NYSE (black), OTC (red), NDX (blue), and S&P500 (magenta)

Here is the same chart for March 24, 2000. Then, as now, the indices failed to take out their former highs. A close inspection reveals a market in better sync than today’s. This is why I wait for a confirmation of the up move and I suggest you do the same.

2000 NYSE (black), OTC (red), NDX (blue), and S&P500 (magenta)

Bonds:

The 30-Year U.S. Treasury Bonds also had an impressive Friday. Never the less, prices stopped exactly on the declining Gann grid line. We will see early next week if this move truly intents to be a breakout or just more bottoming oscillation. I believe it is time to revisit the upper boundary of the channel (red) and we will see a breakout soon.

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

Gold:

As with the bonds, the XAU also appears to be ready for advance. Friday’s price was also stopped right at the declining Gann grid line but look at the Relative Strength Index (green) in the bottom sub-graph. This registered a much stronger showing that the price itself and the oscillator (sub-graph one) has plenty of room to run.

XAU -- Daily

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