05/05/06 Market Update

Stocks:

The market broke out of its ascending triangle and horizontal tops line on most indexes. The S&P chart below shows both the horizontal and rising tops containment trend-line. The fact that the breakout occurred on Friday’s close adds to the significance. The rising tops line has contained the market advance since late 2004.

S&P 500 -- Daily

Is this breakout for real? We won’t know until another week or two pass; but we have to assume so until proven otherwise. From a Target strength position the Dow then small Cap Russell 2000 appear to be the funds to own.

Bonds:

The bonds also had an impressive Friday. The new lows achieved last week before Friday’s pop came in with positive divergences as did the lows over the last few weeks, but with this distinct difference; it was a Friday’s close and it was up. However, the price still closed lower for the week and while it managed to bounce off of horizontal support the price could not stay above the rising Gann grid line. A true trend turn is still undetermined.

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

I suspect the lower horizontal support to be retested going into Wednesday’s Fed meeting. If it holds it could be the rallying support point the market has been searching for.

Gold:

Short term cycles predict a revisit to the rising trend line. But longer term cycles allow for this market to continue running into the August time frame. Price action above the trend-line remains in bullish mode and drops to the line can be considered buying opportunities.

XAU -- Daily

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