06/23/06 Market Update

Stocks:

The market was not able to bounce out of its over-sold position. It has remained lodged within a tight trading range of the rising trend lines and now the 20-day simple moving average. In the update from two weeks ago is wrote that the oscillator would move out of over-sold territory, but may not necessarily get to over-bought on this up move. To that end, the RSI looks as though it is rolling over already indicating that prices will go lower.

S&P 500 -- Daily

While the prices will probably drop again this coming week, there is still support just under this market. On the OTC chart below are two different Fibonacci retracement ladders, one off the October, ’02 low and the other from the August, ’04 low. The 23.6% of the ’02 retracement and the 50% retracement of the ’04 are just below current levels. These, with the channel type of supports from above, are a healthy measure of support just under this market. Sideways may define the expected summer rally.

OTC Composite -- Weekly

In recent updates, I wrote that the Summation index did not yet have a bear market structure. Now, however, it is just a few down days away from approaching a new low and creating that structure. This market is weaker than I suspected. It does not mean that we will not see a relief rally, but it suggest that it will be shorter and weaker than originally proposed. For the OTC above, the market should find support in the 1750 zone, but ultimately this too should fail. I expect the entire ’04 move to be lost with 1600 as the possible termination moving into the four year low.

McClellan Summation – Daily

Bonds:

The 30-Year Bond price broke below the rising Gann grid line and quickly dropped to the declining Gann grid support. This lower bounded grid gives the prices more bounce room. The daily stochastic oscillator is at the extreme over-sold level reading in the 4.5 area. However, look below at the weekly version of the bonds and now the oscillator is slightly above neutral and turning down. The bond prices may be in for some more disappointing news this coming week.

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

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

Gold:

The No-Load Fund Advisor’s momentum model issued a buy signal for the XAU on Wednesday’s close. I have posted the signal; but, chosen to wait for confirmation of the rally. The market structure suggests that this up move is wave 4 corrective rally. The price will commonly rebound to the 20-day SMA which it did on Friday. Its short term oscillators are also over-bought and from an inter-market prospective, the bond prices appear to be ready to accelerate their decline. Higher interest rates can support the dollar and put pressure on Gold to decline. I will need to see a strong penetration through the wave 4 barriers to allocate to this market.

XAU – Daily

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