07/07/06 Market Update

Stocks:

The market managed a rally into the short term over-bought oscillator readings and above its 200 day SMA on Monday only to sputter into Friday’s close lower for the week. The daily oscillator reading remains at the over-bought altitudes while the price dropped back below it 200 day SMA. On the short term the price remained slightly above the longer term rising trend line (blue) but remains in the over-bought condition. If this over-bought level is relieved, prices could drop to the parallel trend line (red) projected from the June 13th low. However, it is not a necessity to fully relieve the daily oscillator.

Value Line Geometric -- Daily

On the weekly chart below, the oscillator rest just above the over-sold threshold. This may provide the power to continue the rally off the intermediate trend-line (blue). The oscillator has crossed its moving average, which is one of the traditional buy signals for this indicator.

Value Line Geometric -- Weekly

Most likely, we will see a week of volatility with a slight downside bias as the short term over-bought condition subsides. The intermediate rally could prevail at anytime, but keep in mind that this trend, while over-sold, still conflicts with the long term downward pressure.

Bonds:

The 30-Year U.S. Treasury bond rallied through the Gann grid channel, but is now quickly approaching a convergence of over-head resistance. The intermediate term (green), short term (magenta) and the declining Gann grid line all angle towards the 107 mark. This should prove to be formidable resistance for this rally.

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

Gold:

The XAU’s rally has brought the short term oscillator into over-bought territory; but as the stocks above, the weekly oscillator has just turned up from over-sold. The power lies with the weekly trend, but any up move will be constrained by overhead resistance. The chart may be creating a head and shoulder pattern. If so, then the 154 – 155 value would be the area for the right shoulder to form. This would give us a excellent opportunity to short (inverse precious metals fund) with minimum expected price targets to the down side. This would be a fast and furious decline and golden, pardon the pun, opportunity to accumulate some quick profits.

XAU -- Daily

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