  |
7/14/06 Market Update
Stocks:
The market’s three day decline wiped out two weeks worth of hard fought growth. This recent action, in classic technical analysis form, retested the violated the long term trend line on the weekly Value Line Geometric before being turned back with a vengence. The VLG price now rest just above the 61.8 Fibonacci retracement of the 1998-2002 decline. This Fibonacci level has acted as support or resistance at least five times with this index in the past.
Value Line Geometric – Weekly
Furthermore, the Dow Jones Industrial average below is also at long term support from the 2002,2004 and 2005 horizontal. The Dow is also above the over-sold threshold on the weekly oscillator.
Dow Jones Industrial Average -- Weekly
There is a good chance the market will find temporary support at these levels. Normally, I would expect a retest of the broken trend line, however at this has already taken place for many of the indexes and therefore, any bounce may be short lived.
The Real Estate REIT funds have enjoyed a bounce with the easing of interest rates over the last few weeks. This market now shows all the typical signs of a top with the increase in volume on this decline and the over-bought condition of the oscillators (red ellipse). We have initiated a short (inverse fund) with the Profunds Inverse Real Estate fund. This position could last for several months (really years) as this market unwinds. We will watch the as prices approach the rising trend line (blue) and increase our position with penetration of this support.
Real Estate Index (IYR) – Daily
Bonds:
The 30-Year U.S. Treasury bond price managed only to squeak out a modest gain last week in spite of global turmoil 78 dollar oil and a precipitous equity market drop. It did manage to break above and now rest on its declining overhead resistance trend line formed from the January and February 2006 tops; however, is now over-bought on the 9 day and 18 day oscillators. If the breakout is real, the price may drift lower following the January, February trend line lower while these oscillators relieve some of their current over-bought conditions. If this is not the real breakout, prices should retreat quickly. If prices move back below the old over head resistance, now support, watch for a quick rise in interest rates and bond price collapse.
Rising interest rates tie into both the equity and real estate relationships above. All are at critical supports or resistances. Pay attention, be nimble and the opportunity for some good profits is at hand.
30-Year U.S. Treasury Bond Price – Daily
Gold:
As typical of the XAU in the late stages of the move, it starts to follow the equity market more than the metal itself. Although, both moved higher into Friday’s close, the XAU diverged in magnitude to Gold’s surge. Below is an overlay of the two, Gold in yellow and the XAU in black.
Last week’s update explored the potential of a head and shoulders top technical pattern formation for the XAU. With last week’s price action the potential increases. If the current weakness continues through next week, odds are the confirmed top is in and short position (inverse funds) should be initiated.
NYSE Comex Gold & XAU – Daily
Best returns,
Garry Graham, CMT, CFP® The No-Load Fund Advisor Back to Members Area Index >> |
Home | Order Video |