08/25/06 Market Update

Stocks:

The market struggled to maintain its position above the tops line. By Friday’s close it had broken below but still remained above horizontal support at 1290. The stochastic oscillator (top third) is turning down from over-bought but the MESA trend oscillator is still pointing up. We may see one more week of distribution type volatility similar to last week’s action before the next down leg really gets going.

S&P 500 - Daily

The weekly oscillator also allow for a continued advance; but, we can easily define the five wave pattern as complete and it is unlikely that this move is anything more that a correction within the new decline. So while there is no doubt that the music is still playing, it less important to be looking for a new dance partner than it is time to start looking for a place to sit once the music stops.

S&P 500 – Weekly

Bonds:

The 30-Year U.S. Treasury Bonds price extended it upward trend; but, now sports an oscillator in over-bought territory with a slightly lower top and is right in the middle range for the wave 4 upward correction to stop. We should at least see a regression to the trend line. If volume and intensity pick up, we could see a new low in price and high in interest rates as prices tumble. Cash just may be the best place to be for the next two weeks.

30-Year US Treasury Bond Price -- Daily

Gold:

The XAU vaulted to the 150 level as I stated it would in last weeks update. I also said that I expected this breakout attempt to fail. While Wednesday’s intraday price penetrated the 150 mark, by the close of the day and week prices had dropped back below the declining Gann grid line.

XAU – Daily

The rising triangle formation remains intact. The gold stocks could easily have another test of the rising support and then bounce back towards the 150 level. This is a great opportunity for the option player but no great time for the gold mutual fund investor. Here too, cash may be the best answer.

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