09/22/06 Market Update

Stocks:

The S&P 500 managed a new intra-week high, but closed down for the week in total, the price not being able to break above the rising resistance line (magenta). The week ended resting on horizontal support (green) provided by the April high. The RSI and stochastic oscillators posted a lower high on this move creating a negative divergence. The MESA oscillator crossed down on Friday’s close but often peaks ahead of the price. The internal measures are weakening and it is just a matter of time before the price follows.

S&P 500 – Weekly

Bonds:

The 30-Year U.S Treasury bond price pushed up through the Gann grid line (light blue grid) and both the horizontal (red) and declining tops (orange) lines. This move indicates a breakout and if it can hold confirms a change in trend. It would be expected for the breakout to be proven with some sort of price retreat to the resistance, now support line. The declining tops line and the horizontal line meet on 10/27/06. This is the expected date limit for any retest. We should see prices soften in a slightly downward action towards this date or sooner, see the XAU below. This would allow the retest and the oscillators to alleviate their current over bought conditions. This retest is not a must, but it does most often occur; therefore, after a two to four week decline the bonds should resume their up move as yields drop.

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

Gold:

The XAU remained predominately flat for the week. While it flirted along the declining Gann grid line, it managed to close above the lower horizontal support with an increasing RSI indicator. It appears to be creating a short term bottom. This coincides with the bonds above. Rising interest rates would add downward pressure on the price of gold.

The Gann grid converges with the upper horizontal resistance (brown) on 10/12/06. If the XAU price can move up this far this would prove to be formidable resistance. The vertical blue line is the 72-trading day cycle, due to bottom on Monday. While it do not think the XAU price will revisit the upper boundary of the channel, it does appear as if the price will climb for the foreseeable future. This is not healthy for our Short positions and profit taking in the name of safety is in order. We will reenter when the oscillators exhaust themselves at the over-bought levels.

XAU – Daily

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