10/08/06 Market Update

Stocks:

The Dow and to a lesser extent the S&P had another positive week with minor fatigue entering by the week’s end. The S&P 500 now rests at the upper most end of its two year trading range. While it has poked above this level five or six time before, it has never been able to maintain the move for more than a day or two. Stochastic oscillator levels are in over-bought territory on the daily and weekly basis, while the RSI continues to show lower divergent tops with the previous highs. Odds are a breakdown is imminent. The divergences of the OTC, NDX Russell 2000 suggest that this top could be an important one or at least a severe decline..

S&P 500 Daily

The divergence between the broad market and the “Elite” is astounding. The Russell also now sits at its 54-trading day cycle point.

Russell 2000 – Daily

Bonds:

Interest rates surged up as the bond prices retreated with Friday’s jobs report. The price “air pocketed” all the way down to the rising trend line. The oscillators are not in over-sold territory yet and offer room for the fall to continue. We have been halfing our position on each peak over the last few weeks and suffered little damage to our returns. We could see a rally towards the mid point of this range. If you can imagine a parallel line floating mid-way through the current channel, this is the most likely stopping zone. This would be a great opportunity to lighten up on the position further.

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

Gold:

The XAU retreated from the 20-day simple moving average after Monday’s intra-day price kiss; successfully tested the lower price channel and now looks ready to penetrate the SMA to the upside. The XAU may be ready to push toward and through the rising Gann grid line next week. While I do not think the decline is finished, I believe we will see a tradable size relieve rally for the next five to ten days.

XAU – Daily

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