10/15/06 Market Update

Stocks:

It remains at the top of the trading channel and are over-bought on the weekly and daily basis. All the shorter term cycles (27-trading day, 9 & 13 week) are over-bought. The 4-year cycle is over-bought and over-due. The only significant cycle that I track not over-bought at this time is the 9-month cycle which last bottomed on 6/14/06 for the S&P 500 and would be due to top between 10/24/06 and 11/25/06 which represents the .5 and .618 points from low to low.

For the alternate 9-month cycle its midpoint is 11/28/06 and could coincide with the primary .618 date above. Where this cycle will peak is anyone’s guess; but in ten days and for the month that follows, we will within the ideal window . The risk will only increase with each passing day.

S&P 500 -- Weekly

The Russell 2000, the clear winner for the week, managed to reach and exceed its 78.2% Fibonacci retracement. Two week ago in the update, I wrote about the serious divergence between the broad market and the new high making Dow Jones Industrials. I wrote that this divergence must be addressed meaning and fully expecting a drop in the Dow to match the broader market. What happened is that the broad market has surged up towards new highs to meet the Dow. Now, were still not at new highs yet and this is probably the greatest bull trap of all time; but if the Russell does make a new high then obviously the bull move is confirmed and serious reevaluation will be in order. Within that analysis thought is the great possibility of a double top.

A kiss at or near the new high mark within the next month could also signify a double top. This would bring into agreement all the cycles we track and signify one potentially hellacious turning point. At the current angle of accent, 10/26/06 is the intersection of the previous top and the current slope and on target for our expected cycles tops.

Russell 2000 -- Daily

Bonds:

The bond prices confirmed the downward trend with last weeks price drop by closing below the declining tops line (orange) and breaking down through the rising trend channel (green) The breakout was brief but still managed to complete, perfectly, a 50% retracement of the June ’05 through June ’06 decline.

The 23.6 percent retracement is the next Fibonacci support level. This rests at the 108.9 zone and could be the probable first target. There is some congestion on the chart here and the price could experience another tradable bounce. As long as the price remains above this level the new uptrend is intact a decline below would signify a resumption of the prolonged decline.

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

Gold:

The XAU broke above its 20-day simple moving average on this Friday’s price action. The average has contained the price over the last month, but is now broken. The 18-day oscillator and RSI are in great position for further advance.

The weekly chart show Friday’s price advance stopping right at the declining Gann grid. The 20-week average is resting on the next highest Gann grid line. If the daily move can continue, I expect to see this weekly expanse closed very quickly.

XAU -- Daily

XAU -- Weekly

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