11/26/06 Market Update

Stocks:

The Dow Industrials continued to stall at the layered octave level I wrote of last week. The RSI and Stochastic oscillators both turned down on Friday’s close to generate a short term sell signal. Tuesday will also mark the out side edge of the optimum topping zone for both the 39-week and alternate 39-week cycle. Wednesday is the optimal topping zone for the short term 27-trading day cycle. We are at one of the best reversal area for time and price over the last and next few weeks.

Dow Jones Industrial Average – Daily

Recently the market has bifurcated between large caps and small, then blue chips to small caps. The rotation has moved from sector to sector as money pushes these indexes up and down. Now, at last, most sectors are at or near their annual highs or all time highs and double tops. The broad market measured by the Value Line Geometric exceeded it May top on Wednesday. All of the indexes have moved into exhaustion oscillator levels. Even this type of strength does not go on unchecked. And while we may see further upside market action, I think we have reached a probable resting (correction) point.

Value Line Geometric -- Daily

Bonds:

Showing more strength than I expected, the 30-Year Treasuries rallied to the upper most point of the channel line. They have done so, however, with diminishing RSI and a divergent, lower stochastic reading. If this rally is genuine, then it will have to continue to push through early next week.. I suspect it is a failure move (a head fake) and we will see it retreat right away. Our managed portfolio is short and will remain so unless the 113.6 level is exceeded on a closing basis. If this happens, then the rally should continue up through 114.5 to 115.5 and I will be forced to reverse the position. The indicators are against this scenario; but it is not completely out of the question.

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

Gold:

The story of the week for Gold is actually the U.S. Dollar. On Wednesday it broke below its rising trend line support and on Friday it collapsed. This essentially represents a 2.5 percent drop in our standard of living in one day. Gold and the gold stocks of the XAU responded by pushing through their own overhead resistance.

U.S. Dollar -- Daily

In last week’s update I wrote about this break out as a possibility. We held our longs against the system short signal, but now some short term back and fill could take place before we see a surge towards the 150 area. This is still a high risk trade and best watched daily or from the side lines.

XAU -- Daily

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