12/03/06 Market Update

Stocks:

The Market dropped as predicted in last week’s update but not as expected. Monday’s plunge was more than anticipated but in the right direction at the right time. The price action is significant and alludes to the ultimate intensity of the decline when it dose come. Even with Monday’s drop prices were able to stay above the rising trend line (blue) and the 20-day simple moving average (red). What we have is a double top with a rising wedge bottom. Trying not to get too far ahead of the market, the future direction will be dictated by the ultimate direction of the breakout. The technical picture indicates a tired market and points to the likely break down; but, the market will do what the market will do and it is best to wait for confirmation before diving into short positions. The answer will soon be at hand. Be ready.

Value Line Geometric -- Daily

Bonds:

In a perfect example of the above advice, the bond market pushed up and through its horizontal triple top line and using the rule of 4, written about 3 updates ago, has managed to forge higher against an over-bought technical background.

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

The next conjunction of price and time is at 115.5 on 12/6/06. The advance should meet resistance near this price and date. I closed the short and went long, but do not expect it to last much though next week. A correction is due, if not a true trend reversal. It appears that the bond market is pricing in at least two interest rates drops next year. This is then a bet the Fed. will look to support the economy verses the value of the dollar.

Gold:

The XAU tagged the 150 line predicted in the last two market updates. This was the optimum price for the advance and the target has been reached and acted as resistance. The market is now in over-bought condition on the daily basis and set to back off over next week. However, this week’s price action resulted in a breakout above the declining tops line created by the May and September tops. It did not, however, clear the upper boundary of the horizontal channel. The support at the 144 level across the channel and a drop to this level would fill last week’s price gap. If the 144 powerful Fibonacci value can hold then the XAU should be able to continue its upward breakout move. This answer shouldn’t take more than 4 to 8 days to reveal it self. Watch closely and be prepared to move.

XAU – Daily

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