03/31/06 Market Update

Stocks:

The market continues to astound (me) as it continue to maintain and in some cases advance from extreme levels. While some, like the S&P 500 have stalled, others like the small cap Russell 2000 and the broad measure Value Line Geometric have preceded to new or new recovery highs.

The Russell 2000 has led this advance, broken out of it rising channel and still has room above before it meets the 161.8 Fibonacci retracement level (blue dash and dots horizontal) of the 2000-2002 decline.

Russell 2000 -- Daily

Below, the Value Line Geometric backed away from its 78.6 Fibonacci retracement last week. Also note the divergence series of the oscillator tops. While it has broken above the declining top line (red upper chart) is still well below its high as the price forges upward. This indicates that market participation will most likely narrow into any continued advance.

Value Line Geometric -- Daily

While the S&P 500 (below) has not really participated in the last two week rally, remaining well below the 3/17/06 top, its decline stopped Friday at the 1/11/06 prior high horizontal (green) and the 20-day simple moving average (orange). These supports should allow the S&P to rally at least into the 40-day cycle due on Thursday.

S&P 500 -- Daily

All this is next week’s expected move. This is a high risk market and the downside potential seriously out weights any expected up move. The right place to be is on the sidelines. Trade if you must, but make sure it’s closely watched, with a clear exit plan.

Bonds:

The yield on the 30-Year U.S. Treasury made a minor retreat from the 4.9% mark on Friday. This level also halted the February – March rally in 2005.

30-Year U.S. Treasury Bond Yield -- Daily

The price chart, below, has met the expected target for the Wave 5 advance and a trend change should be eminent. Still, I suggest waiting for a little more evidence than Friday’s advance. One day does not create a trend; but it can make a reversal.

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

Gold:

The XAU advanced as I suggested in last week’s update. The price sits now just below overhead resistance created by the rising sub-trend (orange) and major (red) trend lines. I suspect that the move will continue up to test this resistance. However, Thursday’s intra-day price actually kissed the sub-trend line. This may suffice as this rally is a correction in the down trend and Thursday’s high price met the price (Wave 4) objective. Either way, the move is over or almost over. If we get a rally sell into it as the price approaches resistance. If you want to keep the profits you’ve already made then get out now.

XAU -- Daily

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