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WEEKLY CHARTS

DJIA: Channel support at 10380 and channel resistance at 11500;
but it will have to get above 10975 before it can challenge 11500.

DJTI: If the 3500-3450 zone can't provide support, it will go back down to 3300.
However, if support continues to hold, the odds favor that it will go back
up to re-test resistance at its most recent highs.

SP500: It has support at 1165, and resistance at 1210.

NASDAQ: It has support at 1970, and resistance at 2115.

HUI: It broke down. If 190 doesn't hold, the next downside target is around 180-175.

US Dollar: It has more room to rally. If it can get above 85, the next upside target is 87-87.5.

Oil: It has resistance at $50.00, and support at $45.

Conclusion

Last week I said: "The overall picture remains mixed, with neither the bulls nor the bears firmly in control. However, the bulls have made small progress against the bulls. The indices are still holding above support, and some of the technical indicators are showing positive divergences, which means a "pop" next week can't be ruled out, but it would be a mistake to assume that it is certain. At this point we assume that either scenario#2, or scenario#3 is unfolding and we see no good reason to change our position that for the time being, cash or hedged, is the best place to be."

(Current) Last week we got the "pop" the indicators were suggesting and along with it, we also got a noticeable improvement in the technical tone of the market. The degree of improvement is enough to push the indices up against their respective immediate resistance levels (see table below). We are still under the assumption we made three weeks ago that price is following either scenario #2, or scenario#3 for NASDAQ, and it definitely followed a pattern very similar to the pattern shown in scenario #3 for the SP. Given that the volatility ratios are at the top of their most recent range (see oex/vxo chart below) and the McClellan Oscillators are fast approaching the top of their range, we doubt that they will be able to get above the first upside targets. If the advance continues to grind at its current rate, we can expect choppy action resulting in marginally higher prices for approximately another 7-10 trading days, but it may not even last that long. We strongly suggest not to commit more than 10%, and preferably no more than 5% of capital to new long positions, and stick with stocks which are showing high relative strength. If you want to be long, be long "strength," not "weakness"  thus, you are better positioned to deal with market risk which remains elevated.

The OEX/VXO ratio is at the same level where the previous advance was terminated.

Notice that the first two times when Gold broke out above resistance, it came back and successfully re-tested the break-out point by staying above it. However, for the first time in four years, it closed below its previous break-out point ($425.00) which implies that we ought to expect a steeper and longer correction than the ones we have gotten used to the last four years. Worst case scenario may be that gold has changed "character" and  by closing below a previous break-out point, it is giving us an advanced warning that the up-trend line which has provided support for the entire 4 year advance, will ultimately be violated.

Ike Iossif

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