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WEEKLY CHARTS

Pay close attention to the "fan formation" in this chart. Notice that this major index since April '04 has been breaking trend-line support, rallying up against it, failing to get above it, breaking down, and then finding support at an ever lower trendline! The implication at this point is this: if the Dow can't overcome resistance and it turns back down again, assuming that the patterns holds, then the blue support line will be violated and the next support will be found along the green line. There is more room to the upside; resistance comes into play at 10625.

If the Transportation Index can't overcome resistance and it turns back down again, assuming that the patterns hold, then the blue support line will be violated, and the next support will be found along the green line.

SP500: Pay close attention to the "fan formation" in this chart. Notice that this major index since April '04 has been breaking trendline support, rallying up against it, failing to get above it, breaking down, and then finding support at an ever lower trend-line! The implication at this point is this: if the SP500 can't overcome resistance and it turns back down again, assuming that the patterns holds, then the blue support line will be violated and the next support will be found along the green line.

NASDAQ: Stuck between major support and major resistance--what a "conundrum!" The point here is rather straightforward. If "purists" cared to take the price action "face value" and didn't try to "interpret" it through their own pre-existing bullish/bearish biases, NASDAQ's current predicament suggests that until there is a break above resistance or below support, the intermediate term trend has simply turned neutral from previously negative at best--in spite of the recent blistering advance.

HUI: If it closes above 190, then it will make a run for the 200 resistance level. However, if it reverses to the downside after encountering resistance in the 186-190 zone, more than likely it will go back down to re-test the 165-160 support zone.

Oil: As long as the $47.5 level holds, the uptrend is still intact.

Price is grinding higher, but the TOs are declining. It means that the initial momentum thrust which propelled  the indices higher has been exhausted.

Price is grinding higher, but the TOs are declining. It means that the initial momentum thrust which propelled  the indices higher has been exhausted.

The trend is UP for NASDAQ.

The trend is UP for the SP.

Conclusion

Last week we said: "Last week scenario #1 finally came into play, as all the indices--led by NASDAQ--rallied sharply, and the question is whether the rally signifies a true change in the intermediate trend, which has been down since the end of last year. As we can see from all the charts, the indices have rallied towards the uptrend line that was violated earlier in the year, and in that respect, there is even a little more room to go on the upside before they have to negotiate with it.

Rallying back up against previously violated support is the most usual action we see after such violation has taken place. Therefore, by definition, until we have a close above that resistance, the odds that the intermediate term trend has been reversed stands only at 50/50. Some will point out to the downtrend line that has been negated by NASDAQ after last week's rally and take it as a "bona fide" sign that the trend has been reversed. In our view, it only represents half of the picture--and it is a positive sign--but the earlier point we made represents the other half of the picture.

We saw similar action last year. NASDAQ broke its downtrend twice only to make lower lows a few weeks later! Is there a danger of such performance to be repeated? Yes, look at the QQQ/QQV ratio. It is right at the same level it was when NASDAQ registered its last recovery high at the end of last year.

In summary, we believe that the evidence points to a neutral picture with regards to the intermediate term trend, but since all the indicators are above zero, not only the short-term is definitely positive, but also the first test of support ought to be successful, which means the first dip ought to either be used to add to longs, or initiate longs with a stop right underneath support."

(Current) Last week's price action didn't add anything new to the picture we painted in last week's report, but in our view, it did confirm its validity. In spite of the recent rally, the intermediate term trend is still neutral, and until we get a bullish or bearish resolution, it makes no sense for intermediate term investors to be over-exposed either on the long side or on the short side of the market. Short-term traders ought to expect a pullback at resistance, and either short or wait to see if channel support holds during the pullback and go long

XAU: Notice that the 88 level represents a fib number, and also resistance from a previous support trendline that was violated. If it pulls back at the 88 level, price shouldn't retreat below the 82 level.

Ike Iossif

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