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The TOs are near the bottom of their range and they're attempting to turn up, which means we can see another push to the upside by these indices.
SUMMARY On March 3 we said, "Although last week we had very little change in terms of price, at the same time we also had a number of bullish and bearish developments. On the bearish side, bond yields are threatening to break above resistance, and oil prices appear to have stabilized and ready to move higher. On the bullish side, we got several short-term positive divergences between a number of technical indicators and price. In our view, the positive divergences mean that although market participants are hesitant to make a large scale commitment to the market--on balance--they are bullish and they don't expect bond yields and oil prices to rise further. In fact, they are "positioning" themselves for a rally in the equity markets fueled by a retreat in bond yields and in the price of oil. Although in the intermediate term such beliefs may prove to be without merit, in the short-term equity prices can move a bit higher, and as we mentioned last week, the major indices may be able to hang around the top of their range for another 1-2 weeks. For next week pay attention to the support levels listed on the table below. As long as the indices remain above them on a closing basis, the bulls are in control and they can push prices higher to the first upside targets. If the indices close below support, it would mean then the bears have taken control, and they can push prices lower to the first downside targets." For the week of 3-13-06, the major indices remained stuck between resistance and support, while most of the technical indicators are either slightly negative or neutral. All in all, nothing really changed since last week. The equity markets remain hostage to the bond market, and unless we see a meaningful retreat in bond yields, the major indices do not have much room for maneuver. Of course, if the bond market behaved, while oil prices remained below $65 per barrel, the bulls would be able to push the SP towards the 1325-1340 level. However, the key thing to remember is that the opposite could happen just as easily. One of the things that we have learned from studying the markets for nearly 20 years is this: there are times to be long, there are times to be short, and there are times to be mostly in cash. In our view, this is the time to be mostly in cash if you are a risk-averse investor. If you are a short-term trader, then pay attention to support/resistance. A close below support or above resistance will easily lead to an additional 2.5%-3% move in the same direction. Please read also Market Cycles. Last but not least, we would like to reiterate our belief that the real trading opportunity over the next 4-6 weeks will be in gold/gold stocks. Please revisit--in the archives--the reports on the XAU from the past couple of months.
Ike Iossif
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