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Last week (4-7-06) we said, "Higher oil prices and higher bond yields put the equity markets under pressure and on the defensive. Given that all the technical indicators have turned down--assuming that we don't get a downside reversal in oil and in yields--we ought to expect a continuation of Friday's decline at least for another 1-3 trading days." We have enough data points to--at least--determine that next week is a significant one; here are the reasons why: 1.
Last week the McClellan Oscillators got to oversold levels. Notice what happened during the previous two OPEX weeks in February and in March under similar technical circumstances. In the first case, we had a 30-point rally, and in the second we had a 40-point rally. So, here is next week's significance: All else being equal, we have a BULLISH SET-UP, assuming that the market is still in a "BULLISH MODE," we ought to get a rally in the SP anywhere between 25 to 35 points. If the price of the SP breaks below channel support, not only will we have a break-down in terms of price, more importantly, the SP will have FAILED TO TAKE ADVANTAGE OF A BULLISH SET-UP, which would signify the likelihood that the SP is NO LONGER IN A "BULLISH MODE" on an intermediate-term time basis. Is there a reason for the market to no longer be in a "bullish mode?" Well, there are two of them; oil is threatening to break out, and the yield on the 10-year note has already broken above resistance and it is targeting 5.40%-5.45%. However, keep in mind that price is always the final arbitrator in all market conflicts, and if for some reason oil goes up, yields go up, and the SP still goes up, do not argue with it! We would like to remind you how our dear friend and invaluable teacher--the one and only, Mr. Bob Kincheloe--always reminds us to stick with the trend and avoid the temptation to get cute by saying to us--when occasionally we get unduly bearish--"but daddy, it's going up!" Also, please scroll down to read brief comment on the XAU.
Notice the chart pattern. It's the type of pattern we observe at either the completion of short-term tops, or at the completion of short-term consolidations within ongoing up-trends, which result in upside continuations. Therefore, a daily close above 150 accompanied by follow-through on the next day would mean that the current formation was one of consolidation, and the XAU can rally to as high as 160-165. On the other hand, a daily close below 140 accompanied by a follow-through the next day would mean that the current formation was one of a short-term top, and the XAU can decline to as low as 125-120. Please also read: Joe Meyer, talks about the "5 rules of trading" and reveals the gold stocks he is buying for the long-term for his clients. http://marketviews.tv/channels/central.htm
Ike Iossif
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