For Monday, November 25, 2002
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Stocks: A Clear Path for Stocks AheadThere are times when the path ahead in the stock market is clearly marked. And, there are many more times when that path is shrouded in fog. Fortunately, we are at a time when the path ahead is clear.
Reviewing the bear market rally: The market bottom in early October (8 Oct in NASDAQ, 10 Oct in the Dow), kicked off wave A of an A-B-C rally phase. Wave B consolidated the gains from the 6 Nov top and we are now within the final rally, wave C. Within wave C, the market is tracing out an impulsive five-wave move with wave 3 complete and wave 4 in progress. Wave 3 was relatively weak as third waves go, falling short of the net advance in wave 1. Since wave 5s are usually the weakest wave, it's very possible that we've seen the high price of the entire bear market rally already. Normally, wave 5 will move the market to a higher high, though, so it's more likely that we'll see a higher high this week, but don't count on it.
Timing. A tremendous confluence of timing indicators point to a turn this week. And, there is a very important behavior in the market which will help pinpoint the top as we discuss further in our Detailed Comments Page . . .
Euro Currency:The Euro remains close to its recent highs, but, fundamentally, there is no reason for the Euro to be so overvalued. Interest rates are relatively high for a zone with such poor economic prospects, but appear to be the only thread holding this currency up.
U.S. Dollar Index:The US Dollar Index has held within a narrow trading range for months, but given the potential for a rally in gold prices, is likely to break down soon.
Canadian Dollar:The rangebound trading continues with a likely steep decline ahead once the bottom falls out.
S&P Toronto Stock ExchangeThe TSE should find strong resistance at the August high (380.33) and turn down.
Australian Dollar:The A$ continues to struggle at the resistance line on the Weekly Cash Chart. The yellow polytrendline suggests some upward pressure could potentially continue for up to two more months, but the trend should turn down strongly at some point, relieving pressure on the Australian stock market and Australian exporters. It's very likely that the government is artificially levitating the A$ due to some unwise investments they made on the future course of the currency.
Australian All Ordinaries:The market is closing in on resistance at the brown polytrendline (just above 3000), which should provide a ceiling this week. Although the Australian market tends to be a follower of Wall Street, its recent relative underperformance may be a leading indicator if it turns down alongside NASDAQ, rather than the Dow.
Australia Business News
Yahoo! Australia Business News
London Financial-Times 100:All of the stock markets are in basically the same shape this week: topping. In the case of the London market, the high is likely to be below the August high of 4466.4. This is an important market for all investors to watch: the London market often tops out before the blue chip US indices.
Bonds / Interest Rates:Bonds continue in a long term bull market with corrections mostly due to strength in the stock market. With the stock market trend changing this week, the bond market should benefit from flight-to-quality buying. Note: extended comments will be found on our Extended Comments Page . . .
Target 2030 Zero Coupon Bond Fund Quote
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CRB Index:The pattern in the CRB is a broadening top formation. Although this implies volatility, it also implies a significnat long term top is forming. This is bad news for the economy as it implies a return of the deflationary trend and recession/depression ahead.
Copper:Copper continued up last week and appears headed for the 62% retracement price of 74.67 basis December. Copper is a great leading indicator for the economy: if the 62% retracement price is exceeded, it indicates a strengthening economy.
Gold Stocks:The contracting triangle is nearing completion. Is gold gearing up for a flight-to-quality rally due to some future event? It certainly looks that way. We shall soon see the outcome of this formation.
For an up to date list of the stocks in the Gold BUGS Index, see "http://www.amex.com/othProd/prodInf/OpPiIndComp.jsp?Product_Symbol=HUI".
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