Market Insights™

Week Beginning 12/7

BullBear Index: OVERBOUGHT

Many of the major stock averages moved to new highs this past week. When I said two weeks ago that I believed a market top was in, my focus was on the NASDAQ 100 index which I believe is the market leader. That average made an intraday high of 1453.5 on November 7. This past week saw a retest of that high with an intraday high of 1452.0 on December 3 followed that same day by a bearish outside reversal. On the weekly chart, the NASDAQ still remains beneath its bullish channel, below the November 7 high, and has given us an MACD crossover SELL signal (view chart). A close below 1370 would put the NASDAQ 100 in an intermediate downtrend and confirm what I believe is the end of the bull market cycle, but a break above the 1454 resistance would mean another up leg is underway.

The U.S. dollar is at a seven year low and in a pretty steep downtrend. It closed at 89.1 on Friday and should find temporary support around 86. Gold meanwhile has cleared the $400 level and is at an eight year high. The XAU Gold & Silver Index is testing resistance at 110 and may be ready for a breather after climbing nearly 80 percent in nine months.

Week Beginning 12/14

BullBear Index: OVERBOUGHT

The Fed moved to a neutral stance this past week, announcing that it believes there is now an equal chance of inflation and deflation in the not too distant future. This is a very important signal to equity investors because now that the Fed no longer fears deflation, its balls-to-the-wall approach to monetary stimulation is history. This is not good news for stock market investors yet both the financial press and average joe-and-jane investors shrugged it off. Not so corporate insiders who picked up their already frantic pace of selling.

The Dow Industrials and the S&P 500 index posted new yearly highs this week but not so the NASDAQ 100. That creates an important divergence and weakness in market leader NASDAQ 100 is not to be ignored. While it looks to me as though the S&P 500 will be moving up to the low 1080s in the coming week, I believe the NASDAQ is toast and will soon pull the other averages down with it. I have had my eye on the ratio of the NASDAQ 100 to the Dow Industrials for some time now and what I am seeing is potentially very bearish (view chart). Notice that when the blue downtrend line was broken late last year it was telling us it was time to go long stocks. Now the pink line is being tested. A penetration would mean the resumption of the decline was underway and time to go short again. Notice the Elliot Wave count that shows an A-B-C correction terminating in an ascending triangle that has been violated and retested. At the same time, the RSI has been in a bearish divergence and the MACD has crossed over in a sell signal. This all points to an imminent retest of the August lows for the major averages.

Gold remains above $400 per ounce, but the XAU is correcting. Treat the 50 day moving average as both a sell stop (close below) and a buy stop (close above). The CRB Index closed at a new weekly high while the U.S. Dollar closed at a new weekly low. At some point rising gold and CRB and a falling U.S. dollar are going to crush both stocks and bonds.

Week Beginning 12/28

BullBear Index: OVERBOUGHT

Stock prices crept higher this past week as the S&P 500 index remained above the upper trendline of the idealized diagonal triangle I drew last week. My short-term indicators, however, are telling me that stocks have put in a short-term top here which means I expect to see the S&P 500 test its 50-day MA before it sees 1100. With a 13-day cycle due by New Year's Day, we should see a quick sell-off followed by a bounce this week. We'll have to wait to see how far prices fall this week before drawing any big conclusions, but a short-term decline with the negative backdrop I presented last week could very easily turn into something much larger. Because of this, I have let the SELL signal in the Intermediate-term model remain for another week in spite of the S&P piercing the upper resistance line of its diagonal triangle topping pattern.

Regardless of what the S&P does, my trading strategy will be dictated by the NASDAQ 100. It made its second retest of the November 7 high at 1453 and then closed the week at 1444. This market leading index broke trendline support a few weeks back but was unable to close below its 16 week MA, which has contained the entire rally from the March lows (view chart). As long as the 100 trades between its 16-week MA and 1453, I will consider it to be neutral and hold my portfolio in cash. A close above 1453 would be very bullish and good cause to throw long stocks, but a break below the 16-week average on a closing basis should be a good shorting signal.

Gold continues to hold up well as the XAU Gold & Silver Index bounced off of support at its 50-day MA. I am holding 25 percent in GOLDX fund as long as the XAU remains above its 50-day.

Week Beginning 12/21

2004 could very well go down as the year when the fallibility of historical market analysis (of which conventional technical analysis is a subset) was exposed. Most analysts who fall into this category, including yours truly, are left at the end of the year scratching their heads and looking for a new compass.

I know this past week has truly muddled the picture for me. My intermediate-term stock model went to SELL at the end of August warning us to look for a market top sometime before October 3. It appeared that the September 19 peak of 1040 in the S&P was the end of the road but in hindsight it turned out to be what Elliott Wave analysts call an "orthodox top" that extended into a five wave diagonal triangle. It looked like the fifth wave of that triangle was completing this week, but on Thursday the S&P 500 closed above the upper resistance trendline (view chart). As long as the S&P was in this triangular topping pattern, my assumption has been that the September SELL signal was still valid. Unless the S&P does a quick about face and closes back down into the diagonal formation, I will be forced to declare the intermediate-term signal a false positive.

What is shocking to me is that this sudden strength in large cap stocks came just as two of my indicators have moved to a negative bias. The first has been valid throughout the bubble years of the stock market beginning in 1998. It is the NASDAQ/Dow ratio I introduced last week which has now moved to SELL. When this ratio is climbing investors are controlled by speculative greed, when it is falling they are dominated by safety-seeking fear. The second one is my proprietary liquidity indicator, rpcm2. When this parameter fell down to or through its 7-year MA as it did in 1973, 1977, 1987, and 2000 the stock market was in a serious decline by no more than two months later. That indicator fell below its average once again in October 2003 so history says to look for a market peak no later than this month. That is, if any historical relationships at all are to be taken seriously. We shall see...

Week Beginning 11/2

BullBear Index: OVERBOUGHT

GDP in the 3rd quarter that ended a month ago came in at a whopping 7.2%. The last time we saw GDP over 7% was the fourth quarter of 1999 when it registered a 7.1% gain. The following quarter saw the beginning of one of the most ferocious bear markets in history. Will history repeat? All signs point to this market being equally over-extended and ripe for collapse but for the time being stocks continue in an uptrend.

On Friday the CBOE put/call ratio popped over 1.10 and that often presages a sharp short-term rally. My next target of 1068 now looks probable and would take the average to the upper resistance of the following potential rising wedge formation (view chart). This rising wedge is different from and preferable to the one I presented a few weeks back.

On that same chart, notice the placement of the five red arrows. For each of these occasions Barron's published a bullish message on the cover of their weekly fianancial magazine and within nine trading days of these bullish pronouncements the market uncannily fell into a significant correction. The latest example arrived on October 27 when Barron's cover read "Going Strong" and Monday will be the sixth trading day.

Week Beginning 11/9

BullBear Index: OVERBOUGHT

A spate of better than expected economic news pushed stocks to new highs by Friday but the S&P 500 index was unable to attain the 1068 target. The 1068 level represents a Fibonacci 38.2 percent retracement of the entire bear market decline from the high of 1553 in March 2000 to the October 2002 low of 769. A 62.8 percent Fib retracement on the Dow would take it to 10,000 and a 23.6 percent Fib on the NASDAQ Composite would push it to around 2050. Those targets are 1.5%, 1.9%, and 4.1% above Friday's closing prices. While it's possible that these targets could still be met, technical analysis of markets is as much art as it is science and the highs that each of these major averages attained on Friday came close enough to their respective targets to be considered "met". As long as the S&P remains in its rising wedge formation (view chart), we should consider it in a topping pattern.

To the multitude of technical indicators and economic fundamentals that are already screaming for a top in stocks (e.g., falling liquidity, rising long-term interest rates, corporate insider selling, extreme P/E valuations, EVERY sentiment indicator) we can now add short-term interest rates. Both Great Britain and Australia central banks were compelled to raise rates and that is going to put pressure on Fed chairman Alan Greenspeak to do same or risk a collapse in the dollar, further increases in gold price, and rising inflation rates. When central banks reverse trend like this, it signals that the punch bowl is about to be put away. No punch bowl, no party.

Both the U.S. dollar and gold tested their 50-day moving averages this week. The dollar did it from below and then turned tail with a very bearish looking outside reversal engulfing candlestick. The XAU Gold & Silver Index tested from above and made an even more impressive bullish reversal. Dollar heading lower, gold moving higher, short and long-term interest rates in an uptrend...not good for stocks...

Week Beginning 11/23

BullBear Index: OVERBOUGHT

My target for the S&P 500 index was met on Friday when that average fell to 1031 during the trading day. With a 13-day cycle low due on Monday (+/- 1 day), that might have been the end of the short-term decline. However, Friday's low does not have the usual characteristics of a short-term bottom so I would look for a selling climax to coincide with the 13-day cycle bottom. A selling climax can take several forms but I would expect to see the S&P 500 spike lower to around the 1020 area on elevated trading volume and then close near the high for the day and above the 1030 support level.

The way I see it, the fact that the NASDAQ 100 index has broken down out of its nine month bullish channel (view chart) at the same time investor sentiment is overy bullish, corporate insiders are dumping shares at a record pace, gold & oil (and commodities in general) are soaring while the U.S. dollar is selling off, my intermediate-term model is on a SELL, and terrorist attacks are a daily event, can only mean one thing -- it's over, folks. The second leg of the post-bubble decline is now underway.

If I'm reading this correctly, the stock averages should bounce early in the coming week and rally back toward the recent highs in a retest of their respective prior support lines (now resistance). A top should come in somewhere in the low 1400s for NASDAQ, and around 1050 for the S&P. If the markets unfold anywhere close to what I expect, we should be staring at a great shorting opportunity. The diagonal triangle formation in the NASDAQ chart forecasts a near-term target low of 1200 while a similar formation on the S&P is pointing to 962.

Week Beginning 11/16

BullBear Index: OVERBOUGHT

The S&P 500 index continues to trade within the same diagonal triangle formation that it started tracing out back in September. Diagonal triangles are topping patterns but require a break below the lower trendline to confirm that a tradeable top is in place. On Friday all the major averages closed lower with an outside reversal day (view chart). My take on that chart is that this reversal in the S&P 500 should carry price down to the 1030 support in the coming week.

That, of course, would signal the end of the road for the 13-month cyclical bull market and a resumption of the secular bear -- part II of the post-bubble decline. The second decline, known in Elliott Wave parlance as Wave C of an A-B-C correction, is always uglier than the first. The Wave A took the S&P 500 down 50% from its all-time high over a two year period, so IF prices break down over the next week or so, look for a cycle low below 500 by November 2005. I am getting a little ahead of myself, though, because my sense is that a lot of market technicians are gaming the same wedge formation that I am. And that means that if the S&P 500 hits 1030, look for a very big bounce at least back up to the lower support line of the wedge which is at such a steep angle that the S&P 500 could once again challenge last week's 1064 high before heading south in any serious way.

The U.S. Dollar Index moved lower and is testing its October low -- a close below that would put it at a multi-year low. The CRB commodity index, meanwhile, set a multi-year closing high this week as did gold and the XAU Gold & Silver Index. This is all pointing toward rising inflation in the not too distant future. When inflation rises at the same time that money supply falls as it has these last three months, RPCM2 collapses with stocks not very far behind.

Week Beginning 11/30

BullBear Index: OVERBOUGHT

The S&P 500 index is following the scenario I laid out in the November 16 newsletter. It has bounced off of the 1030 support and is in the process of retesting the early November highs right around 1064. I see a possible scenario where this average could slightly exceed the recent highs, but not by much.

I am keeping a close watch on the NASDAQ 100 index now that it has broken below its nine month bull channel. This week it moved back up to what was the lower support line of the channel (view chart), which is typical price behavior following a breakdown. I can see a final push up to the 1436 area which would be an optimum entry point for taking a short position. If you are considering doing so, make sure you place a mental buy stop at 1444 on a closing basis. In other words, if the NAS makes a daily close above 1444 then close out your short position and consider going long.

Gold is on a tear and the XAU Gold & SIlver Index is now at 110, 77% above the March 2003 low and outperforming every major stock market average. As long as the gold model remains in BUY mode, I have an upside target at 135 for this index, and another one behind it at 153 . The US Dollar Index set a new cycle closing low on Friday as the dollar hit a record low against the euro.

Week Beginning 10/5

BullBear Index: OVERBOUGHT

The bulls made a mockery of the "never-never land" chart I posted last week. Question is, will they successfully turn that rarified area above 1011 into a "forever land"? In a word, no. Not as long as my work is screaming "Look out below!" louder than it has at anytime since 1987. Not even during the hysteria of the late 1990s did I see these kinds of extremes. The only way this market will not tank over the next few weeks is if the stock market has entered one of those proverbial "New Eras" -- and even the bullest of the bulls no longer spew that sort of nonsense.

I am still confident that the September 19 high of 1040 was the end of the bull run and that the retest of those highs, now underway, will fail. When my intermediate-term model moves to SELL like it did on August 22, an important top normally presents itself within six weeks. October 3, then, marks the end of that six week window. That said, in the short run almost anything is possible in the stock market so we must be prepared for stocks to move into new high ground for the year. In that event, next targets for the S&P 500 would be 1056 followed by 1068. Such new highs, by the way, would not negate the SELL signal since the window can occasionally stretch to 7-8 weeks.

The 30-year T-Bond yield fell to 4.87% this week in a test of its 200-day MA before snapping back above its 20-day MA to close the week at 5.10%. This is the beginning of the next leg up for long-term yields which, by the way, is not a good thing for equities. Meanwhile, gold is headed for a test of its 200-day MA around $355 per ounce. I suspect this support will provide a floor since my gold model is still in BUY mode. However, the XAU closed below its 50-day MA which provoked me to close out my long position in the GOLDX fund. I'm back in if prices close back above the 50-day MA.

Week Beginning 10/12

BullBear Index: OVERBOUGHT

The S&P 500 index pushed up to 1048 intraday this past week but was unable to close there. In fact, even though the 1040 level has been tested on seven of the last seventeen trading days the closing price of 1039.6 on September 18 still stands as the highest close of the year. A solid close above this level on good volume should be construed as a bullish signal. A close above Thursday's high of 1048 would be a good reason to follow the Trendright allocation of 100% stocks.

It's very possible that the S&P 500 has been bulding a bearish diagonal triangle formation since mid-June (see chart). If that's the case, price should eventually break down through the bottom support with a downside target of 910. Confirming the bearish forecast of this rising wedge formation are both trading volume and the MACD oscillator which have formed negative divergences as stocks have gently trended higher these last four months. The last time we saw a diagonal triangle develop in the S&P 500 was back in July 1999 through September 2000 (see chart). That one marked the end of the 18 year secular bull market and set off a 50% fall in prices over the ensuing two years.

Week Beginning 10/26

BullBear Index: OVERBOUGHT

After testing their 50-day moving averages, the major stock indices ended the week by forming candlestick hammers on their respective charts -- that portends a short-term bounce for at least a couple of days. But the price action this week tells me there is unfinished business to the downside with initial targets of 1007 for the S&P 500 index and 1315 for the NASDAQ 100 index. My expectation is that those targets will be met in the coming week. Assuming that happens, a retrace back up to 1040 and 1390 is in the cards followed by what could be the best shorting opportunity of the year -- we'll see.

That said, the trend is still up until the NASDAQ breaks down below its bullish support line (view chart) and the right place to be in the meantime is either in stocks (as the Trendright system recommends) or in cash (like yours truly). A close above the 1040 and 1390 resistance levels would tell us that new rally highs are in the offing. I don't see that happening, though. Not with corporate insiders unloading stock into dumber and weaker hands at a record pace for the third month in a row. Not with my short, intermediate, and long-term work all pointing south. And definitely not with money supply falling for the fifth straight week...

Both gold and the XAU gold & siver index made their highest weekly close of the year this week.

Week Beginning 10/19

BullBear Index: OVERBOUGHT

The S&P 500 index made it all the way up to 1054 this week, reaching for all intents and purposes my Fibonacci target of 1056. Next target is 1068 if it makes it. I don't think it will. When the index topped out at 1040.29 on September 19, that looked like THE top to me. Obviously it was not but the S&P managed to close this week at 1039.32 -- below that high.

A 13-day cycle low is due on Monday so look for a short-term bottom somewhere between the 20-day MA at 1027 and the 50-day MA at 1016. After that we'll have to see which is first to fall -- the recent high at 1054 or the pivot low that will be defined by the 13-day cycle bottom.

My tactical response to all this will be to take a cash position below 1048 and go long with a close above that level. Shorting this market will not be considered until the NASDAQ Composite breaks down out of its bullish channel (view chart).

Gold is teetering at the moment. The XAU Gold & Silver Index looks like it may be building a bear flag but as long as it remains above the 50-day MA, I am long the GOLDX fund.

Week Beginning 9/7

BullBear Index: OVERBOUGHT

All the major stock indices have broken out to new highs and are headed still higher. Now that the S&P 500 index has scaled the 1016 resistance, my next target is 1068. That number represents a 38.2% Fibonacci retracement of the entire decline from the 1553 high in March 2000 to the October 2002 low of 769. Near term, an inflection point in the S&P 500 was due last Friday and one in the NASDAQ is due on Tuesday -- call it Monday for both and look for it to be a low followed by a strong up move and then a down move into a 13-day cycle low on Monday September 15.

Looking further out, the intermediate-term model moved into SELL mode two weeks ago, which is alerting us to look for a very important market top sometime over the next four weeks. Consistent with that, stock averages are moving closer to some very critical overhead resistance. For the NASDAQ Composite that resistance zone lies between 1925 and 2100 (view chart) with a 23.6% overall Fibonnaci retrace sandwiched in between at 2050. That's quite a lot to deal with, especially when the NASDAQ's weekly RSI is approaching stratospheric levels and volume has been steadily declining since early June. This indicates to me that prices have been moving higher in spite of reduced buying power because selling has dried up even more. Selling pressure, however, is very likely to expand as the RSI moves into an overbought condition and prices broach the resistance zone. September is traditionally a tough month for stocks.

The 30-year T-Bond yield continued backing and filling around the 5.25% level, building up more energy to take yields on the next leg up. Gold shares continue to move higher.

Week Beginning 9/14

BullBear Index: OVERBOUGHT

The NASDAQ had a gap down open on Wednesday which left a five day island top reversal on the chart -- normally a very ominous sign. Based on everything else I am looking at, though, this could very well turn out to be a false start much as the island top back in mid July did. Monday's inflection point played out as a market top and share prices fell throughout the week, putting in what appears to be a 13-day cycle low for the S&P on Friday. If not, that low will likely show up on Monday.

Once the low is in, I expect the S&P 500 to move higher and put in the final top of this cyclical bull market run sometime before October 3 (possibly a little later), if the intermediate-term stock model SELL signal is to be believed. Another inflection point is due September 25 so that would certainly be a date to watch carefully for any sign of a top. My final target remains 1068 but I will be observing price behavior once the S&P reaches the 1045 level where two resistance lines intersect (view chart).

My hunch is that the final market top will not arrive before the BullBear Index reaches Extremely Overbought levels once again. If it plays out this way, this year's stock market action would bear a striking similarity to 1987's. Back then, the BullBear Index moved into Extremely Overbought early in the year with the intermediate-term stock model still locked in BUY mode. Then, in August, the BullBear moved back into Extremely Overbought as the intermediate-term model switched to a SELL. A crash followed in October. Assuming the S&P peaks at 1068 this month, the window of opportunity for a market crash this year remains open through October. With insider selling continuing at a record pace, I wouldn't rule it out.

Week Beginning 9/28

BullBear Index: OVERBOUGHT

The market doesn't ring a bell at the top. If it did, we would have heard clanging a week ago on September 19. Folks, this market is toast. The fat lady has sung. It's all over but the crying. Based on my work, we are in the first of many down legs to come, so any short-term rally at this point forward should be treated as an opportunity to sell. Only a solid close above 1011 on volume could sway me back to the bullish side.

The way this first leg decline has unfolded thus far, it sets up a target low for the S&P 500 index of 984 +/-10 points. Because a 13-day cycle low is due this coming Wednesday, I would expect this index to reverse by Thursday and then bounce up to 1011 or so. That level represents an impenetrable barrier that I believe will not be hurdled again for years to come (view chart).

A failed retest of the 1011 area would set up a truly ugly move to the downside. Insider corporate selling by the smart money continues at a record pace. Liquidity as measured by both M2 and RPCM2 is beginning to dry up just in time for what is traditionally the worst season for equities. The Shrub misadministration is unraveling over Iraq and the economy. Furthermore, stocks are entering the fourth year of a negative divergence with RPCM2, a particularly bearish indication as my latest posted article explains.

The 30-year T-Bond yield is testing the 4.98% support but I suspect that 4.86% is next. Gold pushed slightly above the $389 resistance level on Friday but could not close there. At the same time, the XAU took an ugly tumble. While I am still bullish on gold, short-term the gold shares should see a test of their 50-day moving average and maybe even their 200-day. If you're feeling a bit skittish like me, use the 50-day as a stop for checking in and out of your gold shares.

Week Beginning 9/21

BullBear Index: OVERBOUGHT

The latest poster boy of American corporate greed and corruption is NYSE chairman Richard Grasso, who was forced out of his cushy job this past week when it was made public that his total compensation measures in the hundreds of millions. The New York Stock Exchange turned immediately to the task of finding Grasso's successor but have already been turned down by more than half a dozen business leaders. "It's going to be a tough position to fill," lamented one member of the search committee. Oh, I dunno. There must be at least one member of the elite club out there who can ring a bell twice a day.

Stocks are moving along just about as anticipated. My short-term indicators say that a top in the coming week at the September 25 turn date is a real possibility, but only if we see NYSE trading volume dry up to below 1.4 billion per day. My upside target for the S&P 500 of 1068 still looks reasonable (just 32 points away) but I discovered a closer Fibonacci target of 1056 that we should also keep our eye on. The 1045 level I mentioned last week no longer looks valid. If we see a top this week, I would expect the BullBear Index to confirm by moving into an Extremely Overbought condition.

Gold closed at a new 52-week high and looks like it should test its February peak of $389 in the coming week. While that is going on, the 30-year T-Bond yield will likely test a Fibonnaci support at 4.98%. If that level holds, look for the next big move up in yields to coincide with the anticipated top in stocks. If it doesn't hold, a test of the 200-day moving average at 4.86% is up next.

Week Beginning 8/3

BullBear Index: OVERBOUGHT

The Trendright system is allocated 100% to the safety of cash. And why not? The S&P 500 index has been trading sideways for two months now in a range between 974 and 1016. This pattern may be on the verge of breaking down, however, as the S&P closed below its 50-day MA on Friday for the first time since mid March. If it stays below that average in the coming week, the Trendright will move to red for the first time since early March.

The break came on light volume and was not confirmed by the NASDAQ Composite which must close below its 25-day MA. Stocks will not officially be in a new downtrend until the S&P violates support at 974 with a solid close below it on rising volume. Caution should be exercised even if that is achieved for two reasons. First, every bear in the world knows that the 970-975 area is key support and will be piling in once price falls below it. That is likely to cause a rather quick and powerful snap-back rally to test the support-turned-resistance zone. Second, I am looking for a cycle low on this coming Thursday (+/- a day).

The 30-year T-bond yield finished the week at 5.33% and should now back and fill for at least a few days right aroung the 5.25% level. The 20-day MA has reached 4.99% and could trigger a SELL in my Intermediate-term stock model as early as next week, depending on the price action of both gold and stocks. Gold is consolidating in what appears to be the beginnings of a symmetrical triangle formation (view chart). Watch the 50-week MA (around $340) for important support. A sideways to down movement in gold is consistent with a SELL in the stock model.

Week Beginning 8/10

BullBear Index: OVERBOUGHT

The NASDAQ Composite closed lower every single day this past week, losing over 4 percent since August 1. It is now clearly the weakest of the major averages as the Dow Industrials continued in its sideways-up pattern and the S&P 500 in its sideways-down pattern.

NASDAQ leads to the upside in bull markets and to the downside in bear markets so its weakness should be treated as a flashing red light for the entire stock market. Not surprisingly, then, the S&P ended the week below its 50-day MA which was enough to move the Trendright system negative. I expect to see the NASDAQ bounce to the 1663-1673 range while the S&P could reach 983-988 in the coming week. I will treat these as entry points for establishing short positions in equities. A close above 990 by the S&P and I will close my shorts and move back to cash.

As expected, the 30-year T-bond yield spent the week backing and filling around the 5.25% level, closing on Friday right at that yield. The 20-day MA rose to 5.13% by week's end, but because gold has been trending higher these past few weeks, the Intermediate-term stock model did not trigger a SELL signal. In order for that to happen, either gold has to fall below $350 per ounce or long-term yields need to rise further still to around 5.25% or so on a 20-day moving average basis.

Week Beginning 8/24

BullBear Index: OVERBOUGHT

Based on unofficial data (official data will not be available for another month), the intermediate-term stock market model has just moved into SELL territory for the first time since February 2002. What this normally means is that a very important top in stocks should occur between mid-July and the end of September. The July 14 intraday high in the S&P 500 falls within that time band. Last week I said that cash was the smart place to be right now and the Trendright system confirmed that this week. It has been flopping around from long stocks to cash to short stocks and back to cash for the past two months but that is OK. It's job is to remind us of what IS rather than what we think SHOULD BE and it is telling us what we already know, that stocks are trendless.

The Dow moved to a new 2003 high this week as did the NASDAQ. The S&P 500 is lagging, unable to close above 1004 since July 8. All the averages displayed bearish reversals on Friday, the Dow's being the most impressive with a key reversal on rising volume. A 13-day cycle low is due on Monday. If the S&P manages a significant close below its 50-day MA, next stop would be a retest of the 975 support. On the other hand, if it can take out the 1016 high look for an upside target of 1068.

The 30-year T-Bond continues to consolidate around the 5.25% level before heading higher. Gold remains in its triangular consolidation pattern I showed you last week and should eventually break out to the upside. Meanwhile, the XAU is testing very important resistance at 90-92. A break above this zone suggests an ultimate target of 150. In the short run, however, a significant pullback appears imminent. If the XAU is unable to move back up into its rising wedge on Monday (view chart), look for a quick move down to support at the dashed line below.

Week Beginning 8/17

BullBear Index: OVERBOUGHT

The S&P 500 spent the week bouncing around its 50-day MA. Cash looks like the most sensible investment in this market, with a breakout above 1016 serving as a signal to go long stocks and a close beneath Thursday's low of 980 a reason to follow the Trendright's allocation that includes shorting equities.

With gold climbing higher this week, the intermediate-term stock model was unable to move into the SELL camp, in spite of continued weakness in the Treasury bond. Still higher long bond yields are needed unless gold pulls back here. The chart shows that gold is testing the upper trendline of its multi-month symmetrical triangle formation which could easily mean that a trip down to the lower trendline is imminent. However, a break out to the upside would lead to much higher prices in short order and a postponement of a SELL from the intermediate-term stock model.

Week Beginning 8/31

BullBear Index: OVERBOUGHT

The Trendright system moved to 100% stocks this week, but unless and until the S&P 500 index breaks out above 1016, the wise position remains 100% cash. With an inflection point due next Friday, a retest of the 1016 resistance area seems very likely on or about that day. If the S&P fails to break out for the third time in as many months, I think we can stick a fork in this rally that began nearly 11 months ago. With the traditionally worst month of the year for equities ready to commence next week, an imminent top is very likely.

The XAU Gold & Silver Index climbed back up into what appeared to be an ascending triangle formation and then proceeded to set a new intraday high for the year. Meanwhile the metal itself broke out to the upside of its seven month symmetrical triangle consolidation. Taken together, I would have a difficult time concluding that this is anything but bullish for the gold shares. I personally have 25 percent of my portfolio allocated to the Gabelli Gold Fund (ticker GOLDX).

Week Beginning 7/6

BullBear Index: OVERBOUGHT

Back on June 15, I warned that conditions were conducive to a severe sell-off or possibly a mini-crash (9 to 20 percent slide over two consecutive trading days) as early as July. Stock crashes have historically occurred 3 to 8 weeks after prices posted their cycle high. The S&P 500 index peaked out on June 17, so the window will crack open in the coming week. Price action is tracking the 1997 and 2000 mini-crashes rather closely so just stay alert to the possibility (view chart).

The rally in equities this past week has exposed considerable negative undertow, paricularly in the NASDAQ Composite. That average tested the 1685 resistance for the 3rd time in a month, but the oscillators showed extreme bearish divergence on this last attempt. Additionally, the 30-year T-Bond yield made a solid move above its 50-day MA, which frequently spells trouble for equities.

If the NAS were somehow able to close above 1685 on volume, that would be a very bullish signal. The bears win with a close beneath 975 by S&P 500 on increasing volume, confirmed by a violation of the 25-day MA in the NASDAQ on expanding volume. The NASDAQ averages are setting up for potential island top reversals after gapping higher on Wednesday.

Week Beginning 7/13

BullBear Index: OVERBOUGHT

The NASDAQ Composite broke out above resistance at 1685 and accelerated over 4 percent in just three days. That is a bullish development but requires confirmation by the large cap indices if this is the beginning of another bull run. The TrendRight system has flipped back to 100% stocks but I will await confirmation in the S&P 500 with a close above the June 17 top at 1016 before going long.

The latest sign of a possible top and the beginning of a sell-off is the action in Yahoo this past week. Earnings were reported slightly better than analyst expectations and Yahoo sold off big time. It's not the news but how the markets reacts to that news that matters and the reaction was clearly negative (view chart). When good news is bad news, that means share prices are too high.

The XAU is still correcting and is headed for the 73-75 support area. The 30-year T-Bond yield is testing its 200-day MA and should pull back to the 45-46 support before heading higher. The Japanese Nikkei 225 completed an 80% bear market decline in April and looks like it has begun a new secular bull market. After reaching 10000 this past week, a pullback at least to 8500 and maybe all the way back down to the 7600 bottom is now underway.

Week Beginning 7/27

BullBear Index: OVERBOUGHT

The Dow Industrials closed at 9285 on Friday, just 48 points shy of its June 17 intraday high. Look for a retest of that resisitance level on Monday or Tuesday. Critical resistance for the NASDAQ Composite is 1740 (oops, that should be 1734). A close above both these levels would be very bullish and would mean that a breakout above 1016 by the S&P 500 was imminent. If that were to occur, the TrendRight model would move back to 100% stocks. What is more likely to occur, however, is that prices will break down through support at 974 which would turn the TrendRight red.

The 30-year T-Bond yield is in its hottest rally in some years. It closed at 5.12% on Friday with the 20-day MA now at 4.82%. Serious resistance lies just ahead at 5.25% so we should expect a pullback at that point. Once the 20-day MA reaches 5.10% my Intermediate-term Model will move to SELL, signalling an important top in stocks within +/- six weeks.

Gold and the XAU resumed their bull runs with the XAU hurdling important resistance at 82. Next resistance is 90, followed by 110 and 130.

Week Beginning 7/20

BullBear Index: OVERBOUGHT

The S&P 500 index has been locked in a trading range between 974 and 1016 for about seven weeks now. While the TrendRight system is currently committed to stocks, I remain in cash unless the S&P closes above resistance at 1016. That is because my work indicates that the trading range is more likely to resolve to the downside and a close below 974 would shift the TrendRight into cash.

On Monday this past week, the S&P 500 retested its June 17 high in the 1015 area and failed, forming what appears to be a double top. Even more telling, the NASDAQ Composite gapped up to a new cycle high on Monday, traded sideways for three days, and then gapped lower on Thursday leaving a very bearish island top formation on the chart. On Thursday and Friday the NASDAQ sorely underperformed the Dow Industrials which is also a bearish indicator. My best guess is that the Dow challenges its June 17 cycle high of 9353 in the coming week while the S&P tops out around 1008 and NASDAQ runs out of gas at 1730. After that, stocks head south and the S&P breaks down out of its trading range.

The 30-year T-Bond yield is on a tear and at this rate should reach 5.25% by month's end. That's important because when the 20-day MA exceeds 5.10% (currently at 4.66%), that will trigger a SELL in the intermediate-term stock model which has reliably marked important market tops within six weeks. Gold is testing its 200-day MA and it looks like the XAU index may follow suit. If the XAU falls to its 200-day MA (currently at 71) then a retest of the 2 1/2 year uptrend line (currently around 66) is likely.

Week Beginning 6/1

BullBear Index: OVERBOUGHT

Short term, the S&P 500 appears ready to move above resistance at 965. If that happens with gusto, there is a good chance we are witnessing a cyclical bull market. A cyclical bull is defined here as an uptrend in the S&P where the 50-day moving average remains above the 200-day MA for a period lasting at least 50 days.

Sentiment indicators suggest that we are in the midst of a mini stock mania, not unlike the days in 1999 just prior to the beginning of the secular bear market. Where it stops, nobody knows, but the data for May show that company insiders are taking their money and running for the exits (view chart).

Week Beginning 6/8

BullBear Index: OVERBOUGHT

The S&P 500 index broke out of its three year long bear market channel (view chart). In all likelihood that signals the beginning of a very treacherous period in this secular bear market where profits are harder to come by. The easy money for the bears has already been made.

To aid in the navigation of this treacherous market, I have developed a trend following system that integrates several of my favorite indicators with a safety valve that protects me from trading on the wrong side of the market for more than a short time. This new trading system is called TrendRight™ and will be updated weekly in the chart above.

Near-term targets for stocks are 1850ish NASDAQ and 1050-1085 S&P.

Week Beginning 6/22

BullBear Index: EXTREMELY OVERBOUGHT

My short-term model went to SELL after the S&P 500 index moved within a whisker of the 1016 limit I laid out last week. With insider selling at extremes and the BullBear Index holding at EXTREMELY OVERBOUGHT, this has TOP written all over it. A retrace down to the 25-day MA which has provided stiff support throughout this rally is a certainty. For this to be something greater than that, we need to see three things we haven't seen in some time. One -- three consecutive down days in the averages. Two -- increasing volume on a down day for the NASDAQ (we saw that in the S&P and Dow this week). Three -- a solid close below the 25-day MA.

The 30-year T-Bond yield made a bullish reversal on Monday after hitting a blow-off low of 4.14%. It made a low in mid May that I thought might have been the final cyclical bottom but turned out not to have been. This time is different because we got a bullish reversal on the weekly charts, too. This bottoming process is significant relative to a potential top in the equity market because bond yields have been moving counter to stock prices since early April (view chart).

Gold stocks are a buy on any pullback to the 20-day MA by the XAU index.

Week Beginning 6/15

BullBear Index: EXTREMELY OVERBOUGHT

The BullBear Index has just moved into EXTREMELY OVERBOUGHT territory. With insider selling at extreme levels, a steep sell-off, if not a mini-crash, is likely as early as July (a mini-crash is a 9 to 20 percent tumble in intraday S&P 500 over two consecutive trading days). Near term, look for a move to 1016 which, according to my latest Elliott Wave analysis, could very well mark the end of the 9-month long counter-trend rally. If that level falls, next Fibonacci targets are 1025 followed by 1085.

The TrendRight™ system is allocated 100% stocks, but all of its internal indicators are pointing lower. A significant break below the 25-day MA, which has provided solid support these past two months, would signal the end of the rally.

Gold is headed higher, the dollar lower, and Treasury Bond yields are making new lows and appear to be in a blow-off stage.

Week Beginning 6/29

BullBear Index: EXTREMELY OVERBOUGHT

The TrendRight™ system moved from 100% stocks to 100% cash this week. That coincides with a marginal close below the 25-day MA by the S&P 500 index on Friday, on decreasing volume -- not a particularly bearish indication. On the other hand, a case could be made that the S&P 500 is now trading below its intermediate-term uptrend line (view chart).

The Dow was the weakest of the major averages while the NASDAQ was the strongest. This short-term decline would be more convincing if NAS, the market leader, were the weakest of the major averages. While the NAS was able to string together five consecutive down days, we have yet to see volume increase on a down day. Those who wish to avoid a possible whipsaw up here should wait for NASDAQ to crack its 25-day MA on increasing volume before moving to cash.

The 30-year T-Bond yield continued its bullish ways, closing the week at 4.61%. Gold, on the other hand, appears to be making a more significant correction here than I thought last week. A pull-back to the 200-day MA by the metal itself appears to be in the cards. That MA is currently at 340, with significant support just below at 335. The XAU Index is testing its 20-day MA at the moment but judging by the pricing action in gold, will fall to the 50-day MA or lower.