NYSE Advancing Issues

Nowadays I don't use oscillators to evaluate the market's condition. But when I first started doing technical analysis 40 years ago I put a great deal of emphasis on the 10 day moving average of the number of advancing issues on the New York Stock Exchange. Over the years it has proven its value and it is the only oscillator I look at. I should say too that I find the daily numbers themselves even more valuable.

The chart above shows the daily count (in black) of the number of advancing issues on the NYSE and the 10 day moving average of these numbers (in red).

You can see that while today the S&P dropped quite close to Monday's low there were about 500 more advancing issues than there were on Monday. This together with the fact that Tuesday's number was the highest in almost a month and higher than several of the preceeding daily peaks is evidence that Monday's low will hold.

The 10 day moving average is well above its April lows, again suggesting that the drop from 1225 is only corrective. Note how this moving average was significantly higher at the April 18 low than it was in late March on the way down to that low. Such divergences at lows in a bull market are usually very significant.

 

S&P

I think that the September S&P futures are about to turn upwards and run up to the 1245, the 1/2 point of the next box. The hourly chart above shows that the reaction which started from the 1225.20 level stopped just shy of the 1191.90 where it would have equalled the biggest break in the uptrend from 1135.80.

If I am wrong in this assesment then I think the market will drop to the bottom of the box near 1180 and then rally to 1245.

 

Guesstimates on June 30, 8:50 am ET

S&P: Still think that a slight break below 1190 is likely but then market will move to new highs for the year.

Bonds: the market should now drop to 117-00 or so.

10 Year Notes: the notes will soon drop at least to 112-26.

Eurocurrency: Support is still 120.60 and the market is on its way to 124.00.

August Crude: nearthe bottom of the box near 56.50 and should now rally to 62.00.

Gold: 436.50 is the 1/2 point of the box and from there the market should moveup to 449.

Google: the next 40 point move will be downward. Support is at 270.

 

Eurocurrency

The 1.90 point boxes down from the 135.10 high are shown on the hourly chart of the September eurocurrency futures you see above. I think that the 120.60 level will hold but if I am wrong about this the worst I see on the downside is 119.90, the bottom of the current box. In either case the market should then head up to 124.00.

 

Gold

The hourly chart of August gold above shows that the market has dropped to the 1/2 point of the current box near 436. Next step should be a full box upward to 449-50, the 1/2 point of the next box.

 

Crude Oil

The hourly chart you see above shows the $3.00 boxes in August crude oil. I now think the market will drop to 56.50, the bottom of the current box and then rally 2 boxes to 62.50.

 

Guesstimates on June 29. 8:35 am ET

S&P: Still think that a slight break below 1190 is likely but then market will move to new highs for the year.

Bonds: the market should now drop to 117-00 or so.

10 Year Notes: the notes will soon drop below 113 again.

Eurocurrency: Support is still 120.60 and the market is on its way to 124.00.

August Crude: will now drop to the bottom of the box near 56.50 and then rally to 62.00.

Gold: 436.50 is the 1/2 point of the box and from there the market should moveup to 449.

Google: the next 40 point move will be downward. Support is at 265.

 

Headed Up?

I want to take another look at the September S&P futures. The hourly chart above shows the 43.70 point boxes for the uptrend from the April daytime low (in the June contract) at 1136.80.

I have been thinking that 1193 would be support based on the fact that at 1191.90 the market would have duplicated the biggest reaction in the uptrend thus far. The question is: have we seen the reaction low?

My guess is that the market will take a stab at the 1190 level but won't break it by much. The best time for such a "false breakout" would be after the Fed announcement at 2:15 pm ET on Thursday.

Meantime the 1204 level represents a 1/4 box rally from the low (thus far) of 1192.50. A close today visibly above that level (say at 1207 or higher) would convince me that my expectation of a break below 1192.50 won't be fulfilled and that the market has already started its move above 1230.

 

Crude Oil

The hourly chart above shows the $3.oo price boxes in August West Texas crude oil. Normally reactions in an uptrend carry the market down 1/2 a box or a full box. But a full box reaction from 61.00 resistance would go all the way down to the last low. This would violate the staircase principle. So I think the current reaction will be about as big as the last one, $2.30. This is 3/4 of a box and would end at a higher low. Then the market should move above the 61.00 level.

Remember that this bull market is likely to end in the 62-63 range so upside potential is quite limited.

 

So This Is a Weak Economy?

Check out Davis Malpass’s column on the editorial page of today’s Wall Street Journal. (Here is the link but you may have to be a subscriber to get access!). His piece is entitled “So This Is a Weak Economy?”

As you can guess his thesis is that people are consistently underestimating the strength of the U.S. economy and bad-mouthing U.S. economic prospects. I happen to agree with his observation but what really interested me were the following paragraphs:

“Yet the litany against the U.S. economy is so ingrained and familiar that few disputed this spring’s ‘slowdown.’ When strong [economic performance] continued into the second quarter, the headlines shifted to other attacks - adjustable-rate mortgages, a housing ‘bubble’, the distribution of income - rather than revising the slowdown story.”

“Why the urge to look for weakness at every turn? Partly , bad news sells; even in business news, if it bleeds, it leads. Second, some of the search for weakness is pure politics - the party in the opposition has an interest in criticizing the economy….”

To me this is just more confirmation of my own observation that the press and the public are generally negative towards U.S. economic performance and prospects. It is almost inconceivable that a bull market in stocks could end in such an environment.

 

Guesstimates on June 28, 8:15 am ET

S&P: support at 1193 should hold but if it doesn't then market will drop to 1183. After that a move to new highs for the year will begin.

Bonds: 119-10 is resistance and the market should now drop to 117-00 or so.

10 Year Notes: 114-06 is resistance and the notes will soon drop below 113 again.

Eurocurrency: Support is 120.60 and the market is on its way to 124.00.

August Crude: headed for 62.00 with support at 58.40 and resistance at 61.00.

Gold: 438 is now support and gold appears likely to hit 449 before another small reaction starts.

Google: has reached the 304-305 target zone. Will probably trade a few points higher todaybut the next 40 point move will be downward.

 

Crude Oil

The hourly chart of August West Texas crude oil above shows the short term boxes for the trend up from the May 20 low. The market has just hit the 1/2 point of a box at 61.00 but on past form I would expect it to go a bit above this level before reacting. In any case the 61.00 to 61.50 zone should prove to be strong short term resistance and a break of at least 1/2 a box from there is my expectation.

 

Bonds and 10 Year Notes

I think the next multi-point move in the bonds and notes will be downward towards the low at 115-26 in the bonds and 112-04 in the notes.

As you can see in the hourly bond chart above the September futures have nearly reached the 119-10 level which is the top of the third box in the uptrend from 115-26. I think the market will react down to the top of the first box near 117-00.

The hourly chart of the September 10 year note futures above shows that the market is stalling at the top of the third box up from the 112-04 low. I think the next move will be downward to the top of the first box near 112-24.

 

The Fed Plays the Expectations Game

In a previous post I pointed out that the Fed under Greenspan’s direction has tried to be as predictable as possible. This observation can be useful in surprising ways.

This past weekend views on likely Fed policy have started to crystallize. Bill Gross, PIMCO’s founder, is an opinion leader in the bond market. He is quoted in this week’s Barron’s Current Yield column as saying that the Fed will raise the funds rate another 50 basis points to 3.50% and then start to lower rates later this year. (Funds currently trade at 3.00% and the Fed is widely expected to push this up to 3.25% this week.) Other commentators are starting to join this chorus as this week's cover story in Barron's also suggests.

I think this means that the bond market’s expectation is moving in the direction of a Fed mid-year pause in its moves towards higher rates. Moreover, the sideways action of the stock market during the past 18 months certainly will cause the Fed some worry about the strength of the economic recovery and thus encourage such a pause.

Since the market’s expectation of a mid-year Fed pause is growing, such a pause is becoming more and more likely. After all, the Fed wants to be predictable and I conclude from this that it is encouraging this change in expectation.

Finally, I should point out that my 2005 bond market forecast predicted just such a pause (starting in May 2005) base solely on George Lindsay inspired analysis of time periods between major interest rate extremes.

 

Guesstimates on June 27, 8:25 am ET

S&P: support at 1193 should hold but if it doesn't then market will drop to 1183. After that a move to new highs for the year will begin.

Bonds: It looks like the bonds will rally close to the top of the box at 119-10 before dropping a couple of points again.

10 Year Notes: 114-06 is resistance and once it is reached the notes will drop below 113 again.

Eurocurrency: Support is 120.60 and the market is on its way to 124.00.

August Crude: headed for 62.00 with support at 58.40 and resistance at 61.00.

Gold: 438 is now support and gold appears likely to hit 449 before another small reaction starts.

Google: should rally to 304-305.

 

Laughing at Google

Check out this column in the latest issue of Business Week. Bob Barker admits he thought GOOG was trash at $85 and now thinks it is 3 1/2 times trashier at $295. I enjoy his humor but I don't think we'll see the top in Google until people are too embarrassed to write these sorts of columns.

 

The Big Picture on June 26, 2005

It is easy to loose sight of the longer term prospects for a market when you are paying so much attention to shorter term fluctuations. Here are some educated guesses about longer term trends in markets that interest me.

S&P - Headed for 1350 by the end of 2005, then down 20-25% in 2006.

Bonds - up into 120-122 range over the next few months then down to 100 by late 2006.

10 Year Notes - up to 116 over the next few months then down to 104 by late 2006.

3-month Eurodollars - will reach 4.85% by the end of 2006. Gold - up to 510 before the bull market ends.

Crude Oil ? I am now looking for the big top in the $60-63 range. Then down to $ 27 over the next two years.

US Dollar index- Should react from 89-90 down to 84-85. Then up to 100 over the next year and to 121 by 2010

Eurocurrency ? Should rally from 120.60 to 126 or so then down to 107 over the next year and to 80 by 2010

Google - up to 376 by the end of 2005

IBM - up to 108 by the end of 2005

Microsoft - up to 42 by the end of 2005

 

Hourly Chart of the September S&P Futures 

 

Just Another S&P Reaction?

As you know I am very bullish on stocks and in particular on the stock indexes. I am predicting that the S&P 500 will reach the 1350 level by the end of the year.

So far the drop from the June 20 top at 1225.20 in the September S&P futures has carried the market down more than 30 points, quite a bit farther than I was expecting. This begs the question of whether or not the uptrend from the April low at 1135.80 (overnight) has ended and if so how much lower the average might go.

My box theory says that reactions within an ongoing trend are usually only ½ a box in extent but can be as big as a full box. Anything more than a full box reaction casts doubt on the trend direction.

Another yardstick I find useful is the length of the biggest reaction within the trend thus far. A reaction that is bigger than this also casts doubt on the presumed trend direction.

In the case of the S&P futures, I am working with price boxes up from 1136.80 (the daytime low) that are 43.70 points high. The market hit the top of the second box in the uptrend at 1224.20 and could go as low as the bottom of the second box at 1180.50 without negating the box theory evidence for this uptrend.

The biggest reaction in the trend so far carried from 1180.50 (daytime high) on May 9 to 1147.20 on May 13, a total of 33.30 points. A reaction that big from the 1225.20 high would end at 1191.90. My experience tells me that the 1191.90 level is more likely to mark the low of this reaction than is the 1180.50 level. It also coincides with the ¼ division point of the second box.

 

Hourly Chart of August Gold 

 

Gold

August Gold didn't make it to my short term 449 target before a good reaction began. I estimate that this break will carry the market down $6 to $7, about 1/2 a box from the high at 445.40.

 

Hourly Chart of September S&P Futures 

 

S&P

I think the S&P's will hold the 1/2 point of the box you see in the hourly chart above and then rally to 1248. If I'm wrong and the market starts to spend time below 1201 then the next stop will be the top of the first box at 1180.

 

Hourly Chart of September T-bond Futures 

 

Hourly Chart of September 10 Year Note Futures 

 

Bonds and Notes

It now appears that the bonds and notes won't reach the targets I cited in this morning's guesstimate.

The hourly chart of the bonds shows that the market has stalled at the 1/2 point of a box after a burst upward on news this morning that had no follow-through. It looks like the market is now headed down at least to the top of the first box at 117-00. I do expect the 115-26 low to hold.

The notes have stalled near the top of a box and are now headed downward. They should drop at least to 112-24 but I think the 112-05 low will hold.

 

Hourly Chart of IBM 

 

IBM

The hourly chart above this post shows price boxes in IBM. As you know I think IBM is headed for 106 by the end of the year. Shorter term I am expecting IBM to hold support near 74.50, the 1/2 point of the first box and then move to 80.00, the 1/2 point of the second box.

 

Guesstimates on June 24, 8:30 am ET

S&P: Should hold support at 1203 (at 8:55 I noticed that I had typed 1213 instead of 1203 and so corrected the mistake) and then rally to 1248.

Bonds: There is still resistance at 118-22 but I think the bonds will rally close to the top of the box at 119-10 before dropping a couple of points again.

10 Year Notes: 114-06 is resistance and once it is reached the notes will drop below 113 again.

Eurocurrency: Support is 120.60 and from there the market should rally to 124.00.

August Crude: headed for 62.00 with support at 58.40 and resistance at 61.00.

Gold: moving up from the 1/2 point of the box at 436 to 449.

Google: should rally to 304-305.

 

Hourly Chart of September S&P Futures 

 

Revised S&P Boxes

The break below 1214 support convinced me to revise the position of the S&P boxes that I am using to measure the uptrend from the April daytime low in the June S&P at 1136.80. I now think these boxes are 43.70 points high with the top of the first box at 1180.50, the daytime high on May 6 of the first rally off the low.

The top of the second box is 1224.20 while the 1/2 point of this box is 1202.30. I think the current break will find support in the 1202-1205 zone and that the next upmove will carry the market above 1230.

 

Hourly Chart of Google 

 

Googlestimate

I've been guesstimating that Google is on its way into the 308-312 range over the next couple of weeks. But a closer look at the price boxes which have developed since the low at 267.43 warrants a slight revision of this projection.

The boxes on the way up from 267.43 are drawn in black and are $12.72 high. The top of the third box is at 305.59. The bull market boxes in GOOG are drawn in red and are $40 high. The midpoint of one of these boxes is at 302 while a rally from 267.43 that is a full box in extent would then carry to 307.43.

So I am guessing that the midpoint of the 302-307.43 range, namely 304.71, is the best short term target for this rally.

I still think that by the end of 2005 Google will have reached the 376 level.

 

Hourly Chart of September T-bond Futures 

 

Bonds

The hourly chart above shows the 38 tick bond boxes in the uptrend from 115-26. I am now guessing that the market will hold the 117-25 level. This is just an average which I calculated by observing that a reaction that dropped below 118-08 would either be 1/2 a box in lenth and thus be 19 ticks and stop at 118-00, or would go to 117-18, the 1/2 point of the next lower box. The average of these two levels is 117-25.

 

Hourly Chart of September Eurocurrency Futures 

 

Eurocurrency

The September eurocurrency futures have reached support and should now start a rally to 124.00 and higher.

 

Guesstimates on June 23, 8:30 am ET

S&P: headed up to 1242 and won't go to 1214 first.

Bonds: Resistance at 118-22 today and support is at 118-06. (Added at 9:00 am: whoops! support is now at 117-26). The market will probably move above 119-00 and then drop below 117 again.

10 Year Notes: 113-24 is resistance today and support is at 113-08 but the market will probably move to 114-06 before dropping below 113 again.

Eurocurrency: Support is 120.60 and from there the market should rally to 124.00.

August Crude: headed for 62.00 with support at 58.40.

Gold: has reacted to 1/2 point of the box at 436 and now should rally to 449.

Google: should rally into the 308-312 range.

 

Hourly Chart of August Crude Oil 

 

Crude Oil

The August futures have dropped to the 1/2 point of a price box. This is a normal reaction and I think it likely that the market will hold this level. If I am wrong then the worst we should see is a drop to the bottom of the box near 56.50.

 

Hourly Chart of September T-bond Futures 

 

Hourly Chart of September 10 Year T-note Futures

 

Bonds and 10Year Notes

The charts above show my updated estimates of the hourly price boxes for the t-bond and 10 year notes futures.

The boxes in the bonds are 38 ticks high. Today the market has reached resistance at the top of the second box and a reaction of 1/2 box or even 1 box would be normal. However I think the market will reach the 1/2 point of the next box up at 118-25 before it drops below 117 again.
Remember that the intermediate term trend is still upward and that this market is likely to make it into the 121-122 range by the end of the summer.

The boxes in the notes are 20 ticks high. This market has been a bit stronger than I expected as the curve has steepened today. I think it will pause near 113-22, the 1/2 point of the next box and then react 1/2 box or 1 box before resuming a move to 114-00 or 114-10. By the end of the summer I think the 10 year notes will have made it pretty close to 116.

 

George Lindsay Posts

George Lindsay was a Forcasting Giant of the Past.

If you want to learn more about George Lindsay's timing methods you must purchase a copy of "Articles by the Late George Lindsay", a booklet of reprints of a number of published articles by George Lindsay. It is available from:

Investor's Intelligence
30 Church Street
PO Box 1747
New Rochelle NY 10802-1747 U.S.A.
Tel: (914) 632 0422 Fax: (914) 632 0335

NOTE: you must contact their office directly. The booklet is NOT available from their online bookstore!

Here is an index of posts in which I use his methods.

2008 POSTS

Lindsay Update - April 26
Three Peaks and a Domed House Revisited - January 3

2007 POSTS

Three Peaks and a Domed House - November 5
Mini Three Peaks and a Domed House - September 18
Three Peaks and a Domed House - September 6
Major, Minor, Mini Three Peaks and Domed Houses - July 30
Domed House Update - July 12
Domed House in the Dow - June 29
Domed House in the Dow - June 8
S&P's, Spiders, and QQQQ's - June 7
How Much Farther - May 16
Dow Domed House - April 30
Domed House Update - April 4
A Minor Three Peaks in the Dow - March 1
Domed House Update - February 28
Domed House in the Dow - February 27
Domed House Update - February 23
Domed House Update - January 25

2006 POSTS

Dow Industrials Domed House - December 27
Domed House in the Nasdaq 100 - December 26
How to Traded Your Forecasts - December 3
Domed House Update - December 1
Domed House Update - November 27
Mr. Lindsay Meets Mr. Elliott - November 26
Three Peaks and a Domed House - November 11
Lindsay's Theory of the Middle Section - October 8
Mirror Image Projections - October 8
Basic Advances and Declines - October 8
Three Peaks and a Domed House Update - September 25
Dow Three Peaks and a Domed House - August 25
Domed House Update - July 24
Three Peaks and a Domed House - June 30
Dow Industrials 3 Peaks and a Domed House - May 30
3 Peaks and a Domed House Update - May 24
Domed House Update - April 18
Update on Top-to-Top Counts - April 3
Some Low-Low-High Counts - April 3
Basic Advances and Declines - March 27
Domed House Update - March 20
Lindsay Low-Low-High Counts - February 16
Domed House Update - February 16
Domed House Update - February 8
Another Top-to-Count - January 27
2006 Bond Market Forecast - January 22
Linday's Domed House in the S&P - January 21
More Top-to-Top Counts - January 4

2005 POSTS

2006 Stock Market Forecast - December 23
Lindsay Foldback for S&P - December 6
Update for Lindsay's Basic Advances and Declines in the Dow - November 2
Three Peaks and a Domed House - October 31
Lindsay Looks at the Dow - October 7
Top to Top Counts - October 4
Three Peaks and Domed House Update - September 21
Three Peaks and a Domed House - July 31
Schematic of Three Peaks and a Domed House - May 16
Three Peaks and a Domed House in the Dow - May 16
Mirror Images of the US Dollar - May 14
Weekly Foldback for Bonds - May 6
Linday's Foldback Charts - May 4
2005 Bond Market Forecast
2005 Stock Market Forecast
2004 Stock Market Forecast
2003 Stock Market Forecast

 

Hourly Chart of September Eurocurrency Futures 

 

Eurocurrency

The hourly boxes for the September eurocurrency futures show support at 120.80 and 120.59 (the low so far since the December 31 top). I think the market will hold this support and then rally to 124.00 and eventually 126.00.

 

Guesstimates on June 22, 8:15 am ET

S&P: headed up to 1242 and won't go to 1214 first.

Bonds: 117-24 was too conservative an upside target and 118-06 is now today's likely high. It is the top of the second 38 tick box up from 115-26.

10 Year Notes: 113-10 is resistance today.

Eurocurrency: Support is 120.60 and from there the market should rally to 124.00.

August Crude: headed for 62.00 with resistance today at 61.00 and support at 58.40.

Gold: has reacted to 1/2 point of the box at 436 and now should rally to 449.

Google: should rally into the 308-312 range.

 

Hourly Chart of September S&P Futures 

 

Hourly S&P

Above you see the 30 point boxes in an hourly chart of the September S&P futures.

I think the market will drop into the 1212-1214 zone, near the 1/2 division point of the current box and then rally close to 1242, the 1/2 division point of the next higher box.

 

Hourly Chart of September Eurocurrency Futures 

 

Eurocurrency boxes

Here is an hourly chart of the September eurocurrency futures. It shows the hourly price boxes that I am using in my short term guesses about the eurocurrency trends.

 

Daily Chart of December 2005 Eurodollars 

 

Eurodollars

The daily chart you see above shows the bear market boxes in the Eurodollar contract. These boxes are 48 ticks high and started from the 2003 high at 99.09 in the December 2003 contract.

I still think the market has a good shot at 96.45, the 1/2 point of the next higher box. This would correspond to a situation in which the markets believed the Fed would pause in its move toward higher short term rates. I think such a pause will occur this summer and early fall.

 

Hourly Chart of August Gold 

 

Hourly Gold Boxes

Here is an hourly chart of August gold showing the overnight action and the $13.70 price boxes that I am using to make guesstimates of its likely price action.

 

Hourly Chart of August Crude Oil 

 

Hourly Crude Oil Boxes

I've been having a hard time with crude oil lately. Here is an hourly chart of August West Texas crude showing the market's position in its hourly price boxes which are $3.00 high. I think the market will eventually make it into the 62.50-63.00 range and meantime reactions should be no more that 1/2 box ($1.50) from high to low.

 

Guesstimates for June 21, 8:55 am ET

S&P: 1214 is still good support and the S&P should head higher from there.

Bonds: support is at the bottom of the box at 115-27 and the next step up should carry the market to the top of the box at 117-24.

10 Year Notes: support is at the bottom of the box at 111-31 and the next step up should carry to 113-10.

Eurocurrency: Support is 120.60 and from there the market should rally to 124.00.

August Crude: headed for 62.00 with resistance today at 61.00 and support at 58.40.

Gold: has reacted overnight to the 1/2 point of the box at 436 and now should rally to 449.

Google: 278 is now support for any reaction from 289. GOOG should next rally into the 308-312 range.

 

Hourly Chart of T-bonds  

 

Hourly Chart of 10 Year Notes 

 

Bonds and 10 Year Notes

The bonds and 10 year notes dropped below what I thought would be short term support as cited in this morning’s guesstimate. Above you see hourly charts of both markets. I have shown new boxes for the drop from the June 3 top. These boxes are 60 ticks high in the bonds and 43 ticks high in the notes.

Both markets should hold the bottom of the second box down and then begin a substantial rally. These support levels are 115-27 in the bonds and 111-31 in the notes.

 

Guesstimates on June 20, 9:00 am ET

S&P: 1214 is good support and the S&P should head higher from there.

Bonds: market is now headed back to 119-00 with today's high near 117-08 and low near 116-14.

10 Year Notes: market should rally back to 114-00 with support today at 112-10 and resisistance at 112-28.

Eurocurrency: Headed at least for 124.90 and support today is at 121.70.

August Crude: headed for 62.00 with resistance today at 60.20 and support at 58.40.

Gold: now headed for 449 with support at 431.

Google: 264 is now support and market should next rally into the 308-312 range. Initial rallywill probably halt at 289.

 

Gold Posts

Here is an index of posts about gold and silver:

POSTS IN 2007

Gold - October 15
Gold and Silver - May 25
GLD and April Gold - February 22

POSTS IN 2006

Gold - December 27
Gold - December 19
Gold and Silver - November 17
Gold - November 16
Silver Update - November 16
Silver - November 16
Silver - November 9
Gold - November 9
Silver - November 1
Gold - October 31
Gold - October 19
Gold - October 17
A Note on Gold and Silver - October 9
Silver - October 5
Gold - October 5
Gold - September 14
Silver - September 8
Gold - September 8
Silver - August 21
Gold - August 21
Gold - August 2
Silver - August 2
Gold - August 1
Gold - July 27
Silver - July 27
Silver - July 25
Gold - July 25
Gold - July 17
Gold and Silver - July 11
Silver - July 10
Gold - July 10
Gold - June 30
Silver - June 30
Silver - June 28
Gold - June 28
Silver - June 20
Gold - June 20
Gold - June 14
Silver - June 14
Silver - May 31
Gold - May 31
Silver - May 23
Gold - May 23
Gold - May 17
Silver - May 11
Gold - May 9
Silver - May 8
Gold - May 8
Gold - May 4
Gold - May 3
Silver - May 3
Silver - May 2
Silver - May 1
Silver - April 27
Gold - April 25
Silver - April 24
Silver - April 21
Silver - April 20
Big Break Ahead in Gold, Silver, and Oil - April 19
Silver - April 19
Gold - April 18
Silver - April 11
Gold - April 11
Gold and Silver - April 10
Gold - March 31
Silver - March 30
Silver - March 29
Gold - March 29
Gold - March 27
Silver - March 27
Silver - March 23
Gold - March 23
Gold - March 14
Silver - March 14
Silver - March 13
Silver - March 9
Silver - March 8
Gold - March 6
Silver - March 6
Silver Update - March 2
Silver - March 2
Gold - March 1
Gold and Silver - February 24
Gold and Silver - February 22
Silver - February 21
Silver - February 15
Gold - February 15
Gold - February 9
Gold - February 7
Gold and Silver - January 31
Silver - January 30
Gold - January 26
Gold and Silver - January 24
Gold - January 19
Silver - January 19
January 17 - Gold and Silver
January 16 - Gold and Silver
January 9 - Gold and Silver
January 6 - Gold and Silver
January 3 - Gold and Silver

POSTS IN 2005

Silver - December 22
Gold - December 22
Gold - December 20
Silver - December 20
Silver - December 16
Gold - December 16
Silver - December 15
Gold - December 15
Silver - December 14
Gold - December 14
Gold - December 12
Silver - December 12
Gold Resistance - December 9
Gold - December 7
Gold - December 5
Gold - December 2
Gold - December 1
Gold - November 21
Gold - November 16
Gold - November 9
Gold - November 4
Gold - October 27
Gold - October 20
Gold - October 17
Gold - October 14
Gold - October 5
Gold - September 30
Gold - September 28
Gold - September 26
Gold - September 22
Gold - September 20
Gold - September 16
Gold - September 15
Gold - September 13
Gold - September 12
Gold - August 29
Gold - August 11
Gold - August 4
Gold - August 2
Gold - July 27
Gold - July 21
Gold - July 20
Gold - July 19
Gold - July 14
Gold - July 7
Gold - July 1
Gold - June 29
Gold - June 24
Hourly Gold Boxes - June 21
Gold Boxes - June 17
Hourly Gold Boxes - June 9
Gold and the New York Times - June 3
Is the Bull Market in Gold Over? - May 20

 

Crude Oil Posts

Here is an index of posts about crude oil:

POSTS IN 2007

Oil and the Stock Market - November 7
Oil, Oil, Toil, and Trouble - May 29
High Gas Prices Here to Stay - May 24
Crude Oil, OIH, and XLE - May 23
Oil Service HOLDRS - March 23
US Oil Fund - March 14
Oil Service HOLDRS - March 14
Crude Oil - January 4

POSTS IN 2006

Crude Oil ETF's - December 27
Oil Service HOLDRS - December 18
Oil Service HOLDRS - December 13
Crude Oil - December 12
Crude Oil - December 7
Crude Oil - December 5
Oil Service HOLDRS - November 30
Oil Service HOLDRS - November 17
Crude Oil Update - November 16
Crude Oil - November 16
Oil Service HOLDRS - November 15
Oil Service HOLDRS - November 9
Oil Service HOLDRS - November 3
Oil Service HOLDRS - October 25
Crude Oil - October 19
Crude Oil - October 18
Crude Oil - October 12
Crude Oil - October 11
Crude Oil - October 10
Crude Oil - October 6
Oil Service HOLDRs - October 4
Crude Oil - October 3
Crude Oil - September 14
Crude Oil - September 5
Crude Oil - August 14
Crude Oil - July 19
Crude Oil - July 13
Crude Oil - July 7
Crude Oil - May 30
Crude Oil - May 24
Crude Oil - May 11
Crdue Oil - May 8
Crude Oil - May 4
Crude Oil - May 1
Big Break Ahead in Gold, Silver, and Oil - April 19
Crude Oil - April 19
Crude Oil - April 17
Crude Oil - April 11
Crude Oil - April 5
Crude Oil - March 28
Crude Oil - March 27
Crude Oil - March 23
Crude Oil - March 20
Crude Oil - March 14
Crude Oil - March 13
Crude Oil - March 8
Crude Oil - March 6
Crude Oil - March 2
Crude Oil - February 27
Crude Oil - February 24
Crude Oil - February 23
Crude Oil - February 22
Crude Oil - February 21
Crude Oil - February 15
Crude Oil - February 14
Crude Oil - February 2
Crude Oil - February 1
Oil on Their Minds - February 1
Crude Oil - January 26
Crude Oil - January 20
Crude Oil - January 17
Crude Oil - January 10
Crude Oil - January 6
Crude Oil - January 5
Crude Oil - January 3

POSTS IN 2005

Crude Oil - December 28
Crude Oil - December 19
Crude Oil - December 16
Crude Oil - December 15
Crude Oil - December 12
Crude Oil - December 9
Crude Oil - December 8
Crude Oil - December 6
Crude Oil - November 22
Crude Oil - November 21
Crude Oil - November 16
Crude Oil - November 15
Crude Oil - November 9
Crude Oil - November 7
Crude Oil - October 26
Crude Oil - October 25
Crude Oil - October 19
Crude Oil - October 17
Crude Oil - October 11
Crude Oil - October 6
Crude Oil - September 30
Crude Oil - September 28
Crude Oil - September 26
Crude Oil - September 21
Crude Oil - September 19
Crude Oil - September 16
Crude Oil - September 15
Crude Oil - September 14
Crude Oil - September 12
Crude Oil - September 7
Crude Oil - September 6
Katrina and Crude Oil - September 4
Crude Oil - September 2
Crude Oil at 11am ET - August 30
Crude Oil at 1pm ET - August 29
Crude Oil at 9 am ET - August 29
Oiloholics - August 27
Crude Oil - August 26
Crude Oil - August 24
Bold and Right - August 23
Running On Empty - August 22
Crude Oil - August 22
Crude Oil - August 19
Crude Oil - August 18
Crude Oil - August 17
Crude Oil - August 10
Crude Oil - August 8
Crude Oil - August 4
Crude Oil - August 3
Crude Oil - August 1
Crude Oil - July 28
Crude Oil - July 26
Crude Oil - July 25
Crude Oil - July 20
Crude Oil - July 18
Crude Oil - July 14
Quick Crude Update - July 12
Crude Oil - July 12
Crude Oil Boxes - July 11
It's Done - July 9
Crude Oil - July 5
Crude Oil - June 29
Crude Oil - June 28
Crude Oil - June 27
Crude Oil - June 22
Hourly Crude Oil Boxes - June 21
It's Alive!!! - June 18
Crude Oil - June 14
July Crude Oil Hourly Boxes - June 9
A long Term Look at Crude Oil - April 27

 

Daily Chart of August West Texas Crude 

 

Hourly Chart of August West Texas Crude 

 

It's Alive !!!

It has been my conviction that the March 2005 top in West Texas crude at 58.24 would hold and that the market would drop to $25 or so over the next two years.

The July 2005 contract made new highs Friday and closed above 58.24 so, contrary to my previous analysis, the bull market still lives!

Where will the market stop its move up? The daily chart above shows some of the division points of the second long term price box in West Texas Crude. These long term boxes are $30 high and start from the closing low in April 1986 at 10.40. My best guess now is that crude will reach the 63.00 level which is the ¾ division point of its current long term box.

The hourly chart above shows the short term price boxes in August Crude. Late Friday the market reached the top of a box at 59.50 and will probably react 75 to 150 points from that level. I think the uptrend from the 49.00 level will continue until the market reaches the 62.50 level, the top of the next box.

 

Hourly Chart of August Gold 

 

Gold Boxes

The hourly chart above shows my estimate of the short term price boxes in August gold. These are $13.70 high and start from the recent low at 415.80.

As you can see the market is approaching the top of its second box. Right now support is at the ½ division of this box, 436, and the next stop on the upside will be the ½ division point of the next box at 450.

 

Bullish Bush Bashing

This morning’s headline story in my favorite newspaper, the New York Times, reports the results of the latest Times/CBS opinion poll. The headline reads “Bush’s support on Major Issues Tumbles in Poll”.

Of course the Times takes every possible opportunity bash Bush so by itself this story is not significant. But remember that the news media, NYT included, try to give their readers what their readers want to read or hear. In other words the media make their money by catering to their audience’s preconceptions.

The Times’ audience is this nations’ elite. So I think we can fairly conclude that elite opinion takes an active dislike to President Bush (no surprise here!). Moreover, to the extent that the poll fairly represents public opinion, it is evidence that the public is growing more distressed about the political leadership in the US.

This is important from a contrary opinion point of view. When opinion leaders show contempt for political leaders the nations’ emotional cycle is in a depressed phase. The same is true when the public takes a dim view of their political leaders’ performance. And this emotional upset shows up in financial markets.

I think that this headline is more evidence that the stock market is quite a bit below the level of its ultimate top. When this bull market ends I think we shall see public opinion turn more positive towards our political leaders and we shall also see this shift reflected in the New York Times headlines.

 

Daily Chart of Cash S&P 500 

 

S&P: Next Stop 1326?

The daily chart you see above shows the current bull market box for the cash S&P. These boxes are 186 points high and start from the October 2002 low at 768.

In March 2005 the S&P nearly reached 1233, the ½ division point of its third box and then reacted down to the bottom of that box. The market now is in the midst of a move that should carry at least to the top of this box which is at 1326. My suspicion is that the upside potential is in fact much greater and that we may well see the S&P reach the ½ division point of its fourth box, the 1419 level, by the end of this year.

 

Guesstimates on June 17, 9:15 am ET

S&P: headed for 1224. Support at 1197.

Bonds: market is now headed back to 119-00 with initial resistance at 116-30 and support at 116-14.

10 Year Notes: market should now rally back to 114-00 with intial resistance at 112-30.

Eurocurrency: 120.85 is support. I expect a rally of at least 500 points to start here or at worst from 119.90.

July Crude: moved well past 56.00 resistance. March 5 high was 58.24 and August contract has reached that level. A close above 58.30 basis August will mean that the market is headed for 61.00 but until today's close it makes more sense to be short.

Gold: now headed for 441.

Google: 264 is now support and market should next rally into the 308-312 range. Initial rallywill probably halt at 289.

 

Is Low Volume Bearish?

Some technical analysts have hinged their bearish views of the stock market on the fact that trading volume has been relatively low on the advance from the April lows.

I think this will prove to be a mistaken analysis. The thing to remember is that low volume on a rally to a lower top is only significant if it represents a real change in the market’s behavior. In particular, the previous high should have seen a fair amount of excitement and good volatility. If, after a top associated with lots of volatility and volume the market should rally to a lower top on low volume, then one has a definite bearish indication. But if the first top was itself a dull affair, like the January and March 2005 tops in the S&P, then we don’t learn anything from a subsequent rally that is also dull.

Over the last 16 months the Dow Industrials and the Nasdaq composite have traded sideways. Every investor who wants to take advantage of prices near current levels to buy or sell has had ample opportunity to do so during that time. The only buyers and sellers left in the market are short term speculators. So volume is low and won’t increase until the averages break out above their April highs. Such a breakout would present new opportunities to long term investors to readjust their portfolios and will naturally result in a big increase in trading volume.

 

The Dog That Didn't Bark

One reason speculation is fun is that it involves a lot of detective work. My favorite sort of clue is “the dog that didn' t bark”. This is a situation in which the market doesn’t do what you think it should in response to news.

Since February 2004 the Dow and the Nasdaq composite have traded sideways while the S&P 500 has crept a little higher. During this 16month period the news has been terrible: Fed tightening, high oil prices, US dollar in the tank, fears of a housing bubble, weak employment growth, Iraq, Bush hatred.

It is easy to understand why people might sell stocks during this period. But who would be buying? Well, clearly the buyers are people who aren’t affected by the gloomiest efforts of the news media. These are investors with very long time horizons and they have been numerous enough to keep the market on an even keel despite all the bad news. The market has moved into “strong hands”, a very bullish situation. The only reason it has not rallied sharply is that the bad news has encouraged short term speculators to sell the news.

I think the news will turn more neutral or even bullish during the coming months. Short term speculators will then scramble to buy back the stocks they sold during the past 16 months when the news was bad. But they will have to bid the stock away from long term investors who bought when the news was bad. Stock prices will soar because these long term investors will part with their positions only at a big premium over their average price - about 1140 in the S&P and 10300 in the Dow.

 

Guesstimates on June16, 8:35 am ET

S&P: headed for 1224. Support at 1197.

Bonds: market is now headed back to 119-00 with initial resistance at 116-30.

10 Year Notes: market should now rally back to 114-00 with intial resistance at 112-30.

Eurocurrency: 120.85 is support. I expect a rally of at least 500 points to start here or at worst from 119.90.

Crude: 56.00 is resistance and next step down should reach 51.00

Gold: now headed for 436.

Google: 264 is now support and market should next rally into the 308-312 range. Initial rallywill probably halt at 289.

 

Hourly Chart of Google 

 

Google

I expected Google to hold support at 277 but instead the market broke nearly to 270 this morning. I think this is simply a normal reaction in an ongoing bull market. The drop now looks like a downward staircase of ¼ box steps with the bottom step at 272, the ¾ point of one of Google’s 40 point price boxes.

Notice too that the initial drop carried from 299.59 to 290.30 and thus defined a price box 9.29 points high. The bottom of the third box in this sequence is 271.72.

The reaction in GOOG has reached strong support once more and the market should rally now into the 308-311 range.

 

Guesstimates on June 15, 8:45 am ET

S&P: headed for 1224. Support at 1197.

Bonds: market is now headed back to 119-00.

10 Year Notes: market should now rally back to 114-00.

Eurocurrency: 120.85 is support. I expect a rally of at least 500 points to start here or at worst from 119.90.

Crude: 56.00 is resistance and next step down should reach 51.00

Gold: now headed for 436.

Google: 277 is support and market should next rally into the 308-312 range

 

The Big Picture on June 14

It is easy to be distracted by markets' day-to-day movements so it helps to remind oneself of the longer term picture, even when it hasn't changed. Here are some educated guesses about longer term trends in markets that interest me.

S&P - Headed for 1350 by the end of 2005, then down 20-25% in 2006.

Bonds - up into 120-122 range over the next few months then down to 100 by late 2006.

10 Year Notes - up to 116 over the next few months then down to 104 by late 2006.

3-month Eurodollars - will reach 4.85% by the end of 2006. Gold - up to 510 before the bull market ends.

Crude Oil - down to $ 27 over the next two years.

US Dollar index- up to 100 over the next year and to 121 by 2010

Eurocurrency - down to 107 over the next year and to 80 by 2010

Google - up to 376 by the end of 2005

IBM - up to 108 by the end of 2005

Microsoft - up to 42 by the end of 2005

 

Hourly Chart of T-bond Futures 

 

Hourly Chart of 10 Year Note Futures 

 

Bonds and Notes

The reaction in the bonds and notes from the June 3 top keeps breaking past the support levels I thought would mark its end. The bonds have reached the third step down in their ½ box staircase at 116-05. The notes still have a bit further to go to reach 112-06 which is the third step down in their ½ box staircase. I am expecting a big rally in both markets from current levels.

 

Hourly Chart of July Crude Oil Futures 

 

Crude Oil

The rally in crude oil made new highs yesterday at 56.00 contrary to my expectation. The hourly chart above shows my current analysis of the situation.

I think the pair of resistance levels indicated on the chart will halt this rally if they haven’t already done so. The blue line is the ¾ division point of the first bear market down from the April 4 high at 58.28. This box is $8.64 high and the ¾ point stands at 56.13. The black line marks the April 25 top in crude which occurred at 56.00.

I still think this is a bear market in crude which will carry the market below $30 over the next couple of years.

 

Guesstimates on June 14, 8:30 am ET

S&P: headed for 1224. Support at 1197.

Bonds: market is now headed back to 119-00.

10 Year Notes: 112-20 is support and market should now rally back to 114-00.

Eurocurrency: 120.85 is support. I expect a rally of at least 500 points to start here or at worst from 119.90.

Crude: 56.00 is resistance and next step down should reach 51.00

Gold: now headed for 436.

Google: 277 is support and market should next rally into the 308-312 range

 

Hourly Chart of T-bond Futures 

 

Hourly Chart of 10 Year Note Futures 

 

Bond and Note Update

In a post earlier today I said that the T-bonds and 10 Year Notes had both reached their staircase targets for the reaction down from the June 3 highs and that both markets should be headed upward.

In the event there was a little more downside action than I expected but both markets have bounced off the bottom of a price box. The bonds should rally at least a box (46 ticks) from their lows but will probably go up more to 119-00 or so. The notes should rally a box (39 ticks) from their lows.

 

Hourly Chart of IBM 

 

IBM Will Breakout

Here is a look at the hourly chart price boxes in IBM. In a previous post I predicted that IBM would reach 106 by the end of the year. At the moment it looks to me like IBM has begun a breakout move which will carry it to the ½ point of the next box at 80.00 and then to the top of the same box at 82.70.

 

Squawk Blog Makes Fun of Google

Jokes and jeers are sometimes good clues to market sentiment. Humor often arises from a certain "lack of respect". CNBC's Squawk Blog just ran a poll on the best name to give Google stock zealots. Here are the results.

This is just another piece of evidence that GOOG is still far from its ultimate top.

 

The Slope of Hope

Mark Hulbert has just posted a column on MoneyWatch entitled “The slope of hope”. He argues that the short term stock market timers he monitors have become very much more bullish than they were at the April 2005 low and that this has bearish implications for stock prices.

You probably have guessed that I don’t agree with his conclusion. And this illustrates why I don’t rely on newsletter survey data to form the basis of my contrary opinion thinking. I have observed that public sentiment changes very slowly, so when it reaches a bearish extreme as it did in April it will take some time (certainly more than 6 weeks) for it to return to neutral levels, let alone bullish ones. On the other hand newletter writers can change positions on a dime.

My basic starting point for contrary opinion thinking is that media are in the business of telling people what they want to hear. So if you observe what the media are saying you can get a good idea of what people’s attitudes are towards the market. Most commentators, especially the market technicians, are currently telling their readers to be bearish. So my current reading of investor sentiment is that it is still basically bearish. Mark Hulbert is one such commentator. As another example, take a look at this column in Barrons’ Online.

I think that public sentiment is still bearish enough to support a rally to 1350 in the S&P by the end of this year.

 

Hourly Chart of T-bond Futures 

 

Hourly Chart of 10 Year Notes Futures 

 

Bond and Note Staircases

As you can see on the hourly charts above, both the T-bond and the 10 Year Note futures have dropped to the next step down in their staircase reactions from the employment number highs. I expect both markets now to rally a least a full box.

 

Guesstimates on June 13, 8:25 am ET

S&P: headed for 1224. Support at 1197.

Bonds: market is now headed back to 119-00.

10 Year Notes: 112-20 is support and market should now rally back to 114-00.

Eurocurrency: 120.85 is support. I expect a rally of at least 500 points to start here or at worst from 119.90.

Crude: 54.40 is resistance and next step down should reach 51.00

Gold: now headed for 436.

Google: 277 is support and market should next rally into the 308-312 range

 

Hourly Chart of Google 

 

Google Update

In a previous post I had predicted that Google would reach 301 before any reaction of more that 20 points set in. So far GOOG has made it as high as 299.59. The hourly chart above shows that the advance from the last significant low at 175 is starting to loose steam.

GOOG has started to show a small rising staircase of highs. The first high was at 292.65 on June 1 near the ¼ point of the box at 291.60. The second high was at 299.59 on June 7 just shy of the ½ point of the box at 301.60. I think the next rally will carry the market up ¾ box or 30 points from the reaction low at 278 and end near the ¾ point of the box which stands at 311.60. This presents a target range of 308-311 for the next rally.

Longer term I think that GOOG has much further to go, at least to the 376 level.

 

Mr. Bubble

According to an editorial in today’s New York Times, Alan Greenspan is “Mr. Bubble”.

The Times thinks that Greenspan kept rates too low for too long and thus helped to inflate a housing bubble in the USA. From this one might imagine that the NYT editors think the cure for the bubble is continued increases in interest rates; after all, “bubbles” are bad and if they are inflated by low rates then they can be deflated by raising interest rates.

But reading on we find that the Times also thinks that low mortgage rates are a sign of weakness in the economy. So one must conclude that the Times thinks the thing to do in the face of economic weakness is to raise interest rates! Hmmm!

Of course, I don’t look to the New York Times for my economic analysis. Instead I look to the Times for a read on elite opinion and that is usually a good starting point for thinking along contrary lines.

Let’s take a closer look at the “Mr. Bubble” editorial. The NYT thinks that low long term interest rates are a sign that the economy is or soon will be sliding downhill. Here are some interesting quotes:

“[The] economy …is not doing as well as Mr. Greenspan suggests.”

“[The] economic outlook is worrisome.”

“[The} federal budget [is] deep into the red, setting the stage for slower growth”.

“”Meanwhile, it is hard to take Mr. Greenspan’s reassuring talk about the economy seriously when there is so much evidence to the contrary.”

The Times suggested “cure” for this economic weakness is higher interest rates and higher taxes! Yikes!!!

My own view is that relatively low long term interest rates are a sign of the bond markets’ confidence that inflation will remain low for the foreseeable future. Low rates also mean that the pool of global savings is large and growing. Savings are the fuel for economic growth. This together with the fact that stock prices have gradually risen in the face of a two year tightening program by the Fed tells me that the economy is in good shape and will continue to strengthen.

 

Hourly Chart of Cash Nasdaq 100 Index 

 

Hourly Boxes for Cash Nasdaq 100 Index

The chart above shows my estimate of the hourly boxes in the cash Nasdaq 100 index starting from the April 29, 2005 low at 1394. These boxes as 63 points high.

The market has reacted to the bottom of its third box and the target for the next upswing will be the ½ point of the fourth box at 1615.

 

Hourly Chart of September Eurocurrency Futures 

 

Hourly Eurocurrency Boxes

I expected support at 122.20 in the September Eurocurrency to hold and be followed by a move up to 125.00. Instead the market broke sharply this morning as you can see on the hourly chart above.

This does not change my basic view that the market is on the verge of a several hundred point rally. But now it looks like this rally will start from the ½ point of the next lower box which stands at 120.85.

 

Hourly Chart of September T-bonds 

 

Bond Staircase

The hourly bar chart above depicts a staircase in the September bonds. The hourly boxes are 46 ticks high and the staircase has steps of ½ box or 23 ticks. The presumption is that the bonds are headed down the staircase to support at the ¼ division point of a box at 116-28.

This reaction is the biggest one in the bonds in several weeks. I anticipated a substantial reaction because the market had rallied into resistance defined by the confluence of the two range divisions drawn in blue on the chart.

 

Guesstimates on June 10, 8.:35 am ET

S&P: headed for 1224. Support at 1202.

Bonds: resistance is at 118-12 and market is headed for 116-30.

10 Year Notes: resistance at 113-24 and now headed for 112-16 to 112-20.

Eurocurrency: going up to 125.00.

Crude: 54.40 is resistance and next step down should reach 51.00

Gold: reached support at 423-25 yesterday and now headed for 436.

Google: 277 is support and market now headed for 308.

 

Hourly Chart of July Crude Oil 

 

July Crude Oil Hourly Boxes

This morning I guessed that July Crude would rally to the top of its second bearish box at 53.40 and then resume its decline. The market proved strong than I expected but I think that the resistance at the ½ point of the first box at 54.40 will hold. The next move should be downward to 51.00 or lower.

 

Hourly Chart of August Gold 

 

Hourly Gold Boxes

I think that gold made an important low on May 31 at 412.00 in the June contract. Above you will see an hourly chart of the August contract. I’ve drawn in the boxes which I currently estimate will be $13.70 high. August gold has reacted to the ½ point of the first box and the next step up in its staircase should be to the ½ point of the second box at 436.40. I think gold is headed over 500 this year.

 

Hourly Chart for September S&P Futures 

 

September S&P Boxes

September is now the front month for the S&P futures. The hourly chart above shows the hourly price boxes for this September contract. Notice that I just carried along the price boxes defined by the June contract which are 30 points high and started at 1137 (the day session low in April).

Support is at 1197, the bottom of the third box up from 1137 and I think the next move will carry close to the top of the same box at 1227. I estimate 1224 because I expect sellers to come in as the March top at 1229 is approached.

 

Guesstimates for June 9, 9:15 am ET

September S&P: support is at 1197 and the next swing up should carry to 1224.

Bonds: 117-30 is support but the rally from there will probably stop near 118-12. Then down to 117-00.

10 Year Notes: 113-04 is support but the supsequent rally will probably only carry to 113-24. then down to 112-16.

Crude: Almost made it to 52.00 overnight so look for a move to 53.30 then down again.

September Eurocurrency: should hold 122.20 level then up to 125.00.

 

Don't Fear the Fed!

Tomorrow morning Fed chairman Greenspan will again testify before Congress. Markets are on pins and needles awaiting his words. But will they really matter?

Greenspan’s tenure at the Fed began in 1987 and has been marked by a strong emphasis on making the Fed’s monetary policy as predictable as possible. The Fed wants to avoid surprising markets if it can. Tomorrow’s testimony will be no exception. I think that after the smoke clears following the Greenspan’s testimony you will find the bond market pretty much where it closed today.

This brings me to a more important point. If the Fed wants to be as predictable as possible then the markets have already discounted whatever interest rate increases the Fed has planned. So you have to look elsewhere for guidance as to the future direction of the bond and stock markets.

It is worth wondering why the stock market has moved gradually higher since March 2004, a period during which the Fed has raised short term interest rates 200 basis points. In the business of speculation it is the dog that doesn’t bark that often is the critical clue to the future. In this case a 200 point increase in rates would normally be expected to have a depressing effect on stock prices. The fact the averages rose a little bit instead means that underlying demand for stocks is very strong. This is a very bullish condition.

I am reminded very much of 1994. The Fed raised rates several hundred basis points in 15 months, but the stock market didn’t budge. When the Fed let it be known that it was near the end of its series of increases, what happened? Stock prices soared and the great stock market boom of the 1995-2000 began.

I expect a mini-version of this situation to be repeated now. The Fed will soon halt (temporarily) its moves towards higher rates and stock prices will advance 15-20%.

Don’t fear the Fed!

 

Guesstimates on June 8, 11:30 am

Google - 287 didn't hold but it looks like 278 ended the reaction. Still think 308 will be seen soon.

 

The Big Picture

Here are some educated guesses about longer term trends in markets that interest me.

S&P - Headed for 1350 by the end of 2005, then down 20-25% in 2006.

Bonds - up into 120-122 range then down to 100 by late 2006.

10 Year Notes - up to 116 then down to 104 by late 2006.

3-month Eurodollars - will reach 4.85% by the end of 2006.

Gold - up to 510 before the bull market ends.

Crude Oil - down to $ 27 over the next two years.

US Dollar index- up to 100 over the next year and to 121 by 2010

Eurocurrency - down to 107 over the next year and to 80 by 2010

Google - up to 376 by the end of 2005

IBM - up to 108 by the end of 2005

Microsoft - up to 42 by the end of 2005

 

Is Google Overpriced?

Sure it is! James Stewart just posted a column on this subject here.

But you really want to know whether or not GOOG will get even more overpriced during the next 12 months. I think the answer is yes and I have explained my reasons here and here. Basically, GOOG is one of the few places day traders and hedge funds can “play” in an otherwise lackluster market. So I expect GOOG to inflate well past any reasonable notion of value.

The thing to remember is that booms, bubbles and busts always go further from fair value than a rational person expects them to. So if you are riding the GOOG tiger I suggest you hang on at least until it reaches my current 376 target or until it starts underperforming the Dow or S&P.

 

Guesstimates on June 8, 8:40 am ET

Bonds - I still think the market will hit 119-08 before dropping to 117-30 or to 116-30.

10 Year Notes - still holding out for 114- 04 to 08, then down to 113-04.

Dec Eurodollars - stopped 2 ticks shy of 96.24 this morning and now will drop to 96.09.

S&P - Support is at 1197. Next upside target is 1213-1215.

Google - support is at 287 then up to 308.

Gold - down to 423-24 then up to 439.

July Crude - support at 52.00 then a small rally to 53.30 -53.50. Then much lower.

Eurocurrency - up to 123.40

 

Guesstimates June 7, 12:20 pm ET

Google - support at 287 the up to 308

 

Guesstimates 10 AM ET

Bonds - continuing up to 119-08 but a lower top is likely there. Then down to 117-30 or 117-02.

10 Year Notes - continuing up to 114-08 but then down to 113-04.

Eurodollars (Dec) - rally should stop at 96.26 then down to 96.09.

 

Time Magazine Forecasts End of Boom

Well it finally happened. Time Magazine's June 12 issue has a cover story on the real estate boom in the US. This follows upon the heels of Fortune Magazine's May 30 cover story "The Real Estate Gold Rush".

Is the US real estate boom over? Is it a bubble that is about to pop?

Paul Montgomery originated the use of magazine cover stories as contrary opinion indicators in the early 1980's. His research showed that for a period of 1 to 3 months after the cover story markets tend to continue in the direction suggested by the story (in this case, upward). After that markets reverse course and move in the opposite direction.

But there are two important caveats to keep in mind.

First, bullish stories like these about the real estate boom generally are less accurate as timing indicators than are bearish stories. Greed is a more diffuse and less intense emotion that fear. So bullish stories often precede market tops by as much as a year. Moreover they give false indications much more frequently than do bearish stories. For an example of this see the September 20, 2004 Fortune cover on the US real estate boom.

The second caveat concerns the nature of the housing market. Houses cannot be bought or sold as easily as stocks and bonds. Moreover, most of the US housing stock is owner-occupied and so is held for the services it provides, not just as an investment. For this reason too a bullish story on the housing market is less likely to time precisely the top than one on some financial asset.

All in all I think that the real estate boom in the US won't cool down until the economy starts sliding into the next recession. My 2005 stock market forecast predicts a bull market top later this year. If this is correct then the economy won't start showing signs of weakness until mid- 2006.

The real estate boom will probably continue for another 12 months.

 

Index of Daily Guesstimates

Here is an index my daily guesstimates made in real time during 2005. These are very short term views of markets that interest me. I call them guesstimates because a lot of guesswork is involved in these projections.

GUESSTIMATES DURING 2005

DECEMBER

December 30 - 8:50 am ET
December 29 - 8:50 am ET
December 28 - 8:40 am ET
December 27 - 8:50 am ET

December 23 - 8:50 am ET
December 22 - 8:40 am ET
December 21 - 8:50 am ET
December 20 - 8:50 am ET
December 19 - 8:50 am ET

December 16 - 8:50 am ET
December 15 - 8:55 am ET
December 14 - 8:55 am ET
December 13 - 8:55 am ET
December 12 - 8:55 am ET

December 9 - 9:00 am ET
December 8 - 8:50 am ET
December 7 - 8:40 am ET
December 6 - 8:55 am ET
December 5 - 8:55 am ET

December 2 - 8:40 am ET
December 1 - 9:50 am ET

NOVEMBER

November 30 - 9:00 am ET
November 29 - 9:15 am ET
November 28 - 8:40 am ET

November 25 - 9:40 am ET
November 23 - 8:40 am ET
November 22 - 8:40 am ET
November 21 - 8:50 am ET

November 18 - 8:50 am ET
November 17 - 8:50 am ET
November 16 - 8:50 am ET
November 15 - 8:50 am ET
November 14 - 9:00 am ET

November 11 - 8:45 am ET
November 10 - 9:10 am ET
November 9 - 8:50 am ET
November 8 - 9:10 am ET
November 7 - 8:50 am ET

November 4 - 8:45 am ET
November 3 - 8:50 am ET
November 2 - 8:50 am ET
November 1 - 8:50 am ET

OCTOBER

October 31 - 8:50 am ET

October 28 - 8:50 am ET
October 27 - 8:50 am ET
October 26 - 8:50 am ET
October 25 - 8:55 am ET
October 24 - 8:45 am ET

October 21 - 9:00 ET
October 20 - 8:50 am ET
October 19 - 8:50 am ET
October 18 - 8:50 am ET
October 17 - 8:55 am ET

October 14 - 8:55 am ET
October 13 - 8:45 am ET
October 12 - 8:50 am ET
October 11 - 8:50 am ET
October 10 - 9:10 am ET

October 7 - 9:10 am ET
October 6 - 9:10 am ET
October 5 - 8:45 am ET
October 4 - 8:45 am ET
October 3 - 8:55 am ET

SEPTEMBER

September 30 - 8:40 am ET
September 29 - 8:45 am ET
September 28 - 8:55 am ET
September 27 - 8:50 am ET
September 26 - 8:50 am ET

September 23 - 8:45 am ET
September 22 - 8:45 am ET
September 21 - 8:55 am ET
September 20 - 8:50am ET
September 19 - 8:45 amET

September 16, 8:55 am ET
September 15, 8:50 am ET
September 14, 8:45 am ET
September 13, 8:50 am ET
September 12, 9:15 am ET

September 9, 8:50 am ET
September 8, 8:45 am ET
September 7, 8:45 am ET
September 6, 8:45 am ET

September 2, 9:10 am ET
September 1, 9:10 am ET

AUGUST

August 31, 8:55 am ET
August 30, 8:45 am ET
August 29, 8:45 am ET

August 26, 8:50 am ET
August 25, 8:45 am ET
August 24, 8:40 am ET
August 23, 8:30 am ET
August 22, 8:45 am ET

August 19, 9:05 am ET
August 18, 8:50 am ET
August 17, 9:05 am ET
August 16, 8:50 am ET
August 15, 9:00 am ET

August 12, 8:30 am ET
August 11, 8:45 am ET
August 10, 8:45 am ET
August 9, 8:50 am ET
August 8, 8:40 am ET

August 5, 8:50 am ET
August 4, 8:45 am ET
August 3, 8:45 am ET
August 2, 8:45 am ET
August 1, 8:50 am ET

JULY

July 29, 8:50 am ET
July 28, 8:50 am ET
July 27, 8:55 am ET
July 26, 8:45 am ET
July 25, 8:50 am ET

July 22, 8:50 am ET
July 21, 8:50 am ET
July 20, 8:30 am ET
July 19, 8:40 am ET
July 18, 8:40 am ET

July 15, 8:40 am ET
July 14, 8:50 am ET
July 13, 9:00 am ET
July 12, 8:50 am ET
July 11, 9:10 am ET

July 8, 8:50 am ET
July 7, 8:55 am ET
July 6, 9:00 am ET
July 5, 8:40 am ET

July 1, 8:45 am ET

JUNE

June 30, 8:50 am ET
June 29, 8:35 am ET
June 28, 8:15 am ET
June 27, 8:25 am ET

June 24, 8:30 am ET
June 23, 8:30 am ET
June 22, 8:15 am ET
June 21, 8:55 am ET
June 20, 9:00 am ET

June 17, 9:15 am ET
June 16, 8:35 am ET
June 15, 8:45 am ET
June 14, 8:30 am ET
June 13, 8:25 am ET

June 10, 8:35 am ET
June 9, 9:15 am ET
June 8, 11:30 am ET
June 8, 8:40 am ET
June 7, 12:30 pm ET
June 7, 10am ET
June 6

 

June 6 Guesstimates

Here are my very short term views on some markets:

S&P - today' low at 1193.20 should hold and the next step up will carry into the 1212 to 1215 range.

T-bonds - rally to 118-24 and then back down to 117-30 or 17-02.

10 Year Notes - 113-04 is support and a move up to 113-24 from there would be normal

Crude - the 55.00 level is good resistance and the next big swing should be downward.

Eurocurrency - headed up to 124.40.

Gold - 429 is a temporary halting price and a drop to 425 from there is likely.

Google - Up to 308. the 277 level is good support.

 

Daily Chart of December 2005 Eurodollars 

 

Eurodollars

The daily chart you see above shows my current box analysis for the December 2005 Eurodollar futures. The bear market boxes are 48 ticks high and have been descending from the June 2003 high at 99.09. In my last post on the Eurodollars I said that the market would probably resume its bearish trend once the 96.33 level was reached. Now I think that there may be a little more upside potential so I want to update the last analysis.

I've drawn in purple the staircase levels for the rally from the March 2005 lows. Last Friday the market bounced off the 1/4 point of a box at 96.33. This is only a 1/4 box progress past the previous top at 96.20 on April 19 and shows that the Euros are much closer to their ultimate rally top than are the bonds and notes.

Since the preceding top was only a 1/4 box progression from the preceding top the upcoming low will be only a 1/4 box progression from the preceding low. This would put the upcoming low at 96.09. The rally from there will probably carry the market to the 1/2 point of the next higher box at 96.45. After that level is reached I expect the bear market in the Eurodollar to resume.

 

Hourly Chart of June Eurocurrency Futures 

 

Daily Chart of June Eurocurrency Futures 

 

Eurocurrency Update

In my last post on the Eurocurrency I said that the market had reached strong support at the 3/4 division point of its historical range and at the 1/2 point of its second bear market box and that a substantial rally was imminent. I'd like to update the situation now and look at an emerging system of boxes for the rally which I am anticipating.

The daily chart above shows that the market has traded sideways for a few days at these support levels so I think it is a buy. Even if I am wrong about this I would then expect the119.90 level, the bottom of the next hourly box for the downtrend from 135.10 (in blue) to halt the drop and then generate a rally to 125 or higher.

But I think that the 121.61 low will hold and that the market is about to rally from here. How far will the next step up in its staircase carry? My best guess is that the next reaction will start from 124.40, the 1/2 point of the second box drawn in red. The red boxes are defined by the initial 186 point rally off of the low of 121.61 and should control the uptrend from that level.

 

Hourl Chart of June 2005 S&P Futures 

 

S&P Staircases

I like to think of a market's trend as a staircase. An uptrend is a series of steps upward consisting of successively higher highs and higher lows. A downtrend is a series of steps downward consisting of successively lower lows and lower highs.

Anyone who has studied market behavior knows that this description is a very impressionistic one. It can be very difficult to translate it into actionable trading rules. The best way I have found to do this is based on my box theory.

Once a box size has been identified within an uptrend each successive top is generally some multiple of half the box size above the last top. Usually it is 1/2 or 1 box size above it but in an acceleration phase one can see 1 1/2 or rarely 2 box size separations between successive tops. The same rule applies to successively higher lows within and uptrend. In a downtrend one follows the same guideline but then of course the tops and bottoms are successively lower.

The main idea is that each top is related by a box size multiple to the previous top and each bottom is related by a box size multiple to a previous bottom.

The hourly chart above depicts the trading boxes(drawn in red) in the June 2005 S&P futures. My estimates of the staircase levels are drawn in purple.

Before looking at this chart in more detail I want to make another observation. This staircase approach requires a real artistic input by the speculator who uses it. The best way to develop the feel you need to see staircases is to practice on lots of examples and to do this in real time. Remember that in speculation everything is obvious in hindsight but you can't make any money predicting the past!

This S&P example is not a terrifically neat one but it illustrates the ambiguities one faces when trying to see staircases.

The June S&P made it's day session low on April 20 at 1136.80. The subsequent rally halted at 1167 and thus defined a box 30 points high. After the 1167 top was broken we can make a guess at the first step in the bullish staircase of lows. Since it is early in the trend we guess that the first subsequent low will be at 1152 which is 1/2 a box above the initial low. The actual low was 1147.20. Once the market makes a new high by at least 1/2 box following the 1147.20 low we want to estimate the position of the next step up for the lows. My best guess would be a full box size above 1152 (NOT above 1147.20 , the actual low!). This is the 1182 level.

Note that the market reacted only to 1186.50 so someone who insisted on buying only on a drop to 1182 would have been left behind. But as a practical matter this should not have been a problem. Note that a few days earlier on the initial break above the 1182 level the market formed a little shelf of lows at 1185. Since one already assumes the market is in an acceleration mode by choosing a full box size above 1152 instead of 1/2 a box, it is reasonable to think that the lows at 1185 would not be broken on the subsequent reaction.

So far we have been predicting the past. What about the future? After the 1186.50 low the market struggled to a new high. So our estimate of the next step up for the lows in the uptrend should be 1/2 box above 1182 (NOT 1186.50 - the actual low!). This is the 1197 level which the market is flirting with as I write this. On this basis I believe that the next move of 10 points or more from 1197 will be upward.

Next let's look at the highs in the uptrend. After the high of the initial box at 1167 was made the normal expectation would be for the next high to be at 1182, 1/2 a box above 1167. After 1182.30 was reached overnight (not shown on the chart which records only daytime activity) the market broke to 1147.20. It would then be reasonable to expect an acceleration phase to begin and this would predict the next stop at the 1212 level, a full box above 1182. But the market began to struggle after it broke above 1190 so it made sense to scale back the estimate to only a 1/2 box progression above 1182. This would be the 1197 level and the market formed a small top at 1199 and dropped to 1186.50.

As to the future, the most conservative estimate would be for a rally to 1212, a 1/2 box move above 1197. But I think it is at least as likely that the market moves a full box above 1197 to 1227 (near the March high) before a reaction of half a box or a full box sets in.

 

Double, Double Toil and Trouble

"Double, double toil and trouble; Fire burn and cauldron bubble" (from William Shakespeare's Macbeth).

These lines of Shakespeare are a perfect accompaniment to today's New York Times Magazine article by Roger Lowenstein entitled "See a Bubble?". Like the three witches in Macbeth Americans today are anxiously watching the financial cauldron bubble, hoping to brew a potion that will ward off imminent disaster.

Here's Lowenstein's opening paragraph:

"It's a good time to be a financial-disaster writer. Disasters abound, and even when they don't, people are eager for your opinion on when the next bubble is going to pop. Scarcely a day goes by without a warning of some dire calamity - in the dollar, in housing values, in pension funds. The way people crave financial info, we must be the best-informed, most economically literate society ever. But we do not sleep any better for it. Is all the anxiety warranted, or even productive?"

My own answer to Lowenstein's (rhetorical) question is that all the anxiety is NOT warranted and is NOT productive. That Lowenstein can write this article and the New York Times publish it is ample evidence of my basic contention, one I have repeated on the blog many times: people are very worried about the future and bearish in general on financial assets. Under such conditions I think there is no chance that the stock market averages can drop over the next six to nine months.

 

Weekly Continuation Chart of 10 Year Note Futures 

 

Weekly Continuation Chart of T-bond Futures 

 

The Next Top in the Bond and Note Futures

The bond and the 10 year note futures have been moving up strongly from their lows at 109 and 107-26 respectively in late March 2005. In this post I will try to estimate just how far this rally will carry.

I take a "top down" approach to forecasting. By this I mean that I first try to assess the direction of the market's long term trend (which generally lasts a year or two). Once I have done this then I look for evidence that indicates the market's position within the intermediate term trend which generally lasts two to six months. My analysis of the intermediate term trend is always dependent upon my conclusion about the direction of the long term trend.

My 2005 bond forecast predicted that the 10 year notes would rally for the first 8 months of 2005 and top out in August. I also predicted that the 2005 top would be below the high prices reached in June 2003 (bonds at 124-12 and notes at 121-03). So I think that the bull market which began in the bonds and notes from lows in May 2004 (bonds at 103 and notes at 107-26) is rapidly approaching its end.

When a market is in a long term sideways trend or trading range it is usually helpful to look at the divisions of the range to try to get estimates of where intermediate term trends which typically last 2 to 6 months) will stop.

The weekly chart of the T-bond futures above shows the divisions of the range from the 124-12 high in June 2003 to the 103-02 low in May 2004. This past Friday (not shown on the chart!) the bonds traded as high as 119-23, just above the 1/2 division point at 119-01. I think the market will now trade sideways for a week or two in a range of three points or so. After that I think the bonds will move up to the 7/8 division point at 121-23 where the moves up from the March 2005 and May 2004 lows will end.

Why do I think this rally has further to travel? First of all, my 2005 bond forecast did predict a top for late summer and so the rally should still have a couple of months to go on this basis. But I don't like to rely too heavily on such long term predictions when it comes to trading decisions. A better reason for expecting a move up to 121-23 lies with a box analysis of the weekly chart. Note that there is an obvious price box delimited by the drop from the February 2005 high at 117-12 to the March 2005 low at 109. This box is 8.375 points in height. Adding 8.375 points to the high at 117-12 we get 125-24 as the top of the next box. But my long term forecast says that the market should not go above the 2003 top at 124-12. Next I observe that the 1/2 point of the next price box is at 121-18, not far from the 7/8 division of the range at 121-23. So this is the target I choose for the end of the uptrend.

The analysis of the 10 year notes is similar. The weekly chart depicts the divisions of the range from the 2003 top at 121-03 to the 2004 low at 107-26. At this juncture I think the market will move up to either the 5/8 division at 116-03 or to the 3/4 division at 117-08. The February 2005 top was at 113-13 and the March 2005 low at 107-26, a range of 5.59 points. Using this as the box size the 1/2 point of the next box up is at 116-06 so I think that 116-03 is the more likely target for the notes over the next couple of months.

 

Take a Stand

Amateur speculators (and some professionals too!) often take pride in their willingness to "listen to the market". This usually means that they have some collection of technical indicators which provides information about the direction of the market's trend. The consensus of this collection of indicators then "tells" them whether to be long or short.

People who speculate in this way are usually "trend followers". In other words, they buy only after the market has gone up for a while and they sell only after the market has gone down for a while. There are a (very ) few individuals who have made substantial fortunes as trend followers. But the majority of trend followers has only losses to show for all its analytical effort.

I think trend following is a bad idea. People who do it generally end up as the yo-yo at the end of the market's string. They too often sell near the bottom and buy near the top and are soon out of business.

A better approach is to try to estimate the length of the market's string (to continue the yo-yo metaphor). In other words, try to estimate whether current prices are high or low relative to some idea of a normal price range. If you can do this you can begin to trade futures and stocks like you buy food, clothes, cars, computers etc.

I'm sure you like to take advantage of bargains and sales. You know how big a discount is normal and that discounts are usually available for only a limited time. You like to buy at a discount and defer purchases if things seem overpriced. On the other hand, the logic of trend following would require you to pass up these discounts and wait for the sale to end before buying! Not a good way to extend the purchasing power of your budget!

Identifying a normal discount or premium is the whole purpose of my box theory and of the technique for dividing historical ranges that I illustrate on this blog. These methods help identify support and resistance levels. A market is on sale when it is trading near a support level after an extended drop and is at a premium (or too high) when it is trading near resistance after an extended advance.

When you buy near support after a break or sell near resistance after a rally you are "taking a stand". You are telling everyone that you think the market is under priced or over priced. You are telling other speculators that you think they have made a mistake by driving the market too low or too high. This is a valuable contribution to the price discovery process. You also improve market liquidity by taking the opposite side of the market from overeager sellers or buyers. These are valuable economic services that are not provided by trend followers.

So I say you should learn how to take a stand at support or resistance levels. If you provide a real economic service to the market you can expect the market to compensate you for your efforts.

 

Daily Chart of June 2005 Gold 

 

Gold and the New York Times

In an editorial this morning the New York Times announced that it wants the IMF to sell about 30% of its gold reserves to help the world's destitute people. A noble sentiment. But is it a good market call?

Of course, if the Times really wanted to help the poor it would want to get as high a price for the IMF's gold as possible. So, if we want to look at this as a market call, I guess we would have to put the Times in the bearish camp.

Now I have found the NY Times invaluable as an opinion indicator (see this post and that one) and generally find it profitable to "fade the Times", i.e. to do the opposite of whatever it is urging or encouraging its readers to do. So the Times' editorial makes me even more bullish on gold than I was in my last post on the subject.

In that post I said that I expected gold to drop to 402, the bottom of its current bull market box and then to rally to 500 or higher. I've updated the box picture in the daily chart above. I no longer think the market will reach 402 and now believe that the low of the reaction which started from the 458 level in December 2004 was made in the June 2005 contract at 412 on May 31.

Gold is going up from here.

 

Hourly Chart of T-bond Futures 

 

Hourly Chart of 10 Year Note Futures 

 

Bonds and 10 Year Notes

In this June 1 post on the bond futures I said that the market would probably move to the 3/4 (at 119-01) or the top of the current box (at 119-12) and then drop by a full box (46 ticks) or so before the upswing from the March low at 109 resumes.

On this morning's employment news the market moved up to the 1/2 point of the next higher box at 119-23 but then dropped sharply by almost a full box in only a couple of hours. I think the bonds will drop to the bottom of the box at 117-30 before another rally can start. This market will move above 120 before any big decline sets in.

The picture in the 10 year notes is similar. The market will find support near 113-14, a level that would make the drop from today's high about a full box (39 ticks) in length. After that level is reached the move to 116 or so should resume.

 

Contrary Opinion and the Bond Market

Here's a link to Mark Hulbert's latest column on Money Watch. Mark observes that the bond market timers he follows are now essentially neutral on the market. Back in late March when the bond futures were trading at 109 and the 10 year note futures at 107-26 these same timers were looking for much lower prices and were (as a group) dead wrong in this expectation.

The question now is whether their current neutral position conveys any information about the markets' likely direction over the next couple of months. Mark thinks that it is basically a bullish piece of information and thinks that the timers were show a much more bullish attitude near the top than they do now.

I happen to agree with Mark's prognosis as readers of this blog know. I think the bond futures will get up above 120 and the note futures will reach116 before this upmove turns around. My forecasts are based on purely technical, market based considerations. Still, it is reassuring to see that bullish sentiment has still not taken a firm hold.

 

Daily Continuation Chart of Crude Oil Futures 

 

Crude Oil

Crude oil has rallied about $8 over the past week so I thought I would take a look at the boxes on the daily continuation chart for crude oil futures. I am long term bearish on crude oil and think the market will drop at least to $25 over the next 2 or 3 years.

The initial down leg in crude from 58.20 to 49.66 established a bear market box $8.54 from top to bottom. As rule I find that markets tend to respect the 1/2 and 1/4 division points of boxes as support and resistance levels, but sometimes one finds a situation in which the 1/3 and 2/3 levels are more important. That is the situation is crude oil at the moment.

I've drawn in the box divisions on the daily chart above. You can see that the low at 46.20 prior to the recent rally occurred near the 2/3 point of the second bear market box which stands at 46.81. Normally this would forecast a rally to the 1/3 point of the next higher box, but crude blew right past that level yesterday. I think the market will now stop near the 2/3 point at 55.35 making the rally from the low a full box in length. (Note that a rally of exactly a box would carry to 54.74.) The next big move in crude should be downward towards the $40 level.

 

Hourly Chart of Bond Futures at the Close 

 

Bond Futures on the Close

The purchasing manager number sent the September bond futures up past the 117-30 level to the 1/2 point of the next box at 118-21. It looks to me like the reaction from 118-22 will hold support at the bottom of the box (117-30) and that this market will soon move up to either the 3/4 point or the top of its current box.

The bond futures have hit and slightly exceeded two other resistance levels which are drawn in blue in the hourly chart you see above. The first is the 3/4 division point of the range from the June 2003 high at 123-03 to the May 2004 low at 103-02. The second is the 7/8 division point of the range from the January 2000 low at 89 to the June 2003 high at 123-03. These division points are generally strong resistance levels so I think the next reaction will carry the market down at least 2 points, the extent of the biggest reaction so far in the uptrend from the March low at 109.

After that reaction is complete I think the bond futures will move up into the 120-121 zone.

 

Hourly Chart of T-bonds  

 

Hourly Chart of 10 Year Notes 

 

Bond and Note Boxes

In my May 26 post on the bonds and notes I said that the reaction in the bonds would carry down to 115-25, the 1/2 point of a box and that the reaction in the notes would carry down to 112-06, the 1/2 point of the next lower box. In each case I was expecting a drop of a full box from the preceding high point.

In both cases the market only reacted 3/4 of a box from the high. This is an indication that the uptrend which began from the March 2005 lows of 109 in the bonds and 107-26 in the notes is still strong and intact.

The top of the current box in the notes is at 113-23 while the top of the current box in the bonds is at 117-30. I think it likely that another brief reaction will start from these levels and will carry each market down 3/4 to a full box.

 

Daily Chart of Eurocurrency Futures 

 

Eurocurrency Will Rally

The daily chart above shows that the June Eurocurrency futures have reached the 1/2 point of the second bear market box which stands at 122.12. Moreover the market has dropped a bit below 123.34, the 3/4 point of its historical range of 82.73 to 136.87. (A note on the chart: the bar which should record the range for Tuesday, May 31 is missing!)

The rejection of the EU treaty by the French sent the market down sharply and important lows are usually associated with bad news. My conclusion is that the Eurocurrency is about to rally several hundred points.

At this juncture I think the best thing to do is wait for the market to trade sideways for three or four days at current levels and then to take long positions as close to these support lines as possible.