Crude Oil

Here is an hourly chart of pit and electronic trading in November crude oil.

I think the market is now headed for 60.60 and eventually to 55.50 over the next couple of months.

 

Gold

Here is an updated hourly chart of pit and electronic trading in December gold.

Right now support is at the bottom of the current box near 470 and I think gold will soon be in the 486-490 range before any substantial reaction starts.

 

S&P

Here is an updated hourly chart of pit trading in the December S&P.

I have drawn in blue the 17.40 point short term price boxes which will probably control the move up from the recent 1211 low. Note that the top of the current blue box nearly coincides witht the 1/2 division point of the current red box. These red boxes are controlling the up move from the April pit low at 1136.80 and are 43.70 points high.

I think that the market will shortly reach the 1246 level and after a brief period of hesitation move into the 1268-1271 zone which marks the top of the current red box and the 1/2 division point of the second blue box above the current one.

 

Guesstimates on September 30, 8:40 am ET

December S&P Futures: The next short term upside target is 1268 and support today is at 1224.

December Bonds: I think a big move upward into the 121-123 range has begun. Support is at 114-12.

December 10 Year Notes: I think the move up to 116 has started. Support is at the 110-02 level.

December Eurocurrency: The next swing should be upward to 126.50.

November Crude: I think prices will move downward from here. The next short term downside target is 60.60. We should see the 55.50 level in a few weeks.

December Gold: Headed for short term resistance at 488.

Google: 300 is support; upside target is 343.

 

Daily Chart of NYSE Advancing Issues

 

Hourly Chart of December S&P Futures

 

S&P

Here is an updated hourly chart of the December S&P futures. I think the market is in the process of accelerating above the top of the box at 1224 and in a week or so it should rally to the top of the next box at 1268.

There is some supporting evidence to be found in the daily count of the number of advancing issues on the New York Stock Exchange. This is the second chart above this post. Note the upward zig-zag in the black line which records the daily numbers. Note also that the 10 day moving average (red line) has turned upward from a level that was even lower than that recorded when the market was on its way down to 1135 this past spring. These three advancing issues observations are harbringers of rising prices.

 

Daily Chart of IBM 

 

IBM

Here is a daily chart of IBM .

IBM has reacted more than I expected from its top around the 85 level. As you can see it bounced off the bottom of its current box around 77 a few days ago. I think IBM is now on the way into the 88-90 zone. I expect to see 108 before the bull market ends.

 

Rydex Cash Flows

Below this post you will find updated charts of the Rydex Cash Flow ratio and the flow of cash into Rydex bear funds courtesy of Decisionpoint.com.

The cash flow ratio has exceeded the level it reached at the Katrina low which was 1199 electronic for the December S&P futures contract. This shows a higher level of bearishness at 1222 today than at 1199 a month ago. Notice too that the cash flow into bear funds is at a record high.

Both charts tell me that a significant drop from current levels is highly unlikely.

 

Rydex Cash Flow into Bear Funds 

 

Rydex Cash Flow Ratio on September 28 

 

Guesstimates on September 29, 8:45 am ET

December S&P Futures: The next short term upside target is 1268 and support today is again at 1219.

December Bonds: I think a big move upward into the 121-123 range has begun. Support is at 114-12.

December 10 Year Notes: I think the move up to 116 has started. Support is at the 110-02 level.

December Eurocurrency: The next swing should be upward to 126.50.

November Crude: The market broke past the 66.30 resistance level yesterday but yesterday’s high at 67.40 was at the ½ point of the box so I think prices will move downward from there. The next short term downside target is 60.60. We should see the 55.50 level in a few weeks.

December Gold: It looks like the low for the reaction in gold has occurred and the next step up will carry the market to 488.

Google: 300 is support; upside target is 343.

 

Crude Oil

The rally from the 63.00 level will end at or below resistance at 66.30, the top of the current box.

Next short term downside target is at 60.60.

 

Gold

Here is an updated hourly chart of pit and electronic trading in December gold.

I had been thinking that the market would hit 460 before starting its next upleg, but now it looks like the low at 461.20 ended the reaction from 479.

The next upside target is the 488 level, near the 1/2 point of the next box at 490.

 

Google

Here is an updated daily chart of Google.

Unlike Baidu.com, GOOG is acting much better than the general market. I think this bounce off of the top of its box will hold support near 300 and that GOOG will soon see the 343 level. I still expect GOOG to reach 376 over the next few months.

 

Baidu

Here is an updated daily chart of Baidu.com

Ever since Goldman Sachs started coverage of BIDU on September 13 the stock has acted much worse than Google and much worse than the averages. This is an indication that the post IPO high at 153 is probably the bull market high for BIDU, contrary to what I had thought previously.

Even so, BIDU has dropped only a bit past the bottom of its trading box at71 and onl;y a little more past the support level at 1/2 the all time high of 153. I think BIDU will rally from here at least to 108 and quite possibly higher than that.

 

Guesstimates on September 28, 8:55 am ET

December S&P Futures: The next short term upside target is 1268 and support today is at 1219.

December Bonds: I think a big move upward into the 121-123 range has begun. Support is at 114-12.

December 10 Year Notes: I think the move up to 116 has started. Support is at the 110-02 level.

December Eurocurrency: The next swing should be upward to 126.50.  

November Crude: The 66.30 level is resistance today and the next short term downside target is 60.60. We should see the 55.50 level in a few weeks.

December Gold: It looks like the low for the reaction in gold has occurred and the next step up will carry the market to 488.

Google: 300 is support; upside target is 343.  

 

Bonds and Notes

Here are updated hourly charts of the December t-bond and 10 year note futures.

I think both markets are establishing lows at the 1/2 point of their current boxes and will move higher from here.

 

Stock Market Bears

I think an accurate assesment of investor and trader sentiment is a key element in constructing forecasts for any market. As you know I prefer to make these judgements by reading and watching the national print and broadcast media. I think these outfits are in the business of telling people what they want to hear and so they are a good guide to the public's current fears and hopes.

Even so, it is useful to check conclusions drawn in this way against more objective measurements if they are available and reliable.

As you know I think current stock market sentiment in the USA is remarkable bearish considering that the averages are so close to their bull market highs and considering that the unweighted averages are at historical highs.

A few days ago I showed you a chart of the Rydex cash flow ratio (courtesy of Decsionpoint.com). The blue line shows the daily ratio and it has dropped past the 0.90 level that has been associated with market lows during the past 4 years. Another piece of information from Decisionpoint.com is the cash flow into Rydex bear funds which bet on declining stock prices. This cash flow has reached record highs and indicates an extreme level of bearishness.

You might also want to check out the sentiment readings from Lowrisk.com The latest reading is 64% bears, and equals the highest readings seen during the past 4 years.

Finally, I want to comment on one of the most interesting phenomena in contrary opinion analysis. Ever since the concept of contrary opinion was popularized by Humphrey Neill, stock market predictors have felt it necessary to justify their forecasts by asserting that "the majority" held an opinion opposite to their own, and thus that their forecasts represented a "contrary" view.

I've already shown you objective evidence that bearish sentiment is strong. Now check out the Crystal Ball Forum front page. You see there two sentiment readings. One is called current sentiment and shows the bears at 51%. Thus the majority of Crystal Ball members think the stock market is headed lower from here. But the most intersting number is called "current perception" and shows what these bearish forecasters think other people believe. Notice that the bearish forecasters at Crystal Ball think that 61% of everyone else is bullish. This is a classic case of justifying one's own bearishness by a bald assertion (unsupported by much evidence) that your's is the "contrary" opinion and that "everone else" is bearish.

 

Guesstimates on September 27, 8:50 am ET

December S&P Futures: The next short term upside target is 1268 and support today is at 1219.

December Bonds: I think a big move upward into the 121-123 range has begun. Support is at 114-12.

December 10 Year Notes: I think the move up to 116 has started. Support is at the 110-02 level.

December Eurocurrency: The market has reached support at 120.80 and the next swing should be upward to 126.50.  

November Crude: The 66.30 level is resistance today and the next short term downside target is 60.60. We should see the 55.50 level in a few weeks.

December Gold: I think gold will drop to 460 or so before the uptrend resumes.

Google: 300 is support; upside target is 343.  

 

S&P

Here is an updated hourly chart of pit trading in the December S&P futures. I think the market is about to accelerate above the top of its box at 1224 and head up to the top of the next box near 1268.

 

Gold

December gold bounced off of the 1/2 point of its current box but I'm guessing that the rally will stop near 473. Then the market will probably drop a bit below 460 before turning higher once more.

 

Eurocurrency

Here is an updated hourly chart of the December eurocurrency futures. The market has reached support at 120.70, near the 1/2 point of its current box. I think the next move from here will be upward to 126.50.

 

Crude Oil

The November futures have rallied past what I thought would be resistance around the 64.70 level in this morning's guesstimate. I now think that the top of the current box near 66.40 will halt the rally.

 

Guesstimates on September 26, 8:50 am ET

December S&P Futures: The next short term upside target is 1268 and support today is at 1219.

December Bonds: I think a big move upward into the 121-123 range has begun. Support at 115-04 failed this morning but the market should hold the 114-12 level..

December 10 Year Notes: I think the move up to 116 has started. Support at 110-20 failed this morning but the market should hold the 109-28 level.

December Eurocurrency: The market has reached support at 120.80 and the next swing should be upward to 126.50.  

November Crude: The 64.70 level is resistance today and the next short term downside target is 60.60. We should see the 55.50 level in a few weeks.

December Gold: I think gold will drop to 460 or so before the uptrend resumes.

Google: 300 is support; upside target is 343.  

 

S&P

Here is an updated hourly chart of pit trading in the December S&P futures.

The market bounced of the bottom of the box (blue line) defined by the first reaction in the drop from the 1250 level. It has rallied to the top of its current box at 1224 (red line) which is part of the sequence of boxes which starts from the 1136.80 pit low this past April.

I think the market is about to break decisively above the 1224 level and if it does the way will be clear for a rally to the top of the next "red" box at 1268.

 

Crude Oil

Here is an updated hourly chart of pit and electronic trading in November crude oil.

I think the market is headed for the 60.80 level within a week or two and the 56.00 level within a month or two.

 

Eurocurrency

Here is an updated hourly chart of pit and electronic trading in the December eurocurrency.

The market is approaching the 1/2 point of its current box near 120.80. I think it will make a low their and rally to 126.50.

 

Bonds and Notes

I am very bullish on the bond and 10 year note futures. Here are updated hourly charts of pit trading in the December contracts.

The bonds have dropped to the bottom of a box at 115-04. The notes have dropped to the 110-20 support level I cited in this morning's guesstimate, just ahead of the bottom of their box at 110-16.

I think both market are about to turn upward. Over the next couple of months I think the bonds will rally into the 121-123 zone and the notes to 116. After that a bear market is likely to start.

 

Sears Holdings

I certainly got this one wrong. Contrary to my expectations SHLD has woefully underperformed the market ever since its July high of 163. This is not a good sign and to me it means that when the market averages make new bull market highs Sears Holdings will stay below 163.

Right now I see support at the bottom of the current box at 102, although I have other good reasons to think the market will hold the 107 level and not make it all the way to 102. The next rally will probably carry at best to 140 or so before SHLD heads down again.

 

Stock Market Sentiment Update

As you know I believe that there is way too much bearish sentiment about the stock market in the US to permit a substantial drop on prices.

Above this post you will see a chart of the Rydex Cash Flow ratio, courtesty of Decisionpoint.com. During the past four years, everytime the blue line dropped to 0.90 a substantial rally ensued. This is a reason for thinking the S&P will rally from here.

Along the same lines check out this column by Mark Hubert on Moneywatch.com. Hulbert finds the sentiment of market timers currentyly very bearsh, especially on the Nasdaq.

 

Guesstimates on September 23, 8:45 am ET

December S&P Futures: I expect the bottom of the trading box at 1211,  described in Wednesday’s late afternoon post, to hold.  The next short term upside target is 1268.

December Bonds: I think a big move upward into the 121-123 range has begun. Support is at 115-04.

December 10 Year Notes: I think the move up to 116 has started. Support is at 110-20.

December Eurocurrency: The market should reach support at 120.80 soon.  Then expect a rally to 126.50.

November Crude: The 68.30 level should halt the move up from 63.20. We should see the 55.50 level in a few weeks.

December Gold: I think gold will drop to 460 or so before the uptrend resumes.

Google: 300 is support; upside target is 343.  

 

S&P Bull Market Boxes

Here is a daily chart of the cash S&P 500. I've drawn the 187 point boxes that have so far controlled the bull market advance from the 768 low in October 2002.

As you can see the market has bounced off the 1/2 point of the current box three times in the past six months, a very unusual event. Nonetheless, I expect the market to rally at least to the top of the current box near 1325 by the end of the year.

 

Gold

Here is an updated hourly chart of December gold showing pit and electronic trading.

As you can see the market has dropped about 12 dollars from its overnight high at 479. I think it will rally now to 472-473 and then drop to a level a couple of dollars above the bottom of the box at 456. Then it should rally to 490.

 

Guesstimates on September 22, 8:45 am ET

December S&P Futures: My best guess now is that the bottom of the trading box at 1211,  described in yesterday afternoon’s late post, will hold.  There is an outside chance of continuation down to 1202. In either case the next short term upside target is 1268.

December Bonds: I think a big move upward into the 121-123 range has begun.

December 10 Year Notes: I think the move up to 116 has started.  

December Eurocurrency: The rally should stall a previous support near 122.70 and then I think the market will drop to 120.80.  A decisive move above 123.00 will convince me instead  that the rally to 126.50 is underway.

November Crude: The 68.30 level should halt the move up from 63.20. We should see the 55.50 level in a few weeks.

December Gold: The market is spending time above the top of its box near 469 but I still think a reaction of at least 10 to 12 dollars is likely before the up move resumes.

Google: 290 is support; upside target is 343.  

 

Another Thought on the S&P

After I wrote the last post I realized that there is in fact a well defined downtrend box nearly 20 points wide in the December S&P. This box is delimited by the blue lines on the chart above and the bottom of the second box in the downtrend is at 1211.

I think the market will make a low above the Katrina low (1194 electronic and 1202 pit) so I am leaning towards the view that the low will occur at 1211 rather than 1202 for this reason.

 

S&P Update

This morning I thought that the December S&P futures would hold support near 1224, the bottom of a box. This didn't happen so I have to conclude that the market is headed down to the 1/2 point of the current box near 1202.

 

Three Peaks and Domed House Update

For nearly two years I have been following the development of an example of George Lindsay's Three Peaks and a Domed House formation in the Dow and in the S&P 500.

The first chart you see above is a schematic showing the ideal pattern with the associated numbering of the sequence of highs and lows.

The second chart is a weekly chart of the Dow Industrials. I have put two sets of labels on this chart. Both the red labels and the black labels are possible interpretations of the Dow's action since January 2004 in terms of a three peaks and domed house.

We are now in a situation where both interpretations have converged; in other words, they both tell me that the market is now at point 20 of the domed house. Therefore, according to either interpretation, the next swing should be a fast rally upward to the top of the domed house, point 23.

As to timing, the "red" interpretation has the advantage of giving us a well defined and obvious point 14: May 13, 2005. This is Lindsay's preferred starting point for his time measurement of 7 months 10 days which then predicts point 23 for December 23, 2005. At the moment this is my best guess for the timing of the bull market top which would end the advance from the 2002 low.

 

Crude Oil

Here is an updated hourly chart of November crude oil. In this morning's guesstimate I said that the 68.30 level would act as resistance. As you can see the market reached a high of 68.27 and has since dropped.

I find myself wondering how many times crude oil and gasoline futures will discount storm damage. I think the market has set itself up for a big break once Rita is history. The 55.00 level is my downside target for the next couple of months.

 

S&P

Here is an updated hourly chart of the December S&P futures. I think the bottom of the box at 1224 will act as support. I also think we have seen the day's low already at 1220.20 and that the market will close the day above 1224. The next swing will be upward to 1268.

 

Guesstimates on September 21, 8:55 am ET

December S&P Futures: I think the market will hold support now at the bottom of the box at 1224. The next short term target is 1268.

December Bonds: I think the next big move will be upward into the 121-123 range has begun.

December 10 Year Notes: I think the move up to 116 has started.  

December Eurocurrency: The rally should stall a previous support near 122.70 and then I think the market will drop to 120.80.  A decisive move above 123.00 will convince me instead  that the rally to 126.50 is underway.

November Crude: The market broke past 67.30 resistance early this morning but the 68.30 level should halt the move up from 63.20. We should see the 55.50 level in a few weeks.

December Gold: The market is spending time above the top of its box near 469 but I still think a reaction of at least 10 to 12 dollars is likely before the up move resumes.

Google: 290 is support; upside target is 343.  

 

Greenspan Tests the Bond Market

I thought the Fed would pause in its policy of interest rate hikes. I was wrong and instead the Fed raised the funds rate 25 basis points.

This was exactly what the market was expecting. Moreover, the naive expectation after such a move would be that bond prices would fall and that interest rates would rise across the board.

So the Fed's action gives us a chance to see just how strong or weak the underlying condition of the market is. Greenspan is testing the bond market.

The hourly chart above is an updated picture of the pit trading in the December t-bond futures. The spike downward actually occurred before the Fed announcement. Since then the bonds have rallied sharply and have traded above yesterday's high. I think this action has bullish implications and strengthens my view that the market is headed up big from here. The bond market bulls have passed Greenspan's test!

 

What Will Greenspan Do?

Here is my best guess.

I think the Fed chairman is above all a politician. And politicians are inclined to be careful when there is a lot of uncertainty about the consequences of possible actions. Morever, good politicians take care to avoid blame for bad outcomes.

With this in mind I predict that the Fed will leave interest rates unchanged today. Why? There is a lot of uncertainty now about the Katrina and Rita effects on the economy. Oil prices have remained high and the last consumer confidence number was very weak. The last thing Greenspan wants is for the Fed to be blamed for a recession. And an interest rate increase in the face of these uncertainties will certainly earn such blame if indeed the economy slides into recession.

So a cautious politician would adopt a " wait and see " attitude at this juncture. This is exactly what I expect Greenspan to do today.

 

Gold

Here is an updated hourly chart of pit and electronic trading in December gold. As you can see the market exceeded the top of the box near 469 and nearly reached the 1/2 point of the next box. I do think we will see a reaction here. My best guess is that the market will drop either to 463 or to 455. In either case I expect the next leg up to carry to the top of the next box near 482.

 

Guesstimates on September 20, 8:50 am ET

S&P Futures: Support is still 1235 and the next short term target is 1268.

December Bonds: I think the next big move will be upward into the 121-123 range and that the August 8 low at 113-11 will not be broken in the meantime.  Support today is again at Friday’s low of 114-14.

December 10 Year Notes: I think the August 8 low at 109-02 will not be broken before the market moves up to 116.  Support today is again at Friday’s low of 110-16.

December Eurocurrency: The German election knocked the market through 122.70 support and I think it is now headed a full box lower to 120.80.  I still think that the market will move up at least to 126.50 before the bear market resumes.

November Crude: I think the market has made a top near 67.30 resistance and will now move below 62.50. We should see the 55.50 level in a few weeks.

December Gold: Resistance near 468 is pretty strong and I expect a reaction from here. The 455 level is support.  I think the bull market in gold has much further to go.

Google: 290 is support; upside target is 343.  

 

S&P

Here is an updated hourly chart of the December S&P futures. The market has reacted to just shy of the 1235 support level and I think it will rally the rest of the day today. Next short term target is 1268.

 

Crude Oil

In this morning's guesstimate I said that November crude oil would rally a box from its low to the 65.30 level. The updated hourly chart above shows that the market's rally has been even stronger than I anticpated, carrying prices beyond the top of the recent trading range. I think the rally will carry the market up no more than two boxes and stop shy of the 1/2 point of the current box at 67.30.

 

Guesstimates on September 19, 8:45 am ET

S&P Futures: The market is on its way to the next short term target at 1268.

December Bonds: I think the next big move will be upward into the 121-123 range and that the August 8 low at 113-11 will not be broken in the meantime.  Support today is at Friday’s low of 114-14.

December 10 Year Notes: I think the August 8 low at 109-02 will not be broken before the market moves up to 116.  Support today is at Friday’s low of 110-16.

December Eurocurrency: The German election knocked the market through 122.70 support and I think it is now headed a full box lower to 120.80.  I still think that the market will move up at least to 126.50 before the bear market resumes.

November Crude: I think the market will rally a full box from Friday’s low to 65.30 or so before the down trend resumes. We should see the 55.50 level in a few weeks.

December Gold: The market has reached 468 resistance.  The 455 level is now support and I think the bull market in gold has much further to go.

Google: 290 is support; upside target is 343.  

 

S&P

Here is an updated hourly chart of pit trading in the December S&P futures.

Yesterday afternoon I thought that support at 1235 (blue line) had been broken. But overnight the market recovered smartly back above that level so in this morning's guesstimate I said that yesterday's low was the end of the reaction and that the market was headed up to 1268, the top of the current box.

Notice that in pit trading this morning the market initially reacted back to the 1235 support level and then turned higher. This reinforces my belief that the break below 1235 was a head fake and that the bulls are now back in control.

 

Baidu Boxes

Here is an updated hourly chart of Baidu.

You can see that the market has nearly reached support at 1/2 the all time high and is not far from the bottom of its current box. I think the market will soon start to trade sideways above those levels and that the next big move will be upward.

 

Gold

Here is an updated hourly chart of pit and electronic trading in December gold futures. As you can see the market continues its march to the top of the current box near 469. I think this bull market will eventually carry above 500.

 

Eurocurrency

Here is an updated hourly chart of pit and electronic trading in the December eurocurrency futures. I think we have a "dog that didn't bark" situation here. The bond and note futures tanked today but the eurocurrency held steady as a rock. Normally when US interest rates go up one expects the eurocurrency to break in sympathy. The fact that it held steady is a bullish indication.

This is evidence that the eurocurrency is now headed back to 126.50. My guess is that such a move would accompany a rally in the bonds and notes.

 

Crude Oil

Trading in crude oil futures has shifted into the November contract so I thought I would put up an hourly chart of pit and electronic trading in November crude oil.

As is my custom I drew the price boxes at exactly the same levels they were in the October contract.

I think the short and intermediate term trends (as well as the long term trend) are down in crude oil. Short term I expect to see 60.50 in a week or two. The intermediate term downside target is 55.50.

 

Bond and Note Update

Here are updated hourly charts for the December t-bond and 10 year note futures.

I have completely misjudged the extent of the reaction from the post-Katrina highs in these two markets. However, I remain convinced that the level of bearishness at the August 8 lows together with the strength of the support at those lows will generate a move above the early June highs ( 119-23 in the bonds and 114-21 in the notes ).

Moreover, I think that the August lows of 113-24 in the bonds and 109-27 in the notes will hold.
Both these markets have dropped to box levels just above the ones which supported the August 8 lows as you can see on the charts above. I think both will turn up from here.

 

Bearish on Baidu ( What's New? )

Here is the latest column by John Shinal posted on MarketWatch. Mr Shinal seems to have a lot of confidence in the forecasts made by investment banks, at least if they are bearish ones about Baidu.com.

I think BIDU will hold above 78 and then move much higher.

 

Guesstimates on September 16, 8:55 am ET

S&P Futures: Yesterday afternoon I thought that 1235 support had been broken but in overnight trading the market moved back above 1235 and stayed there. Since I am very bullish I have to conclude that yesterday’s low at 1230.70 (December futures) will hold and that a move up to 1268 has started.

December Bonds: The bonds have traded a little below the low of their box at 115-04 but 114-24 is the worst I expect to see on the downside before a move up over 119 begins. The 121-123 zone is my target for the next couple of months.

December 10 Year Notes: The notes have traded a bit below the ½ point of their box at 110-30 but 110-24 is the worst I think we’ll see on the downside before a move up over 113 begins. The 116 level will be reached during the next couple of months.

Eurocurrency: I think the December contract will hold support at 122.75, the ½ point of its current box.. The next big swing will be upward to 126.50.

October Crude: Resistance is still 65.40 and the market is now on its way to 60.50. We should see the 55.50 level in a few weeks.

December Gold: The market is on its way to 468 and eventually much higher than that.

Google: 290 is support; upside target is 343.

 

Google

Here is an updated hourly chart of Google.

I think GOOG is headed for the 1/2 point of its current box near 292 and will then rally to 343.

 

S&P

I thought that 1235 would be support in the December futures today. But as the hourly chart above this post shows, the market has traded below that level for most of the day. I conclude that lower prices are ahead and that a drop to the bottom of the current box near 1224 is underway.

Once the market reaches the bottom of the current box I expect it to rally to 1268.

 

Crude Oil

Here is an hourly chart of pit and electronic trading in October crude oil futures. I think the market has stopped at resistance at the 1/2 point of the box near 65.40 and is now headed down to 61.50. Over the next few months I expect to see crude trade at 56.00.

 

Gold

As you can see from the updated hourly chart of pit and electronic trading in December gold the market has broken above the top of its last box at 456 and I think it is headed for the top of the current box near 469, and eventually higher than that.

Meantime I think that reactions will find support in the 452-455 range.

 

Bonds and Notes

Here are updated hourly charts of pit trading in the December t-bond futures and in the 10 year note futures.

I am bullish on both these markets and expect the t-bond futures to rally into the 121-123 range and the 10 year notes to make it close to 116 over the next couple of months.

Right now the yield curve is steepening as you can see from the fact that the notes have so far held their lows while the bonds have made new reaction lows. A steepening yield curve means that traders are once again thinking that the Fed is going to pause in its campaign for higher interest rates.

In any case I now think the bonds will drop to the bottom of their current box near 115-04 and that the notes will drop to the 1/2 point of their box near 110-30. After that both markets will resume the move up to the targets I cited above.

 

Guesstimates on September 15, 8:50 am ET

S&P Futures: The 1235 level will be support today and the market will soon move up to the top of its current box near 1268.

December Bonds: A move to 119-12 has started. The 121-123 zone is my target for the next couple of months.

December 10 Year Notes: The next swing will be upward to 113-24.  The 116 level will be reached during the next couple of months.

Eurocurrency: This morning the December contract dropped a bit below support at 122.75, the ½ point of its current box..  The next big swing will be upward to 126.50.

October Crude: The market should hold resistance at 64.40 and then resume its drop to 55.50.

December Gold: The market is on its way to 468.      

Google: 290 is support; upside target is 343.  

 

The Big Picture on September 14, 2005

Here are some longer term predictions for markets that interest me.

S&P  - Up to 1350 over the next six months.

T-bond futures  - Up into the 121-123 zone then down to 105 by late 2006.

10 year note futures  - Up to 116 then down to 104 by late 2006.

Gold  - Up to 510

Eurocurrency  - Up into the 126-127 zone then down below 100 over the next couple of years.

US Dollar index  - Up to 100 over the next year and eventually to 121 over the next several years.

Crude Oil  - Down to 55 and then below 40 over the next couple of years.

Google  - Up to 376

Baidu  - Up to 270

IBM  - Up to 108

Microsoft  - Up to 43

CME  - Up to 411

Sears Holdings  - Up to 250

 

Badiu on the Close

Shortly after this morning's open we noted that Wall Street Hates Badiu. Baidu rallied about 8 point from the open, bounced off of the 1/2 point of its current box, and then spent the rest of the session dropping to a close at 81.32. I think the market will hold the level which is 1/2 of the all time high and then head up once more. The bull market in BIDU is a long way from being over!

 

Crude Oil

Here is an updated hourly chart of October crude oil. The market has rallied past the top of its last trading box so now is making an attempt to reach the 1/2 point of the current box at 65.30. I don't think it will make it all the way there. Then it will drop to the next short term target near 60.60. I think crude will be near $56 in a month or two.

 

Nasdaq Composite Bull Market

Here is an updated weekly chart of the Nasdaq composite index. I last discussed this chart here.

The index continues to creep higher despite all the pessimism I see around me. My minimum target for this bull market is 2566 which is 1/2 the all time high of 5133. A more optimistic target is 3120 which is the 1/2 point of the range between the 2000 top at 5133 and the 2002 low at 1108. A likely " compromise " target ? How about the top of the next bull market box at 2760.

 

Eurocurrency

Trading activity has moved into the December contract in the eurocurrency futures so I thought I would show you the daily and hourly charts for the December futures. I've drawn the bear market price boxes and the rally price boxes at the same levels as they were in the September contract. This is my standard practice.

As you can see the market has dropped to the low of its current rally box and almost to the 1/2 point of its bear market box. The September contract hit both these levels. I think the eurocurrency is going to the top of its rally box or even to the top of its bear market box from here. Then the bear market will resume.

 

Wall Street Hates Baidu

It seems that Baidu's underwriters have initiated coverage with very negative reports on the stock. As you can see in the hourly chart above BIDU is now down 36 points from yesterday's intraday high.

My own view is that the people selling near today's open at 87.22 are going to be very sorry they did. Baidu is heading much higher from here.

P.S. For those who love conspiracy theories I might add that I would give odds that Goldman's proprietary traders are loading up with Bidu as I write this!

 

Guesstimates on September 14, 8:45 am ET

S&P Futures: The 1235 level will be support today and the market will soon move up to the top of its current box near 1268.

December Bonds: A move to 119-12 has started. The 121-123 zone is my target for the next couple of months.

December 10 Year Notes: The next swing will be upward to 113-24.  The 116 level will be reached during the next couple of months.

Eurocurrency: I think that 122.75, the ½ point of the next box, will hold.  The next big swing in the September contract will be upward to 126.50.

October Crude: The market should hold resistance at 64.40 and then resume its drop to 55.50.

December Gold: The market is on its way to 468.      

Google: 290 is support; upside target is 343.  

 

Baidu Update

Here is an updated hourly chart for BIDU, Baidu.com.

The shorts have been severely punished the past week and I think there is a lot more blood-letting to come. BIDU is hesitating at the top of its current box. I don't think the market will drop any lower than 101 before it moves to the 1/2 point of the next box near 133.

 

Gold

Here is a highly compressed hourly chart showing pit and electronic trading in December gold for the past month or so.

The market has reacted to the 1/2 point of its current box. I think the upside potential from here is big (468 and higher) so I expect the market to hold 448 and head up to the 1/2 point of the next box near 461. If I am wrong then we will see a drop to the bottom of the current box first, near 443, but then the market will head up from there.

 

Bonds and Notes

Here are updated hourly charts showing pit trading in the December t-bond futures and the 10 year note futures. I think the bonds are headed for the 121-123 range during the next month or two and that the notes will reach the 116 level.


Meantime my best guess is that the drop from post-Katrina top is complete. The bonds will hold support at the 1/2 point of their box near 115-28 and the notes will hold support near the 1/2 point of their box near 110-30.

 

S&P Reaction

The December S&P futures have dropped a bit from the pit high of 1250.30 on September 9. In this morning's guesstimate I said that the market would hold 1240. It has dropped a bit more than this but the biggest reaction since the Katrina low on August 29 has been a little less than 14 points. So a drop this big would end around 1237, the horizontal blue line on the hourly chart above.

I conclude that the current reaction is within normal bounds and that the market is about to turn higher and head for the top of the box at 1268.

 

Guesstimates on September 13, 8:50 am ET

S&P Futures: The 1240 level will be support today and I don’t think a break of more than 12 points is likely until the top of the box near 1268 is reached.

December Bonds: A move to 119-12 has started. The 121-123 zone is my target for the next couple of months.

December 10 Year Notes: The next swing will be upward to 113-24.  The 116 level will be reached during the next couple of months.

Eurocurrency: I think that 122.75, the ½ point of the next box, will hold.  The next big swing in the September contract will be upward to 126.50.

October Crude: The market should hold resistance at 64.40 and then resume its drop to 55.50.

December Gold: The market is on its way to 468.      

Google: 290 is support; upside target is 343.  

 

Eurodollars

Here is a daily chart of the March 2006 three month eurodollar contract. The bottom of the current bear market box stands at 95.73 but I don't think the market will make it even that low before rallying to the top of the box near 96.20.

Evidently traders who were convinced that there would be a " Katrina " pause in the Fed's program of raising short term rates have had second thoughts. But I think they are the yo-yo at the end of the market's string and will soon be reeled in by the next rally.

 

Piling On !!

Not to be outdone by David Brooks, or Business Week and The New York Times, the Economist Magazine has chosen to "pile on" the pathetic and incompetent ol' US of A. Their September 10 edition has the cover you see above this post with the caption "The Shaming of America". If you have doubts that the media is the biggest herd and source of groupthink on this planet this story will remove them.

 

Crude Oil

Here is an updated hourly chart of October crude oil. You can see that it has reached the bottom of its current box. I think the market is likely to rally to the top of the box and then resume its drop to 55.00.

 

Gold

Here is an updated hourly chart of December gold futures covering both pit and electronic trading. You can see that overnight the market bounced off the top of its current box near 456, the level that the future last reached in mid-August. I think gold is headed much higher from here. Short term the next stop will be near the top of the next box near 469.

 

Eurocurrency

I still think the eurocurrency is headed over 126.00 before this bear market rally ends. As you can see on this updated hourly chart for the September futures, the market has dropped to the 1/2 point of its current box near 122.75. It is going up from here.

 

Baidu.com

Here is an updated hourly chart of Baidu.com. I am sticking with my long term target of 270 for BIDU. Together with Google it is leading the market averages higher and this is a sign of technical strength. As you can see BIDU is approaching the top of its current box at 112 but I think the market will react at worst to the 1/2 point at 92 from there. Frankly, I doubt any rection will go below 98.

In any case the subsequent short term upside target will be 132, the 1/2 point of the next box. From there we will probably see a more substantial reaction.

 

The Plunge Protection Team

Amidst all the gloom and doom (like this and this) Peter Brimelow brings us some comic relief. Mr Briemelow reports in all seriousness that reliable sources tell of a group of investment banks, backed by the Federal Reserve, which leaps into the breach and buys - buys -buys every time the stock market is in danger of a plunge. How these guys know that the market is about to plunge beats me, but I guess that's why they have more money than I do!

I first heard about this all-powerful cabal of stock market manipulators during the 2000-2002 bear market. Everytime the market rallied 20 % the bears would chorus that the "plunge protection team" was at work. The implication of course was that the natural course of prices was downward and that rallies were purely artificial - despite the damage they did to the shorts' pocket books.

Now I again am hearing about the " plunge protection team ". Here is my interpretation of this particular fantasy. When someone tells you the plunge protection team is at work you can safely draw three conclusions. First he is bearish on the stock market while it has rallied. Second he either has been mostly in cash or worse, short, during the rally. Third, he doesn't want to take personal responsiblity for his misjudgement - he is still smarter than the bulls but that nasty plunge protection team is trying to send him to the poorhouse.

I don't think people who fantasize about the " plunge protection team " are grounded enough in reality to be successful speculators.

 

Guesstimates on September 12, 9:15 am ET

S&P Futures: The 1240 level will be support today and I don’t think a break of more than 12 points is likely until the top of the box near 1268 is reached.

December Bonds: I still think that support at the ½ point of the current box near 115-28 will hold and that a move to 119-12 has started. The 121-123 zone is my target for the next couple of months.

December 10 Year Notes: The market broke below the bottom of the box at 111-12 early this morning but I don’t think it will drop below the ½ point of the next box at 110-28.  The next swing will be upward to 113-24.  The 116 level will be reached during the next couple of months.

Eurocurrency: Support for the September eurocurrency at 123.70 failed late last night but I do think that 122.75, the ½ point of the next box, will hold.  The next big swing will be upward to 126.50.

October Crude: Support today is at the bottom of the box near 64.40.  I think the market is headed for 55.50 over the next few weeks.

December Gold: The market is on its way to 468.      

Google: 284 is support; the next move up will reach 343.  

 

All Disaster, All the Time

Hurricane Katrina appears to have been quite a blow to the collective psyche of the USA. Of course one expects the cable and network tv stations and the print media to wallow in disaster news and commentary. It helps their ratings. But during the past week both Business Week Magazine and the New York Times Magazine have lept off the cliff of reality into the abyss of paranoid fantasy.

Here is today's cover story in the New York Times Magazine. It is entitled " Is Bin Laden Winning ? " and subtitled " Taking Stock of the Forever War " . Only the editors of the New York Times would print such a story to commemorate the 4th anniversary of September 11, 2001. They want to encourage defeatist thinking and deepen the pessimism felt by many Americans about the War on Terror and Islamo-facism.

Even worse is the cover story in latest issue of Business Week Magazine. It is entitled "The Next Big One" and fantasizes about the terrible consequences of a major earthquake in California, an outbreak of an exotic flu in Chicago and a dirty bomb attack on New York City. Come on guys, get a grip! At least the New York Times story had a little factual basis!

I imagine that the next issue of the NYT Magazine will carry a cover story entitled "Comet to Hit Earth (sometime in the future - maybe)".

I think these kind of "stories" both reflect a deep rooted public pessimism and encourage it. And pessimism makes itself felt in the economic arena. The stock market nonetheless is doing well although people don't seem to be enjoying it, the associated strong economy or life in general. I don't think we will see an important top in the stock market or the economy until this veil of gloom lifts !

 

Sears Holdings

Here is an updated daily chart of Sears holdings.

In my last post on SHLD I said that I expected the low at 131, a little above the low of the box at 126. The market dropped past my target but did stop at the box low. I think SHLD is headed up from here. In a couple months it should be back at the top of the current box near 150 and will make new highs above 165 before the bull market ends.

 

Eurocurrency

Here is the hourly chart of theSeptember eurocurrency.

I think that the reaction is over and that the market is now headed for the 1/2 point of the next box near 126.50. I think the bear market will resume from a high in the 126.50 to 127.50 zone.

 

S&P

The December S&P futures have moved above the 1/2 point of the current box as you can see from the updated hourly chart above.

I think that the uptrend from the " Katrina " low is still strong so I don't expect more than a 10-12 point break as the next reaction. The market rallied 27 points during the interval separating the previous two 12 point reactions. At the 1250 level it has again rallied 27 points from the end of the last 12 point reaction so another break of that size now would be normal. I don't expect anything bigger until the top of the current box near 1268 is reached.

 

Google Boxes

Here is the updated hourly chart for Google.

The market has moved decisively above the 1/2 point of its current box near 292 and I expect it to reach the top of the box near 318 in a couple of weeks. The next target after that will be the 1/2 point of the next box near 343. I think GOOG will rally at least to 376 during the next 6-9 months.

 

Baidu Boxes

Here is an updated hourly chart of Baidu.com.

As you can see the market held support at the bottom of the current box which was not far from the very strong support level at 76.50, half the all time high. BIDU is heading for the 1/2 point of its box near 93. I observe that Google and Baidu are leading the averages higher - both made their reactions lows a few days before the " Katrina " low in the averages and have rallied since then. This is a sign of technical strength and I am sticking with my wild-eyed 270 target for BIDU, a level which should be reached within the next 6-9 months.

 

Guesstimates on September 9, 8:50 am ET

S&P Futures: A rally to 1268 has begun.  Support today is at 1230.

December Bonds: I think that support at the ½ point of the current box near 115-28 will hold and that a move to 119-12 has started. The 121-123 zone is my target for the next couple of months.

December 10 Year Notes: Support at the bottom of the current box near 111-12 will hold and the next swing will be upward to 113-24.  The 116 level will be reached during the next couple of months.

Eurocurrency: I expect the September eurocurrency to hold support at 123.70 and then rally to 126.50.

October Crude: Resistance is at 65.30 and I think the market is headed for 55.50 over the next few weeks.

December Gold: The market is on its way to 468.      

Google: 272 is support; the next move up will reach 343.  

 

Hulbert Sees a Wall of Worry

As you know from my recent contrary opinion posts I think there is a lot of bearish sentiment about stocks and that this has bullish implications for the market averages.

Here is link to a Mark Hulbert column on MarketWatch. Hulbert offers some statistics which lead him to conclude there is indeed a Wall of Worry out there that the market is preparing to climb.

 

Switch to December S&P

Today trading activity switched to the December contract in the S&P futures. This contract trades about 6 points higher than September.

Above is an updated hourly chart of pit trading in the December S&P. You can see that yesterday's high at 1243.80 was just short of the 1/2 point of the current box at 1246. On the way up from the "Katrina " low we have had two reactions 0f 11 to 13 points. So I conclude that the drop from yesterday's high in the December contract will not go lower than 1230 before the market resumes its move up to the top of the box near 1268.

 

Guesstimates on September 8, 8:45 am ET

S&P Futures: A rally to 1268 has begun.  Support today is at 1224.

December Bonds: I think that support at the ½ point of the current box near 115-28 will hold and that a move to 119-12 has started. The 121-123 zone is my target for the next couple of months.

December 10 Year Notes: Support at the bottom of the current box near 111-12 will hold and the next swing will be upward to 113-24.  The 116 level will be reached during the next couple of months.

Eurocurrency: I expect the September eurocurrency to hold support at 123.70 and then rally to 126.50.

October Crude: Resistance is at 67.20 and I think the market is headed for 55.50 over the next few weeks.

December Gold: The market is on its way to 468.      

Google: 272 is support; the next move up will reach 343.  

 

Eurocurrency

As you can see from this updated hourly chart of the September eurocurrency futures the market didn't hold support at 124.65. I think it will reach the bottom of its current box at 123.70 before it turns higher. I still expect the market to rally to 126.50 and probably higher than that before the bear market in the euro reasserts itself.

 

Crude Oil

Here is an updated hourly chart of October crude oil.

The market is even weaker than I expected it to be and has dropped decisively below the 65.00 support level. I think it is heading for the 3/4 division point of the 9.75 to 70.80 historical range which is at 55.50.

You can see that the two biggest rallies we have seen since the 70.80 top were about $2.00 each so the next time the market rallies $1.50 to $2.00 it should halt and turn lower.

 

Bonds and Notes

Here are updated hourly charts of the December t-bond and 10 year note futures.

The reaction from last week's highs has been deeper than I expected, but then it is always hard to predict the extent of reactions against the trend. My policy is to expect smaller reactions rather than big reactions as long as the trend potential is still great. That way I won't be on the sidelines if the market is even stronger than I expect.

I think this reaction will now carry the bonds down to the 1/2 point of their current box near 115-28. The notes should drop to 111-12, the bottom of their current box.

This reaction does give me a chance to make another box estimate of the tops I expect to see in the bonds in the 121-123 range and in the notes near 116.

The bonds moved up from 113-24 to 118-10, a total of 4 points and 18 ticks. Adding this to the high at 118-10 gives 122-28 as the top of the intermediate term box. The notes moved up from 109-27 to 112-20, a total of 3 points and 25 ticks. Adding this to 112-20 gives an upside projection of 116-13.

 

Guesstimates on September 7, 8:45 am ET

S&P Futures: A rally to 1268 has begun. Support today is at 1224.

December Bonds: The market has dropped below support at 117-08 so a move to the bottom of the current box near 116-20 is underway. The 121-123 zone is my target for the next couple of months.

December 10 Year Notes: Support at 111-30 was broken and I now expect the notes to drop to 111-16 before the rally to 116 can resume.

Eurocurrency: I expect the September Eurocurrency to hold support at 124.65 and then rally to 126.50.

October Crude: A bounce from support near 65.00 is likely but the market should rally no further than 67.20.

December Gold: The market is on its way to 468.

Google: 272 is support; the next move up will reach 343.

 

Eurocurrency

Here is an updated hourly chart of the September eurocurrency futures.

I think the market has held support near the 1/2 point of its current box at 124.65 and will soon rally the the 1/2 point of its next box near 126.50.

 

How Far Up ?

The key to forecasting markets is to find the right analogy to the current situation.

I think that the " Katrina " low in the S&P futures at 1194 on Sunday night, August 28, was a low comparable to the August 2004 low and the April 2005 low in the S&P. Of course the market dropped 103 points into its August 2004 low and 93 points into its April 2005 low but only 53 points into its August 28 low. However, my reading of the market's sentiment is that the level of bearishness at last week's low was pretty much the same as at the previous two lows I cited so I feel pretty comfortable with the comparison.

If I am reading things right (and I always believe I am !) then the rally from the " Katrina " low should be comparable to the rallies from the previous two lows. From the August 2004 low the market rallied 16% over7 months while from the April 2005 low the market rallied 10% over 3 1/2 months. So using these precedents I expect the next top of significance in the S&P to occur somewhere between 1313 and 1385. A 3 1/2 month rally would end in mid-December, quite near my current Lindsay Three Peaks and a Domed House projection. A 7 month rally would carry the market up until next March.

 

S&P

I think I see a decisive breakout above the top of the last box at 1224 in the hourly chart of the September S&P futures above this post.

This means that the market should soon reach the 1/2 point of its current box near 1246 and that meantime the 1224 level is now support.

 

Crude Oil

Above this post is an updated hourly chart of October crude oil.

I think a bear market has started in crude oil and will probably carry the market to the bottom of its current long term box near $40 over the next couple of years.

Meantime I think the market will drop to roughly 65.00. a bit below the 1/2 point of its current box near 65.40, and then rally a couple of dollars before heading lower again.

 

Guesstimates on September 6, 8:45 am ET

S&P Futures: A rally to 1268 has begun.  Support today is at 1218.

December Bonds: The market has stalled at the top of its box at 117-30 and support is at the ½ point near 117-08.  I think it will rally above 119-00 before any break of more than a point occurs. A move into the 121-123 zone is underway.

December 10 Year Notes: Support is  at 111-30. The market will trade above 114-00 before any reaction of as much as a point occurs. The 116 level will be reached in a month or two.

Eurocurrency: The market stalled temporarily at 125.60 but is holding support at the ½ point of its box at 124.65.  Next stop is 126.50.

October Crude: There is very strong resistance in the 70.00 to 70.50 zone. Last night the market again bounced off the bottom of its box at 66.30 but I don’t think it will go above the top of the box at 68.20 before dropping well below 66.00.

December Gold: The market is on its way to 468.      

Google: 272 is support; the next move up will reach 343.  

 

"The Bursting Point" - More Gloom and Doom

In "The Bursting Point", his op-ed column in the September 4 New York Times, David Brooks asserts that "confidence in civic institutions is plummeting ". He tells us that the "national humiliation" arising from Katrina and its aftermath "comes at the end of string of confidence-shaking institutional failures that have cumulatively changed the nation's psyche ". Brooks writes that each such failure " is another blow to national morale " and that "[t]he sour mood builds on itself, the outraged and defensive reaction to one event serving as the emotional groundwork for the next ".

"As a result, it is beginning to feel a bit like the 1970's, another decade in which people lost faith in their institutions and lost a sense of confidence about the future. "

YIKES!!!!

I think Mr. Brooks spends way too much time in Washington D. C. and in New York City. But I also think his views are typical of many elite opinion leaders in the USA.

I do not believe that this is the sort of commentary that accompanies bull market tops. My conclusion: the long term trend in stock prices remains upward - stay long!

 

The New York Times Predicts the Past

It is easy to predict the past. Once we know what actually happened it is easy to construct a logical argument which shows how anyone could have predicted it. This is called hindsight bias. In American football it is called Monday Morning Quarterbacking.

I don't have much respect for people afflicted with hindsight bias. They delude themselves and others into believing certain events could easily have been forseen because they are good at exercising 20-20 hindsight, i.e. good at predicting the past. Inevitably, they are totally incapable of actually predicting events before they happen.

The EU Rota blog has done a comic send up of The New York Times lastest effort to predict the past. In its September 3 editorial, "Katrina's Assault on Washington", the NYT claims that Katrina was a ".. natural disaster everyone knew was coming". The Times asks us to believe that the Department of Homeland Security should have known Katrina was going to hit New Orleans and should have prepositioned relief forces and supplies so they would have been available as soon as the hurricane hit.

EU Rota does a great job of demolishing this NYT foolishness. Check out its screenshots of the weather forecasts of Katrina's predicted paths and its hilarious shot-by-shot commentary. The bottom line is that it was only on August 28, the day before the hurricane hit New Orleans, that there was any certainty about where it would make landfall. Prior to that the entire area from the Florida panhandle through Alabama and Mississippi was endangered. Should Homeland Security have prepositioned supplies everywhere and evacuated the entire southern coast of the USA?

And, like EU Rota, I wonder why the New York Times didn't run an editiorial on August 23 or 24 or 25 demanding the evacuation of New Orleans and the immediate dispatch of relief supplies to the area to alleviate the effects of the "disaster that everone knew was coming?" I think we all know the answer to that one!

 

Katrina and Crude Oil

In a post a few day's ago I discussed Katrina's significance for the stock market. In this post I want to make a few observations about Katrina's significance for the markets in crude oil and gasoline.

We are in a textbook situation for contrary opinion aficionados. First, the New York Times Magazine and The Economist both published cover stories within the last couple of weeks declaring that the oil market is in crisis and that there is a real danger that prices will go through the roof. This is proof postitive (if you needed any) that sentiment in the oil and gasoline markets is extremely bullish.

Then on August 29 hurricane Katrina devastated the southern coast of the USA with the greatest damage centered around the city of New Orleans. All the nation's news media have been filled with disaster stories this past week. In addition, there has been much commentary on Katrina's likely effects on the crude oil and gasoline markets. This was a true supply shock and the natural conclusion is that prices can only head higher from here.

Hurricane Katrina is what I like to call a crystallizing event. It is an event (not a theory or prediction) which people can point to as a logical reason why the market (for crude and gasoline in this instance) must move in a certain direction (up).

But is that dog barking?

Crude oil futures reached their high points Sunday night, August 28. Since then the market has trended sideways despite the apparent supply shock of the hurricane. Gasoline prices did indeed go up dramatically early this week but by Friday were trading only about 10 cents higher than they were last Sunday night.

In my judgement that dog didn't bark, despite the overwhelming media attention to the potential problem. This confirms my conviction that crude oil and gasoline prices will only move lower from here.

 

Crude Oil

I think October crude oil is headed for the 1/2 point of the next box at 65.30 over the next trading day or two and ultimately much lower than that.

 

Eurocurrency

Here is an updated hourly chart of the September eurocurrency futures. As you can see the market reached my 125.60 target in electronic trading this morning. I see no sign that this market will stop here so it makes sense to expect a continuation of this move to the 1/2 point of the next box near 126.50.

 

Guesstimates on September 2, 9:10 am ET

S&P Futures: A rally to 1268 has begun.  Support today is at 1218.

December Bonds: The market has stalled at the top of its box at 117-30 and support is at the ½ point near 117-08.  I think it will rally above 119-00 before any break of more than a point occurs. A move into the 121-123 zone is underway.

December 10 Year Notes: Support is  at 111-30. The market will trade above 114-00 before any reaction of as much as a point occurs. The 116 level will be reached in a month or two.

Eurocurrency: The market will stall temporarily at 125.60.

October Crude: There is very strong resistance in the 70.00 to 70.50 zone and I think the market will drop below 66.00 in a few days.

December Gold: The market is on its way to 468.      

Google: 272 is support; the next move up will reach 343.  

 

S&P

I think the S&P is in the early stages of an uptrend which will carry it to 1350 or so by the end of the year. Here is an updated hourly chart of the September futures.

The market held support at the 1/2 point of the current box at 1202 and has now stalled at the top of the same box near 1224. How big a reaction might one expect from today's high at 1228.50?

My first guess at an answer comes from looking at the previous reaction in this uptrend. It carried the market down about 13.50 points from a high at 1215.50 on August 29. So I would guess that the biggest reaction we are likely to see would be 13.50 points down from 1228.50 or down to 1215. But I also know we are in the early stages of an uptrend. I would expect the market to get stronger from here, not weaker, and thus that the second reaction will be smaller than the first reaction.

So my conclusion is that the reaction down from 1228.50 probably ended at 1218.70 and that the market won't get as low as 1215. Next upside target will be the 1/2 point of the next box near 1246.

 

A Fed Pause and Its Likely Consequences

During the past 4 days the March 2006 three month eurodollar futures have rallied almost 50 basis points. This means that the market is expecting the Fed to halt its program of raising short term interest rates.

During the past 18 months the stock market has been flat to slightly higher even as the fed has raised short term rates almost 300 basis points. The last time this happened was in 1994. The last Fed increase was in March 1995 as I recall but the stock market started its upward explosion in December of 1994.

I expect a similiar outcome now. The only difference will be that the Fed halt will be only a temporary one. Once the market sees strong economic growth in 2006 it and the Fed will move toward higher rates all along the yield curve. But in the meantime, the bond and stock markets will move towards significantly higher prices.

 

Katrina and the Stock Market

No question that hurricane Katrina is a terrible disaster which is affecting millions of people near the south coast of the USA. The damage is enormous and the transportation routes that ran through the port of New Orleans have been severed. Oil and gasoline production in the US has been reduced and no one can predict with much confidence the effects this will have on petroleum prices.

Granting all this, it is important to keep in mind that a speculator's job is to predict the future, not the past. My observation is that important lows in stock prices are often accompanied by specific and usually frightening events in the economy or in world affairs: bankruptcies, wars, terrorist incidents, natural disasters, etc. These events serve to crystalize bearish sentiment in stock market and shake out the weakest of the longs, the people who sell when they read scary headlines in the newspaper. Once the news has forced these sellers to act, the way is cleared for a big move upward.

I think the current situation is no different. Newspaper headlines are screaming disaster, as is cable and network tv. When the media devote any space to economic events, they talk about reduced gdp growth, high and rising gasoline prices (even shortages!), the weakest Chicago purchasing managers' report in 3 years, etc.

With all this bearish stimulus I am asking myself "Is that dog barking?" In other words, the media are ecouraging people to sell stock, so is the market dropping? Clearly the answer is no. This tells me that that dog isn't barking and that a big uptrend is underway in stocks.

 

Guesstimates on September 1, 9:10 am ET

S&P Futures: A rally to 1268 has begun.  Support today is at 1209.

December Bonds: The market has stalled at the top of its box at 117-30, but I think it will rally above 119-00 before any break of more than a point occurs. A move into the 121-123 zone is underway.

December 10 Year Notes: The market will trade above 114-00 before any reaction of as much as a point occurs. The 116 level will be reached in a month or two.

Eurocurrency: The market has held  support at 121.70 and is no its way to 125.60.  

October Crude: There is very strong resistance in the 70.00 to 70.50 zone and I think the market will drop below 66.00 in a few days.

December Gold: The market should hold the 436 level, the bottom of its current box.  The next step up will carry to 468.      

Google: 272 is support; the next move up will reach 343.