Sunday, July 31, 2005

Three Peaks and a Domed House



A couple of months ago I explained in this post, Three Peaks and a Domed House in the Dow , how the movements in the Dow industrials over the past 18 months can be interpreted as an example George Lindsay's Three Peaks and a Domed House formation. I'd like to update my thinking on this situation now.

The first chart you see above this post is a schematic which illustrates the standard example of a three peaks and domed house formation. Lindsay once estimated that the Dow was in the midst of such a formation roughly 60% of the time over the 120 years of stock market history he had examined. Major examples of the formation typically last 20-24 months from start to finish, so if you can recoginize one in its early stages you have a good market roadmap for the next year or two.

Right now I see two simple interpretations of the Dow's movements since February 2004 as a three peaks formation.

In the first interpretation black numerals match points on the weekly chart of the Dow you see above to the corresponding points in the schematic. The three peaks, labeled 3, 5 and 7, occurred between February and September 2004. This was a 6 1/2 month time span and qualifies this as a "major" three peaks formation. Point 10 occurred in October 2004 and Lindsay's "five reversals" are labeled 15 - 20. If this interpretation is correct then the Dow has begun a rally to the domed house house which will look a bit like a classic "head and shoulders" and eventually carry the labels of points 21 - 25.

In this interpretation there is no obvious point 14 (and hence no black numeral 14). In such a case Lindsay was willing to count the 7 month 10 day time period beginning from one of the lows within the five reversals. This would predict that point 23 or point 27 will come sometime between September 2005 and February 2006. The peak of the current bull market would thus be due during that time.

The second interpretation uses red numerals to match points in the Dow chart to points in the schematic. I like this interpretation better because it contains a very clearly identified point 14, the low of May 13. Counting forward 7 months and 10 days we arrive at Demember 23 as the likely time for point 23, the peak of the domed house.

Both interpretations say the the top of the current bull market is due sometime between September 2005 and February 2006. At what level might the top occur? To make a guess at this we work backwards using Lindsay's theory as a guide.

Lindsay pointed out that after the completion of the domed house the Dow generally drops to roughly the level of the correponding point 10, in this case either the 9700 level or the 10000 level. I think this drop will occupy most of 2006. If this drop amounts even to only 20% and goes to 9700, the intervening high in the Dow (point 23) should be above 12000.

Friday, July 29, 2005

Google


In my last post on Google I predicted that the 1/2 point of the current box at 292 would hold and that the market would then take GOOG up to 343.

Today GOOG has traded well below 292 so I must conclude that it is headed for the bottom of its current box near 267. Once this level is reached I expect GOOG to turn upward again and rally to 343.

Bond and Note Update



In this morning's guesstimate I said that the September T-bond and 10 year note futures should have only modest reactions before continuing the uptrend that began from last week's lows. The updated hourly charts you see above show that I was wrong about this.

The steep reaction that has developed is bigger than the first reaction and this tells me that the original estimates of rally boxes I posted here are wrong (not an unusual event early in a trend). My best guess now is that yesterday's high defined the top of the first rally box.

In any event I think that today's negative reaction to the GDP news, consumer sentiment numbers and Chicago purchasing manager's report is simply giving weak longs an excuse to sell and encouraging the bears to short more. I think this is strengthening the bullish technical condition of the market and that prices will move generally higher next week.

In the meantime I think that the 115-04 level in the bonds and the 110-30 in the notes will again prove to be strong support and be worst we see on the downside.

Guesstimates on July 29, 8:50 am ET

S&P: The market will hit 1257 in a couple of days; meantime 1232 is support.

Bonds: The market has nearly reached 116-18. I think it will hold support at 116-02, the top of the first rally box andthen move to the top of the first rally box near 116-26 before a more substantial reaction begins.

10 Year Notes: Should hold support is at 111-13 and rally to 111-26 to 111-28.

Eurocurrency: Will hold support is at 120.90 and next step up should carry to 122.80.

September Crude: Support is at 59.70 and upside target is 62.10.

Gold: Support is at 420 and next upside target is 436 and 450 after that.

Google: 292 is support and the next move up will reach 343.

Thursday, July 28, 2005

Crude Oil


As you can see from the updated hourly chart of September crude oil shown above the market has bounced three times off of resistance at 59.70. But a now on its fourth try it is accelerating above that level. I have to conclude that September crude is headed for the top 0f the box at 62.10. The contract high was 62.90.

Bonds and Notes



Here are updated hourly charts of the September T-bond and 10 year note futures showing only the pit trading activity. I have superimposed purple lines showing my current estimates of the box postions for the upmove which I think is just beginning. These boxes are relatively small, only 38 ticks in the bonds and 18 ticks in the notes, so it won't surprise me if I have to enlarge them later.

In any case I think the initial move in both markets will be to the 1/2 point of the second purple box, about 116-18 in the bonds and 111-26 in the notes. This would be classic box behavior at the start of a rally. The next break will probably be a single purple box deep when it starts.

Remember that I expect the bonds to trade into the 121-123 range and the notes to 116 over the next few months. My 2005 bond forecast predicted a top for August but right now it looks like this top will be delayed a bit.

Creeping Higher


Here is a daily chart of the cash S&P. It shows my estimate of the bull market boxes that started from the 768 low in October 2002 and are 186 points high.

I think the market is on its way to the top of the current box near 1320. In fact I suspect that the 1/2 point of the next box around 1415 may well be seen before the next bear market sets in.

In any event, the market continues to creep higher. I think the lack of activity at new highs for the bull market shows continuing skepticism about the uptrend. Certainly the technical analysts I know keep trying to short the market based on the various divergences they see now.

I don't think we'll see an important top until volatility and volume increase dramatically. My best guess is that this will happen over the next few months as investors start to fear being left behind by rising prices.

Guesstimates on July 28, 8:50 am ET

S&P: The market will hit 1257 in a couple of days; meantime 1227 is still support.

Bonds: The market Will hold the low of its current box at 115-04 and then rally to begin a move 116-18.

10 Year Notes: will hold 110-30 and then rally to 111-26.

Eurocurrency: will hold support is at 119.90 and then rally into the 125-126 range.

September Crude: Trading below resistance around 59.70 and the next move will be to 54.70, the 1/2 point of the next box.

Gold: Support is at 420 and the market has now started a move to 450.

Google: 292 is support and the next move up will reach 343.

Wednesday, July 27, 2005

Google Posts

Here is an index of the posts I have made on Google and Baidu.com :

POSTS IN 2007

Google and Baidu - October 9
Baidu - September 19
Google - July 10
Baidu - July 10
Baidu.com - March 7
Google - March 7
Google - February 7
Baidu.com - February 2
Google - February 2
Google - January 24
Google - January 22
BIDU - January 12

POSTS IN 2006

Baidu - November 21
Google - November 21
Google - November 2
Baidu - November 2
Google - October 23
Google - October 20
Google and Fibonacci - September 26
Baidu - September 26
Google - August 2
Baidu - August 2
Google and Fibonacci - July 26
Google - June 28
Baidu - June 7
Google - June 7
Baidu - June 2
Google - June 2
Google - May 16
Baidu - May 16
Baidu Update - May 12
Baidu - May 11
Google - May 11
Baidu - May 10
Baidu.com - May 5
Google - May 1
Google - April 25
Google - April 21
Google - April 10
Google - April 7
Google - April 5
Google - March 31
Google - March 29
One More Nail - March 24
Google - March 16
Google - March 15
Google - March 14
Google - March 13
Google - March 10
Google - March 9
Google - March 8
Google - March 7
Google - March 3
Google - March 2
Google - February 28
Google - February 27
The Google Test - February 16
Google - the Sinking Ship? - February 13
Google - February 8
Gagging on Google - February 1
Baidu - January 30
Google - January 26
Google - January 24
Google - January 23
Google Update - January 20
Google - January 20
Google - January 18
Google - January 11
Calm Before the Storm - January 9
Google - January 4

POSTS IN 2005


Google - December 21
Google Update - December 19
Google - December 19
Google - December 12
Google - December 8
Google - December 5
Google - November 29
Baidu - November 16
Google - November 16
Google - November 7
Google - October 31
Baidu - October 25
Baidu - October 21
Google - October 21
Google - September 28
Baidu.com - September 28
Baidu Boxes - September 16
Bearish on Baidu ( What's New? ) - September 16
Google - September 15
Baidu on the Close - September 14
Wall Street Hates Baidu - September 14
Baidu Update - September 13
Baidiu.com - September 12
Baidu Boxes - September 9
Google Boxes - September 9
Bad Mouthing Baidu - August 27
Going Up From Here - August 24
New Baidu Boxes - August 23
Bye Bye Baidu ? - August 22
More Fun With Baidu - August 18
Another Googlestimate - August 18
Borrowing Baidu.com - August 15
Google - August 11
Fun With Baidu.com - August 9
Google - August 9
Baidu, Baidu - August 8
Google - August 2
Google - July 29
Google Boxes - July 27
Google - July 19
Google - July 12
Google Price Boxes - July 5
Laughing at Google - June 26
Googlestimate - June 23
Google - June 15
Squawk Blog Makes Fun of Google - June 13
Google Update - June 12
Is Google Overpriced? - June 8
Google's Next Reaction - May 30
Google on May 25 - May 25
Google on May 18 - May 18
How High Can Google Fly - April 25
The Story of Google - April 22

Gold


Here's an hourly chart of August gold showing both pit and electronic trading.

You can see that the market rallied back above the 1/2 level of its current box, then dropped back to that level and has now started to accelerate upwards. This tells me that the market is headed for much higher prices.

Why 125 - 126 ?


I have been predicting a rally in the eurocurrency into the 125-126 range. I thought you might be interested in the reasoning behind this projection.

In this post I explained why the eurocurrency would probably start a big rally. In the daily chart above for the September futures I have drawn the bear market boxes down from the 136.87 high of last December 31 in red. In purple I have drawn what I think will be the boxes controlling the rally from the recent 119.00 low.

The most basic idea is that the rally should be similar in extent to the last big rally which carried the market up 773 ticks from 127.37 to 135.10. Adding 773 to 119.00 we get 126.73, just below the February 7 low at 127.37 which is itself a natural resistance level. Note also that a halfway retracement of the drop from 135.10 to 119.00 would carry the market up to 127.05.

I estimate that the boxes for this rally are 387 ticks high. The top of the second box is therefore at 126.74, just a tick above the 126.73 projection described in the last paragraph. I think this is the upper limit on any rally.

But the drop from 125.10 to 119.00 was bigger than the first drop of the bear market from 136.87 to 127.37. So I would not expect this rally to go as far as the first 773 tick rally. If it doesn't then a logical stopping point would be the 1/2 division of the next higher rally box. This is the 124.80 level.

So I am confident that the market will move up at least to 124.80, probably past it, but the market will not reach the outer rally limit of 126.73. Thus 125-126 seems a good ballpark estimate to me.

Google Boxes


I think speculation is at least as much art as it is science. This is clear to anyone who applies box theory to calculate support and resistance levels. Box positions are usually obvious in retrospect, but you can't make money by predicting the past. Profits can only be earned by making educated guesses about the future where nothing is obvious or easy.

With this in mind I have been mulling over the box situation in Google. The hourly chart above shows my new estimate of GOOG boxes which are 50.37 points high. I like this estimate principally because the 1/2 point of the current box (red dashed line) seems to be true "center of gravity" for the past 7 weeks.

I have been saying that support in GOOG is at 280, but now I think that the market is unlikely to drop much below this 1/2 level at 292. If I am wrong about this then a drop all the way to the bottom of the current box near 267 will become likely.

In any case I now think that the next upswing in GOOG will probably carry to the 1/2 point of the next box near 343.

Guesstimates on July 27, 8:55 am ET

S&P: The market will hold above 1227 and then move up to 1257 this week.

Bonds: The market will hold the low of its current box at 115-04 and then rally to begin a move 116-18.

10 Year Notes: Will hold 110-30 and then rally to 111-26.

Eurocurrency: Will hold support is at 119.90 and then rally into the 125-126 range.

September Crude: Hit resistance around 59.70 yesterday and now will move to the next downside target, the 1/2 point of the next box at 54.70.

Gold: Support is at 420 and the market has now started a move to 450.

Google: 280 is support and the next move up will reach 327.

Tuesday, July 26, 2005

Bullish Bond Boxes


Here is a daily chart of the September T-bond futures. I have drawn the boxes which have controlled the bull market which began in May 2004 from the 103-02 level in the June '04 contract.

As you can see the market's high on June 3 occurred at the top of the fourth box and during the past six weeks the bonds have dropped to the bottom of that same box. As I pointed out in an earlier post, sentiment among bond market timers is very negative.

The combination of these two facts leads me to expect a move up at least to the 1/2 point of the next box near 121-16 and quite possibly to the top of that box near 123-16.

Crude Oil


As you can see from the updated hourly chart September crude oil has rallied to the 1/2 point of its current box. The next significant move will be downward to the 1/2 point of the next box near 54.70.

Eurocurrency


The September futures didn't quite make it down to 119.90, the bottom of the box but buyers have become aggressive as evidenced by the widening of the last pair of hourly bars on the upside. I conclude that the next leg up has started and will carry the market to the top of the next box near 123.70.

Guesstimates on July 26, 8:45 am ET

S&P: The market will hold above 1227 and then move up to 1257 this week.

Bonds: The market will hold the low of its current box at 115-04 and then begin a move 116-18.

10 Year Notes: Will hold 110-30 and then rally to 111-26.

Eurocurrency: Will hold support is at 119.90 and then rally into the 125-126 range.

September Crude: Will hit resistance around 59.70 and then move to the next downside target, the 1/2 point of the next box at 54.70.

Gold: Support is at 420 and the market has now started a move to 450.

Google: 280 is support and the next move up should reach 327.

Monday, July 25, 2005

S&P


The hourly chart of the September S&P futures you see above shows that the market has yet to escape from its trading range bounded by the 1/2 point of the current box at 1246 and the bottom of the same box at 1224. I think the market will have to revisit the 1227 level before it will be able to break above 1246. Once this happens the next stop on the upside will be 1257.

Crude Oil


Here is an updated hourly chart of September crude oil. The market bounce off the bottom of its current box at 57.20 and will probably rally to the 1/2 division point at 59.60. From there I think crude will drop to the 1/2 point of the next boxe at 54.70.

Eurocurrency


I thought that the September eurocurrency would hold support at the 1/2 point of its current box but today's price action has changed my mind and I now expect a drop to the bottom of the box near 119.90 before the market resumes its rally. I still think we will see a move up into the 125-126 range before the bear market resumes.

Bonds and Notes



Here are updated hourly charts of the September T-bond and 10 year notes futures.

Last Thursday both markets reached their downside targets of 115-04 and 110-30. I believe Thursday's lows marked the end of the drop from the June 3 top of 119-23 in the bonds and 114-21 in the notes. The next big move will be upward. I expect the bonds to trade into the 121-123 range and the notes to reach the 116 level. The upcoming move will probably be the final leg of the bull market which began from the May 2004 lows at 103-02 in the bonds and 107-25 in the notes.

Over the next few days the bonds should rally to the top of their current box at 116-18 and the notes to the 1/2 point of the box at 111-26. These levels represent 1 box rallies from last week's lows.

Guesstimates on July 25, 8:50 am ET

S&P: The market will hold above 1227 and then move up to 1257 this week.

Bonds: The market should hold the low of its current box at 115-04 and then rally to begin a move 116-18.

10 Year Notes: Should hold 110-30 and then rally to 111-26.

Eurocurrency: Support is at 120.70 and I think the market has started a really into the 125-126 range.

September Crude: The next downside target is the 1/2 point of the next box at 54.70.

Gold: Support is at 420 and the market has now started a move to 450.

Google: 280 is support and market should soon reach 327.

Friday, July 22, 2005

Eurocurrency


I still think that the September eurocurrency will drop to the 1/2 point of its current box near 120.90 before resuming its rally into the 125-126 zone.

Guesstimates on July 22, 8:50 am ET

S&P: The market will hold above 1227 and then move up to 1257 next week.

Bonds: The market should hold the low of its current box at 115-04 and then begin a move 116-24.

10 Year Notes: Should hold 110-30 and then rally to 112-06.

Eurocurrency: I think the market has started a really into the 125-126 range.

Setpember Crude: The next downside target is the 1/2 point of the next box at 54.70.

Gold: Support is at 420 and the market has now started a move to 450.

Google: 285 is support and market should soon reach 327.

Thursday, July 21, 2005

More on the Bond Market



Above you will see updated hourly charts for the September T-bonds and 10-year notes.

The bonds dropped a bit below my original 115-04 target and the notes got withink 1/2 a tick of the original 111-00 target.

Some of you may wonder if I regret being early on the long side a couple of days ago and not waiting for these targets to be reached. I often tell people that it is far better to be a little early that a little late when trying to catch a big move like the one I think lies just ahead in the bond market. When you are late it is much harder to take a position, especially if the market doesn't reach your proposed entry level in the first place.

In any case I expect the bonds to hold the bottom of the box at 115-04 and the notes to hold the 1/2 point of the box at 110-30. In a couple of weeks I think we will look back on today's action and see it as a successful test that underlines the market's underlying bullish potential.

Gold


Yesterday I told you that I would abandon my 416 gold target if the market showed strength above 423, near the 1/2 division point of the current price box. As you can see from the daily chart of August gold above such strength materialized this morning. I think gold is headed for 450 and eventually above 500 over the next 9 months.

Bond and Note Update



Contrary to my expectation expressed earlier this morning both the September T-bond futures and 10 year note futures broke below yesterday's lows. The bonds actually dropped a bit below my original downside target at 115-04. The notes so far got within 4 ticks of the original downside target at 111-00.

I think both markets are on the verge of a big rally and won't go more than a few ticks below these downside targets. These targets are the bottom of the current price boxes for the trend down from the June 27 top.

S&P


In this morning's guesstimate I said that the S&P should hold support at the 1/4 point of its box at 1235 but the market blew right past that level heading downward. The chart above shows all the hourly bars (including those recording the overnight Globex trading) since the last London attack which briefly sent the market down to 1167. I now think the S&P will hold support at the bottom of its box at 1224.

Eurocurrency


The September eurocurrency futures responded bullishly to the news of the yuan revaluation this morning but again failed to break past the 1/2 point of a box at 122.75. A one box drop here would be normal so I think the market will find support at the 1/2 point of the next lower box at 120.90.

The eurocurrency is in the midst of a move which will take it into the 125-126 zone before the bear market resumes.

China Tests the US Bond Market



A couple of hours ago China announced a revaluation of the yuan. This reduces the need for China and Japan to buy US treasury securities in the process of supporting their currencies against the dollar. As such it is bearish news for the US bond market and should lead to higher rates.

This is yet another test of the bond market and comes on the heels of yesterday's Greenspan Test. My views about the markets' prospects haven't changed and I expect this test to be successful too. In fact I think both the notes and the bonds will hold above yesterday's lows. In a few days the bonds should rally up to 117-02 and the notes to 112-12.

My confidence in this analysis is buttressed by Mark Hulbert's observations about the bearish sentiment in the bond market.

Guesstimates on July 21, 8:50 am ET

S&P: The market reached the 1/2 point of its box at 1246 this morning on the yuan devaluation news and should hold support at the 1/4 point of that box around 1235. Next move will be to the 3/4 point near 1257.

Bonds: The market is again being tested by the news of the yuan devaluation but I think support at 115-25, the 1/2 point of theshort term 29 tick box will hold and a move up to 117-02 will develop soon.

10 Year Notes: Agin being tested by the yuan news but yesterday's low at 111-09 shoudl hold and I expect to seethe market at 112-12 soon.

Eurocurrency: I think the market has started a really into the 125-126 range.

September Crude: The next downside target is the 1/2 point of the next box at 54.70.

Gold: The market has broken decisively above 423 and has now started a move to 450.

Google: headed up to 327.

Wednesday, July 20, 2005

Hulbert's Bond Bears

As you know I am very bullish on the t-bond futures and the 10 year note futures. I expect the bonds to move into the 121-123 range and the notes to move to 116 over the next few months.

Wednesday's price response to Greenspan's testimony was intially bearish but soon thereafter both markets pulled a U-turn and wound up substantially higher on the day. Both markets passed the Greenspan Test with flying colors and this reinforces my bullish convictions.

You might also want to check out this column by Mark Hulbert. He observes that the bond market timers he follows are aggressively bearish. This is music to my ears.

Gold


I still think August gold is headed for the bottom of its box at 416. The only thing that would change my mind would be visible strength above 423, the 1/2 point of the current box.

In any case you should remember that I think gold is headed above $500 over the next year or so.

Testing the S&P


The stock market got earnings reports from Yahoo and Intel after yesterday's close and then listened to Alan Greespan's testimony this morning.

The intial reaction to all this news was bearish, but as you can see in the hourly chart above the market has just rallied to new highs for the day. Moreover, the S&P futures are holding steady just above the bottom of its current price box at 1224.

Once again, that dog didn't bark. The stock market has been tested by bearish news and refuses to break. This is a very bullish sign.

Greenspan Tests the Bond Market



In this morning's testimony before congress Fed chairman Greenspan said that long term bond yields can't go much lower. This is surely bearish news for bond prices. So we will get another chance to see if this dog barks. I expect the market's bearish reaction to Greenspan's prediction to be mild and brief (no more than a day or so on the downside) . If it is then we will have strong evidence that bond prices are headed much higher and longer term interest rates much lower.

The notes have already dropped below yesterday's low at 111-11, contrary to my expectation. My best guess is that the notes will drop no lower than my original target at 111-00 and frankly I don't think the market will go even that low. The hourly chart of the notes above shows some very short term price boxes drawn in blue. I think the notes will soon head up to the top of the second box near 112-11.

I think it is quite likely that the bonds hold above yesterday's low at 115-11. Even if they don't the worst I see on the downside is my orginal target at 115-04. The blue lines on the hourly bond chart show my estimates of very short term price boxes. I think the market will soon rally to the top of its second box near 117-02.

Crude Oil


Setember crude oil futures are near the 1/2 point of their current hourly price box and I think the market will soon roll over and begin a drop which will take it to 54.70, the 1/2 point of the next lower box.

Guesstimates on July 20, 8:30 am ET

S&P: The market should hold support at the bottom of its current box at 1224 and then rallyto the 1/2 point of the box at 1246.

Bonds: Yesterday's low at 115-11 ended a six week drop and now the market has started a move up intothe 121-123 range.

10 Year Notes: Yesterday's low at 111-11 ended a six week drop and now the notes are headed for 116.

Eurocurrency: I think the market will hold suport at 119.90 and has started a really into the 125-126 range.

September Crude: resistance is the 1/2 point of the current box at 59.50 and the next downside target is the 1/2 point of the next box at 54.70.

Gold: I now think the market will drop to the bottom of its boxe at 416 and then start a big rally.

Google: headed up to 327.

Tuesday, July 19, 2005

Bond and Note Update



Earlier this morning I said that these markets should not rally more than 1/2 a box from their morning lows if my downside targets at 115-04 for the bonds and 111-00 for the notes were to be reached. In the event both the bonds and notes have indeed rallied more than half a box as you can see from the updated hourly charts above.

I conclude that the 115-11 low in the bonds and the 111-11 low in the notes ended the drop from the June 3 highs. I think the bonds are now headed into the 121-123 range and the notes to 116.

Google


Here is an updated hourly chart of Google. I think GOOG is headed for the 1/2 division point of the next higher box. By the end of the year I expect GOOG to have reached the 376 level.

Eurocurrency


It looks to me like the September eurocurrency is headed up from a low at the bottom of its current box. If I am right the market should trade above 121.20 in a day or two. In any case I think the eurocurrency is headed for the 125-126 range before the bear market resumes.

IBM


Here is an updated daily chart of IBM showing its price boxes up from the April 20 low at 71.85.

I have been very bullish on this stock as you may recall from my previous posts here, here , here and here.

The bottom of the current price box is 82.70 and I expect IBM to find support there and then move to the top of the box near 88.20.

Gold


Here's an updated hourly chart of August gold. You can see that the market tried to rally but couldn't make it past the 1/2 division point of its current box. That told me that a move to the bottom of the box near 416 was imminent.

Bonds and Notes



Both the September t-bond futures and 10 year note futures are getting close to my downside targets at 115-04 and 111-00 respectively. This morning's rally is what I like to call "preliminary support". This is usually the rally that occurs just before the final low is made in a downtrend. If I am reading these markets correctly neither will rally more than 1/2 a box from this morning's low before turning down once more.

Guesstimates on July 19, 8:40 am ET

S&P: The market should hold support at the bottom of its current box at 1224 and then rally to the 1/2 point of the box at 1246.

Bonds: The downside target of 115-04 is nearby and once the market turns I think it will head up above 120.

10 Year Notes: The notes are drawing closer to the downside target at 111-00 and will soon start a move to 116.

Eurocurrency: I think the market will hold suport at 119.90 and then rally ro at least 125.

September Crude: resistance is the 1/2 point of the current box at 59.50 and the next downside target is the 1/2 point of the next box at 54.70.

Gold: I now think the market will drop to the bottom of its boxe at 416 and then start a big rally.

Google: headed up to 327.

Monday, July 18, 2005

Comments

I think I have managed to open up the comments to all, not just registered Blogspot users.

Feel free to offer your views.

Big Picture Posts

Here is the index of my "Big Picture" posts. These offer my views of the longer term trends in the markets which interest me.

September 14, 2005
July 18 , 2005
June 26 , 2005
June 14 , 2005
June 8 , 2005

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 over the next few months then down to 105 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 was looking for the big top in the $60-63 range and I think it has occurred. Down to $ 27 over the next two years.

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

Eurocurrency - Should rally to 125-126 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

CME - up to 411 by the end of 2005

Sears Holdings - up to 250 by the end of 2005

S&P


As you can see in the hourly chart above, the September S&P futures have nestled into the support line defined by the bottom of the market's current hourly price box. The next significant move will be upwards to the 1/2 point of this box at 1246.

Crude Oil


Trading activity in crude oil futures will soon switch into the September contract. I've transferred the $4.90 price boxes defined in the August contract over to the hourly chart of the September contract you see above. I've also moved the blue line indicating the 3/4 division point of the $40.40 to $70.40 price box into this chart.

I think September crude will soon move down to the 1/2 division point of the next lower box. This is the same target I have been using for the August contract, so I am guessing that August will move below that level at the same time.

As you know I think crude is in a long term bear market which will move the market under $30 over the next couple of years!

Guesstimates on July 18, 8:40 am ET

S&P: The market should hold support at the bottom of its current box at 1224 and then rallyto the 1/2 point of the box at 1246.

Bonds: Resistance is 116-20 and the market will soon drop to the downside target at 115-04.

10 Year Notes: Resistance is 111-28 and the market will soon drop to the downside target at 111-00.

Eurocurrency: I now think the market will drop to suport at 119.90 and then rally to at least 125.

August Crude: resistance is the 1/4 point of the current box at 58.50 and the next downside target is the 1/2 point of the next box at 54.70.

Gold: I think that support at 419 will hold and after that a move above 444 will begin.

Google: headed up to 327.

Sunday, July 17, 2005

Bond and Note Boxes



Here are hourly charts of the September t-bond futures and 10 year note futures. I have drawn the hourly boxes which are controlling the downtrend from the lower top made on June 27.

I still think the bonds will make it down to 115-04, the bottom of the current box, and that the notes will drop to 111-00, the 1/2 division point of the next lower box. Once these support levels have been reach I expect both markets to rally above their June highs. The bonds should enter the 121-123 zone and the notes will probably make it into the 115-116 zone.

I don't think sentiment is yet bullish enought to indicate an important top. Take a look at this recent Mark Hulbert column for his view on this. But a rally in the bond futures to 121-123 would put the cash 27 year bond at the lowest yield if the past 40 years. This would probably be a headline news story and the catalyst for excessive bullish sentiment that needs to accompany an important top.

Friday, July 15, 2005

S&P


The hourly chart of the S&P futures above shows the 43.70 point boxes which have been controlling the uptrend from the April low at 1136.80 (day session).

The futures recently established a new high for the bull market by breaking above the March '05 top at 1229.80. They stalled at the 1/4 point of the third box at 1235 and have so far reacted to a couple of points below the breakout level. My best guess now is that the market will react to the top of the second box near 1224 and then resume its move up to the 1/2 point of the third box at 1246.

Divergences, Divergences


Market technicians like to look for divergences as a signal that a market is about to reverse course. A divergence is a situation in which the market price moves to a higher high (for example) but other indicator of technical strength or weakness (e.g. an oscillator) refuses to "confirm" and instead makes a lower high. Such action is usually interpreted as bearish.

My technician friends tell me that the stock market is showing all kinds of bearish divergences now. For example, they are pointing to the chart of the NYSE advancing issues above and pointing out that the black line which records the daily count of advancing issues failed to confirm the new high in the S&P earlier this week. Of course the only oscillator I care about is the red line, the 10 day moving average of advancing issues, and this did make a new high this past week.

My experience is that divergences are sometimes useful for detecting the end of reactions against the direction of the main trend but they can get you into big trouble by inviting you to fade the main trend prematurely.

The technical types have been fading divergences at temporary highs of this bull market for 16 months now and have been rewarded handsomely for doing so. I think they are about to give back their hard-earned profits because the stock market is about to accelerate to the upside and wipe out the bearish divergences everyone is talking about now.

Chicago Merchantile Exchange A


Here is a daily chart of the Chicago Merchantile Exchange stock (CME) traded on the New York Stock Exchange. I have drawn the bull market boxes which were established by the reaction earlier this year from 230.25 down to 163.80. These boxes are 66.45 points high.

The low price since the IPO was 41.14. We are in a bull market so I think CME can easily reach a level 10 times its low or 411.40 by the end of the year.

Meantime CME has broken past the top of its second box at 296.70 and should soon rally to the 1/2 point near 330.