Sea-Change Reversals of NASDAQ & XAU

June 20, 2001

This picture is worth 10,000 words
…and they all spell: B-E-A-R

You need not understand the nuances or definitions of these Technical Analysis (TA) indicators. Just compare each oscillator with the NASDAQ price trend. You will see how they heralded each fall in the NASDAQ index.

As I said oft before, TA of charts is NOT an exact science, but it does provide lines of probability. And this chart is definitively calling for a continuation of the NASDAQ's bear market that began in April 2000 when the index peaked at 5100. Again in September 2000 the oscillators called for another leg down. And still once again Friday's oscillators are forecasting another plunge to test this April's low of 1650 (intra-day) on the NASDAQ.

Stocks may not go straight down from here, but it is obvious the ducks (oscillators) are all lining up.

NASDAQ has never violated its bear market trend

Take a close gander at the NASDAQ's Point & Figure chart. It has never once violated the bear market decline, the most recent past rally notwithstanding. More importantly, the past week price action triggered another (P&F) SELL SIGNAL as the NASDAQ suffered its worst weekly loss year to date.

You may rest assured the world's TA speculators are drooling over this chart, as they prepare to SHORT THE HELL OUT OF THE NASDAQ and other stock indices. Furthermore, I am convinced the April low - now a support level (about 1650) will NOT hold. In fact the chart suggests 1500 might find respite in the looming plunge.

On the other side of the NASDAQ coin (basis P&F chart)

We have just the reverse situation when we analyze the XAU (Gold & Silver Index) vs. the NASDAQ.

From the chart below it is overtly evident the XAU has experienced a sea-change reversal to the UPSIDE. The XAU has undergone a secular direction change...after a 5-year bear market (since early 1996) the XAU has assumed an unmistakable bull posture.

The XAU P&F chart is as positive as the NASDAQ's is negative. Moreover, there is ample evidence the XAU will play out in the next year or two as precious metal stocks performed in stellar fashion during the 1973/74 stock market debacle, when the Dow and S&P500 lost about 55% of its former peak value. IT IS IMPERATIVE TO NOTICE gold stocks soared about 260% as gold rose 170% in that period.

I see nothing on the horizon that will alter that scenario deviating from history. To be sure I believe there is an abundance of market data strongly suggesting precious metals stocks will even surpass their 1973/74 sterling performance...while common stocks waste away in a grinding bear market as corporate revenues dry up and earnings evaporate.

It is the NASDAQ one should be watching, not the Dow

Whereas the Dow was the market proxy from the early 1900s to about mid-1980s, today the NASDAQ reigns supreme as surrogate for all stocks.

As all well know the Dow is composed of a mere 30 companies -- whereas there are 7,000 to 8,000 mutual funds, each investment portfolio containing 100s of different stocks. However, I call attention to the Dow when it again penetrates 10000, as it will then probably go into freefall. Indubitably, this will cause panic amongst the investing public which has been heretofore somewhat cavalier about the market decline since April 2000.

Unfortunately, the naive investing public will taste FEAR in Naught-1.Not only will hundreds of thousands (perhaps MILLIONS) be laid-off in a rapidly deteriorating economy, but they will see their stocks and Retirement Programs and 401-K plans rapidly dwindle in value. All played in concert with Greenspan's Swan song called "Slash the Rates." Greenspan's futile efforts are tragically reminiscent of the String Quartette aboard the ill-fated Titanic. What was the last haunting melody played by them, "Lord, I give my soul to Thee" Very sad and sorrowfully tragic…

The only soothing and comforting music will be played by an ensemble of precious metal stocks and Gold Mutual Funds. Indeed, gold and silver will be the only 'lifeboats' that safely abandon this sinking Titanic.

World stock markets are in a bear mode

The FTSE World Index is composed of 30 constituent countries, 15 regional groupings (including 4 'Eurobloc' regions). The main regional groupings are the Americas, Europe and the Pacific Basin. The index literally deonstrates what the universe of stocks are doing on a global basis.

The first chart below shows the last 3-years' daily prices of the FTSE World Index . Notice it peaked in March 2000 at about 387. Ironically poetic, the GREAT CRASH peaked at 386 in September 1929 – as measured by the DOW Industrials Index. THIS IS UNCANNILY EERIE.

The FTSE World Index IS NOW DOWN 23% from its peak...A BEAR MARKET by any definition! Next support at 245 -- 18% lower from Friday's close. A nightmarish thought leaps to mind about the similitude of the FTSE World Index and the 1929 Dow peak: the latter found its nadir at 42 in 1932.

A longer 10-year view of the FTSE World Index clearly shows lower support levels, located at 215 and 180 (the latter nearly 40% lower than present levels). In the event this world index declines to 180 (which in my opinion will), this will equal the magnitude of the 1973/74 debacle, when the DOW plunged almost 55% in an 18 month period.

The World Index tells the whole story.
Any Pollyannas still out there must dispel any doubt
the BEAR IS HERE, and grows stronger daily...
and will enjoy many moons before his hibernation.

Gold was first discovered in U.S. at the Reed farm in North Carolina in 1799, a 17-pound nugget.