Goodbye Stock Market Economy…
The
only sector, which was up in yesterday's grizzly trading session,
was the gold sector… right on schedule. This is it… the moment we've been
waiting for to find out whether gold shares can buck broadly collapsing
stock prices. So far so good.
Global
stock prices continue to fold, and generally yield to the bearish case.
This week it was a bad earnings report from 3M (citing the strong dollar),
followed by Amex news that earnings have fallen by 76-something-percent
due to big junk bond losses, which traders can point to as catalysts.
We suspect that there is even more trouble at this company than meets
the eye - the chart of American Express reveals a conspicuous break down
on the very day that the FOMC first lowered interest rates: January 3rd.
At
any rate, U.S. share markets went into a tailspin right off the bat yesterday
morning, as bears had some unfinished business to tend to, from the prior
day. The move was bearish on all the charts and we might get to 9000 on
the Dow in less than a week. The blue chip averages had been rising in
a quiet wedge like form with absolutely zero conviction up until Friday,
and we view the failure by the Industrials to rally through 10700, as
a failure by the bulls to turn this thing around, even in the short term.
Bears
wiped out in two days what took the bulls seven, to achieve.
Consequently,
we're headed for new lows in this sequence of lower lows and lower highs.
We also consider the intermediate upside reversal in US T-bonds as confirmation
for another material down leg in stocks; only this one should be
the most severe because it is the third down leg in the primary sequence
of lower lows and lower highs.
If
we are referring to the bearish intermediate trend, it is still down.
If we are referring to the primary trend then there is yet another failure
that the bulls have to contend with: the Bull
Trap, which began in April, and followed through with a 2000 point
rally, came close, but also failed to turn the bearish case around.
This
leg could easily accelerate. The
NYSE composite chart looks weaker than the Dow chart, but not by much.
Dow bulls have to defend 10100, which represents the first low under the
200-day moving average since April, and then the 10000 mark, which is
the psychological threshold.
The
next stop should be at 9000, and we see no compelling reason why that
should be anything more than a resting place. The Dow Utilities appear
to be breaking down, and the Transports now may not be far behind.
The
Nasdaq completed another bearish pattern (a 3 day head and shoulders)
within what is already an intermediate and primary bearish sequence, and
which could easily result in a test of 1600, or lower.
The
same in fact could be said for the S&P 500, which technical form has been
emulating the technology averages for a few years now.
Bye-bye
stock market economy… did Wall Street really believe that we could
sustain an entire economy on
ridiculous
stock market (read: risk) assumptions?
Bonds
Last week's
higher high on the Bond is holding and may be poising itself for a test
of the March 2001 high, which we believe can only happen within
the context of a stock market decline, or equivalent deflationary shock.
The rest is up to the dollar.
Currencies
Trading in the US dollar index was down across the board yesterday. Dollar
bulls retreated from a half-hearted jab at the important 118 level; and
now the Pound, Euro, Yen, Franc, which looks particularly strong, and
even the Canadian dollar look to make higher highs (short term first)
against the dollar.
European
currencies are due to rally here and markets may perceive it as a reward
for stable interest rate policy in the face of political pressure cookers.
Commodities
As far as the energies go, and as oddly as it may sound, they are still
hanging on to a bullish primary trend, and in fact, the bulls just pushed
the bears back into bullish territory again, over the past few sessions.
September
Wheat futures are holding their g(r)ains many times as well as the Dow
has held its gains, and bulls are looking strong enough to follow them
up with a real break out. All of the grains put in a clear one-day reversal
on Monday, reversing the four-day down trend, and following up yesterday
with a mild bounce.
Coffee
prices may be breaking out, as of today, from a well defined falling wedge.
All
of the metals, on the other hand, have been trending down over the past
few weeks, except for Gold, which
has been one of the strongest performing metals this year. Accordingly,
the XAU continues to forecast higher prices for the metal.
We
concur with that message of the markets.
We
are looking for Gold, grain prices, and the energy complex, to lead a
reversal (to the upside) in the CRB (as well as the other major commodity
indexes), and to confirm the July 10th Dollar
Reversal. A quick move through 210 (CRB level) ought to be enough
to persuade the bulls into action.
Edmond J. Bugos
Editor - The Goldenbar Report
July 27, 2001
Also by Edmond J. Bugos
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