Another Three Go Down

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Pierce Eaton
5 years ago
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Published by TFNN, Corp. ~ 601 Cleveland Street, Ste 618 Clearwater, FL 33755 ~ 1-877-518-9190 ~ http://www.tfnn.

1 Published by TFNN, Corp. ~ 601 Cleveland Street, Ste 618 Clearwater, FL ~ ~ ~ Copyright 2010 ~ All Rights Reserved Another Three Go Down Patterns Profits & Peace of Mind - Page 1 02/07/ This week the market lost another two of its pundits from the bear side. Richard Russell of the Dow Theory and my old friend Peter Eliades of Stock Market Cycles both reluctantly admitted the market is likely to continue its trajectory higher for the time being. Jeremy Grantham completes the trio. And who could argue with them as the stock market repeatedly ignores these historically overbought levels, the deteriorating fundamentals, together with a dose of record bullish consensus? This week a small number of the indices were not able to hit new highs (i.e. Nasdaq, Russell small caps, Dow Transports and Dow Utilities) but they are so close that it would not take much to push them past the mark with a higher open on Monday. Each week, I receive questions regarding how this current leg of the bull rally relates to the January/March cycle in 2000 that was a once-in-ageneration bubble. One literally had to be watching stocks each and every day as they jumped % (or more) on nothing more than an upgrade by some 22 year old analyst. Nearly everyone is familiar with what happened next - that cycle ended abruptly as we watched the Nasdaq give back over 85% of its value in the subsequent two years. For those who are keeping tabs, it has not retraced back to the 38% level as yet. Last week, I stated that we were maybe at a top! The reason behind my caution was the reaction to the Egyptian crisis during Sunday s trading. One would have expected a further move to the downside as the situation in the Middle East only worsened. Instead, we have not seen more than a few days of correction over the past few months. We may now have to wait until the New York Stock Exchange index moves below the level at 8,019 to indicate that a potential top has finally arrived. I still firmly believe that we

2 are in a bear market correction and that as interest rates are creeping up, stocks will need to compete with higher yields in the bond market. During the last legs of the 2000 bull market, I was selectively shorting stocks on a few occasions using very close stop protection. Then, as now, I was constantly being questioned about my sanity in doing this. However, when the top did come about, the strategy worked well with all of the small losses covered within a few days. Markets do follow Newton s second law of motion (what goes up must come down), although Apple stock may be the only exception an irony that has not been lost. Treasury Bonds Treasury bonds are breaking down below the level at Treasury notes are also going down. What will the Fed do next to help their positions in the bonds (or not)? Remember that the Federal Reserve board was put together in 1913 to serve the major banking interests. The inflation protected bonds are also reacting poorly in face of rising inflation (particularly in food) on a worldwide basis. Another strong down move in bonds would send a strong message to the markets that real interest rates are headed higher and that the Fed s easy money policy towards the banks will need to be re-examined for its efficacy. In trying to prevent a normal recessionary cycle from running its course, Bernanke and company have been experimenting with increasingly risking strategies, QE2 being the most recent. Whether this will be sufficient depends also on a variety of factors out of the Fed s control and only history can be the final judge. Foreign Currencies The Euro exceeded the Fibonacci level at on the daily charts for just two days and then immediately dropped back below that level. The British pound went up to touch the old high from several weeks ago and then backed off 150 pips. In similar fashion, the US dollar stopped at the exact level for one day and then broke lower before immediately rebounding back above the level, reinforcing the importance of the level we made last week. The Japanese yen followed true to form by holding at the level that we were expecting in last week s letter. Anytime we go below 80 for the USD/JPY, it would represent a very bearish signal for the dollar against the yen. At this point however, we are in a position where a US dollar rally is more likely and may happen at any time. Patterns Profits & Peace of Mind - Page 2 02/07/11

3 Precious Metals Gold experienced a $50 rally off of the bottom that we discussed last week. It remains to be seen whether we will move up another $80 in the next few days. Silver stopped at exactly the level from the bottom. Both of these have now completed AB=CD s from the downside so they could rally more, but from the looks of things could correct more. In particular, any action below last week s lows i.e. $1,308 in gold would signal lower prices in my opinion. Copper continued to go higher and it has gone above old highs at 4.50 for the third time. Crude Oil Crude oil finally made it to the $93 per barrel target level we have been mentioning over the past 6-7 weeks. After hitting this level it quickly retreated by $4 per barrel and appears to be in the process of dropping a great deal more. As we pointed out previously, the cold spell that had taken over across nearly the entire US has caused heating oil and gas prices to rise, also they are still completing butterfly patterns on the long term charts. This week, the weather seems to be breaking so we should keep a look out for a corresponding break in these markets. Technical Corner This Sunday we have a negative aspect in the form of Venus square Jupiter. This comes just three days after the new moon. There are also two additional negative aspects (Mars) occurring over the weekend. Whether these will be enough for the market to form a top remains to be seen. Another question that I have often received lately is why I keep looking at the astro aspects when they appear to have failed to call any market turns since the major August 27 cycle low? The answer for me lies in the history of watching these key astro dates, August 27 being one of them. In my search over the past five decades, I have found these dates to be the best cycle predictor. I might not always interpret the systems correctly but they hit the exact date more often than they fail. The added advantage that few other indicators can match is that I can act with the knowledge that more of these dates will occur in the future and at exact time points. Patterns Profits & Peace of Mind - Page 3 02/07/11

4 Trade of the Week The short ETF for the S&P 500 (SH) have made a expansion on the daily charts and also completed a three-drive pattern on the hourly chart. I would suggest buying SH, but only under one condition only! Specifically, it must not gap down. The stop should be set at which makes this a very low risk trade given that it closed at One should not execute this trade if the S&P 500 opens higher on Monday as it would suggest that the expansion and 3-drive pattern are possibly failing. Final Thoughts The commodity research index has completed an AB=CD pattern on the long term (monthly) chart, making it a sell signal according to the Gartley pattern. Attached are the long term future charts that are included in the index. Not all commodities are shown here (steel, nickel, zinc, and other industrial metals are typically not included in these charts) but they are all in long term downtrends. Copper has made new highs for the third time at the $4.25 per lb level. Only one country within the BRIC contingent is currently in an uptrend, with Russia holding the honor. China, India and Brazil are in bear markets so it will be interesting to watch if these countries will lead the world economies out the recession as some contend. Both long and short term interest rates are now trending higher (not lower as the Fed would like us to believe) as is real inflation (i.e. what the average citizen feels). It is my opinion that now is the time to be cautious in owning commodities, bonds and stocks. To top things off, here are the patterns that we are currently seeing in various commodities (the charts for each are enclosed): 1 - CRB index: AB=CD at 50% level (Gartley sell signal) 2 - Wheat: 50% retracement of 2008 high 3 - Sugar: 0.786% retracement, Gartley sell signal 4 - Coffee: retracement, Gartley sell signal 5 - Cocoa: retracement, Gartley sell signal Patterns Profits & Peace of Mind - Page 4 02/07/11

6 - Soybeans: 0.786, Gartley sell signal 7 Rice: Butterfly pattern, double top and 50% retrace on weekly chart 8 Corn: 0.

5 6 - Soybeans: 0.786, Gartley sell signal 7 Rice: Butterfly pattern, double top and 50% retrace on weekly chart 8 Corn: retracement, Gartley sell signal 9 - Live cattle: Butterfly top at new highs 10 - Live hogs: double top at new highs 11 - Soybean meal: retracement, Gartley sell signal 12 Cotton: up 7 times in last 18 months, at all time record highs 13 Copper: making third drive above $4.30 pound These are just a few of the trends. However there is no guarantee that these trends will change and any further upward movement would make my assumption suspect, so caveat emptor is warranted here. Patterns Profits & Peace of Mind - Page 5 02/07/11

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Doing the Right Thing

Published by TFNN, Corp. ~ 601 Cleveland Street, Ste 618 Clearwater, FL 33755 ~ 1-877-518-9190 ~ http://www.tfnn.com ~ Copyright 2010 ~ All Rights Reserved 02-14-11 Doing the Right Thing Trading is a relatively