December 22 2006 Ho Ho Ho Santa Analyst is flying the coop until New Years -- unless the Grinch strikes the market, in which case we'll send you a Xmas card toot sweet -- so last letter of the year

As can be seen there are still some trend lines to break in the NDX, and the wedge (or whatever) formed here on this excursion out on to the plank is not definitively broken. But the two volume lines Dec 15 and 18 are ominous (i.e., lighten up). Such volume peaks often mark the end of the wave.

Some sort of turning point seems to have been reached. The CRB broke. Silver broke. Both either still shorts, or for very long term holders a watching time for a wave low to be made, assuming always that it does not take out a previous crucial low in a decisive way.

The horizontal lines under this month's lows, penetrated by 3% would send longs scurrying for cover and reward short term shorts.

A strange end to a strange year. Jack Schannep at thedowtheory.com correctly points out the divergence between the industrials and the transportations. Worth listening to.

The Dow is placed here so that the reader may compare it directly to last week's chart.

Bull trap anyone? The failure to follow through on the breakout nullifies the signal. Bad signals have been the hallmark of these markets.

So the game we thought was still on last week may have been a very short one. The only drawback we see to scaling out here is that some phantom profits may be foregone. If this thing falls out of bed those will be very quickly forgotten.

December 15 2006 Stranger and stranger in paradise...

If we were going to be lightening up longs on this minor runaway bull we would be selling less each time, but we would be selling some. Friday the Dow broke out of whatever it was -- consolidation, attempt to form a double top (so much for prognostication) -- on heavy volume which means the game is still on. As you well know the book says you don't liquidate your longs until the trend is proved to have changed (thereby giving away the top). Our tactic of scaling out on strength sometimes results in capturing greater profits, sometimes not. For certain, it reduces risk, and we consider risk to be at a high at this time. We would not be surprised to see half this advance taken back in a week, which could be painful. So even giving up some profits here may be worth it to take some risk off the table. Worth noting that the NDX and the XMI didn't mimic the Dow, so, as usual, signs are mixed.

Not mixed however in the metals and dollar. Dollar on a tear, tears in the metals. You will remember that we previously noted that the precious metals were in a down wave, and the dollar recovering off the bottom.

Speculators will be long the $ and short the metals.

At the moment we remain with our previous comment on the DX -- shooters are already long. As they are in the metals.

We will be looking to buy the metals and sell the dollar before long.

Readers interested in learning our exact advice can contact us to subscribe to the real time service.

December 8 2006 So, is it, or ain't it or what is it?

Wedge or not, the action in the major indices looks toppy, as we have indicated with the horizontal lines across the last several months. Technically the last low was lower than the previous wave low. By a hair, but by a hair. Interestingly the high in the Dow has not been taken out after the November low, which we thought might have been the signal. Now we think the signal might be a firm break of the horizontal line.

At any rate our tactics (maybe it's a strategy -- sometimes it's hard to tell them apart) of maintaining longs while looking for shorts and lightning up as these highs are reached is working.

The XMI is showing the same toppy action as the Dow. The comforting thing about this is the clearly defined horizontal line. Would we be out of all longs on a confirmed break? We would certainly be looking at the individual charts and seeing how they related to this broad market action.

While ordinarily not fans of covered calls we could certainly see it as a possibly profitable tactic here.

In gold traders would have exited on the gap. Trendfollowers would be looking at the wave low in November. Very long term holders of GLD will be yawning.

Basically we think the markets are backing and filling here, as indicated by the CRB. A head feint to the upside in May. A downside fake in September. Whether November's breakout is a feint or not is yet to be seen. Anyway, you can't be long after the island reversal at the top in November.

A 15 year look at the dollar index is found at

DOLLAR INDEX LINK

December 1 2006 Wedge Issues

Interesting formation. What looks like a trading range, and might be a top finished off with a hanging wedge. Mere lucubrations of a deranged technician. Pay no attention. To the lucubrations. Pay close attention to the wedge. At the moment we are watching to see if the pronounced break down from the top is indeed the signal or if it is another false move. A close above the November high would nullify the break, a close below the recent low might be the beginning of the avalanche. Take it one day at a time, with holidays off. Several different lines defining the wedge seem to make sense, and significantly the hard break was across the line.

If you want to see something dramatic compare this chart with last week's chart of the dollar index. Quite outside the profit potential of the move the implications for the market and the economy may be dark indeed.

Readers, except for new readers, know that we never harp on these opportunities correctly identified. Nor do we go back and crow over past brilliant observations. (Caw caw. Except for buy the dollar at .82 and sell it at 1.30 Euros.) We point out the situation and depend on mature readers to act on it.

We have been saying for some time that the markets were swaying on the edge of tipping point. And saying that gold (and oil) would rise again. We pointed out the little Kilroy (H&S) bottom in the gold, the breakout over the fenceline and the pullback (throwback to you E&M purists) to the fenceline.

A word to the wise is sufficient.

As we were saying (caw caw) we do not crow over our successes, but we will point out that in spite of being bears our advice, BASED ON READING THE CHARTS, has been profitable over the past year. Stay with longs until they have broken trendlines and lighten up at the top and look for some shorts. The shorts thing will soon pay off (already has in the dollar).

November 24, 2006 Tipping Point?

Every once in a while we get these semi-conscious itchings as if something is going on inner body. It could be the after effects of Thanksgiving, or it could be vague signals from the weltanschauung or it could be nothing at all. So just ignore it and concentrate on the charts, which could be what is inspiring this post holiday angst. Here the Industrials, seen through the DIA have a nasty wedge like look, as does the NDX, below. We have been saying for some time that we would be lightening up, and this just reinforces that rational analysis.

NDX also looking wedge-like.

Sometimes we sit around and wonder if some dramatic event will break the market.

Seems we remember that Presidents who have taken office in 40 year intervals, one being 2000, have often died in office, and George W. is fox trotting around an area (the Middle East for a meeting with the Iraqui Prime Minister) where everyone would like to see him dead. That would certainly break the wedge. If it doesn't break of its own weight, which is what usually happens with wedges.

Anther ingredient in the witches' brew is this little chart of the dollar. Sell signal if we ever saw one. You would want to see the May low taken out before piling on. Avalanches often start with a misplaced snowflake.

Meanwhile, gold and silver are poised for something. Gold after a minor Kilroy Bottom (H&S to you old timers) broke the fan line and the neckline (fenceline to you new timers) and is now tap dancing. We remain bullish over the long term and the stop is back under the right shoulder or left hand in November, however you see it.

We thought the breakout worth a buy and would wait for a breakout of this little rectangle before venturing more.

November 15 2006. Is this surreal or what?

With Turkey Day coming, as well as the Game, and The Big Game and the Cal USC game we won't be scribbling here until after Thanksgiving unless something really interesting happens, in which case we'll email you.

You can live a hundred years (as Grace Ryan claims we have done, in addition to personally experiencing the great crash of 1929) and most of the time be left wondering what the market is thinking -- or smoking. Then when it gives you a dope slap in the back of the head you say, oh, yeah, of course. So. The market knew the Demos were going to win and liked the idea. Whaaa? Go figure. Tant pis, as the frogs (vide Borat) say.

So we've been wondering what it was thinking, but not wondering about the charts which have been saying stay long for months. And still saying stay long. Actually we might be selling a little bit the higher it goes.

It appears that GLD might come back to the breakout line. The stop is back there under October's low.

Meanwhile, back in the oil patch oil looks to be making a rounding something. Maybe a bottom. Maybe a continuation. We think it's just a matter of time till it comes a gusher again.

November 3, 2006 Six black crows marching. 14% drummers drumming.

Just kidding about candlestick jargon. Actually we like candlestick jargon and Steve Nison, and in fact are Nipponophiles. The point here is extremely interesting. Six days of lower closes. As we remember, (a memory somewhat like Reagan's when asked if he dealt with the Iranians before the 1980 election) there have only been a couple of seven down days in a row in like 24 years. Don't quote us. Exactly. But approximately, OK. We would say it is an ominous development, and would lighten up the longs.

We still think it's a bull trap. That's our story and we're sticking to it.

Maybe we would put some of that lightened capital into gold. As can be seen here a clear buy signal has been given in gold.

Readers will remember our comments earlier that a small Kilroy (H&S) bottom was obvious on the chart.

The breaking of trend lines here is mildly significant. The real significance is in the surprising angle of ascent and the feeling in the air. The country is at a tipping point. A tipping point is what a witch feels when she gets dunked (a colonial form of waterboarding).

This tipping point will affect not only the politics of the country, but the fiscal state of the nation. We do not expect it to be pretty.

Our ballot on Tuesdays will be soaked with throw up. We'd like to put them all in jail (or water board them). Any halfway decent country would not allow the political speech that has gone on in this the meanest most despicable of election seasons.

Do we believe in the death penalty? For politicians, yes.

October 27 2006 Boo! Halloween is coming. Will it be tricks or treats?

Friday's black bar is not scary enough to jump off the train, but, hey, anyone who's not jumpy here is not paying attention.

Just for amusement (actually like Queen Victoria our readers are probably not amused) we are paying much closer attention to the market than usual because we are going to see if we can pick the top. Friday is not a signal day. In situation like this where a strong run is in progress Magee recommended sometimes setting a tight progressive stop. That is, pick a strategic low like 4 days back, or 1 day back, or whatever, resetting it every day as the market rockets on up. When the market comes back and gets your stop you count all your ill gotten gains and go to the beach. This technique is in contradistinction to observing the inevitable reaction calmly and waiting for it to exhaust itself. That is the trend follower's way. Sometimes one works, sometimes the other.

Isn't this interesting? What well might be a kilroy (or upside down head and shoulders) bottom in gold (GLD). Strength day or healthy gap on volume would put us long. Braver speculators might already be getting long and we would be saying that's ok as long as you have a stop about 3% under the low of October. There is even an argument for the second low of Oct.

Since NEM is a line chart the support line appears below the points. Based on the situation we wouldn't buy it here, but would hold it if long with the stop based on the 05 low, or on a money management stop 5 or 6% under the recent low.

But why bother? Do you want to trade the company or the metal? See above.

October 20 2006 Stranger and stranger. But ours not to question why, but to comment on how...

In The General Semantics of Wall Street Magee demonstrated that you don't need to know why it's doing it. You just need to know how it's doing it. Anyway it's doing it.

We are presently thinking about a tactic of selling strength, as we think when this party ends (whatever is the trigger to end it) the mess is going to be horrible.

For the moment the strategy remains the same. If long, stay long. There is a tactic for joining a trend late. Trade lightly. And tread lightly. And use a money management stop.

As always we watch gold and observe that it is in a secondary downtrend. It is between the nearby highs and lows with the trend implications obvious as to the penetration of either of those.

Aggressive traders would have bought the gap. Conservatives will be waiting for a definitive end of the downtrend.

The XMI confirms the Dow. Bulls rule.

Stranger and stranger. Can you buy google? The chart says yes. A year long triangle, almost perfect with a breakaway gap after the breakout.

October 15 2006 Same old same old

There's believing and not believing and there's analyzing and not analyzing. As jaundiced as we are about new highs in the Dow the analysis is simple. It's making new highs, ergo stay long. The slope and strength of this advance lead us to predict with certainty that a sharp correction is in the wings. The results of that correction will determine whether this is just an extension of the trading range or a new leg in the bull market.

We think the XMI more reflective of reality. Knocking at the old high and yet to be determined whether the trading range is to be extended or whether a valid breakout occurs.

Remember we have conjectured that the current Dow breakout if valid will require a close above 12200. A 3% higher close above the old high would be necessary here also.

In the meantime the NYC is in a booming uptrend, with an obvious stop under the July low.

The Dow just keeps on keeping on. Here in a close up. Markets that go this long without a correction get a lalapolooza when the correction comes.

Stranger and stranger. Folks have you noticed that the mini skirt is back in a tent version? That David Geffen is cashing in some of his art collection for unheard of prices? And most interesting of all that an internet startup (unburdened by any profits) was bought by Google for $1.6 B? As in big ones.

Gold appears to be on a support. The gap is probably meaningless. A pattern gap we would say. But we think it could be bought here with a stop under this month's lows.

We think a lot of the strangeness in the markets is due to hedge fund panic. And we are rethinking general market conditions. Hedge funds are likely to be with us for some time and their performance will follow the bell shaped curve rule. Most mediocre (with windfall fees for the managers) some outright failures like Amaranth which obviously didn't know how to control risk, and there will even be some successful ones. Let us know which ones you like. Or hate.

October 6 2006 Days of the Texas Chain saw Massacre and Smashing Pumpkins.

In case you think this could be the start of something big take a look at the next two charts.

From that perspective it looks like a bear market rally. Well, why do the Dow do what it do?

Well, it do what it do because there are a lot of strong stocks in it. In fact the number of weak stocks is so small that you almost can't count them. But you can count a lot of strong stocks -- in fact 70% are strong. Let us remind you of Magee's Evaluative Index. Magee noted in the 65-82 market that whenever the percentage of strong stocks reached 80% that a peak had been reached. Whenever strong stocks constituted 8% a bottom had been reached.

It was out of mere curiosity that we ran the MEI. The charts speak for themselves. And what they say is that this leg of the uptrend is intact. Since we don't cheer for bull or bear markets any longer we can observe with some equanimity as the lemmings charge over the cliff (Our experienced opinion.) into the bull trap. Our friend and colleague Hank Pruden has a different analysis, maintaining that the Dow will hit 14400.

Here are 10 and 12 year charts which should put the present "breakout" over the old Dow high in perspective. Readers of Composite Market Theory in the 8th edition will remember that we consider that the three major indices must confirm each other to confirm a bull market. And, of course, we are now about three years into the bull market that started in 2003.

We consider all of this to be built on quicksand, and that doesn't stop us from holding on to stocks which are still in uptrends, and the ETF indices.

Sunday's Times had an interesting headline: Real Estate plunge, Bull market stocks. Somebody is wrong here. (Quoted from memory, not exact.)

Here's what we think. When the market gets what it wants, the Fed to lower interest rates, grab your phone and sell.

Meantime, if you think the silver bull market is over think again. Primarily we think that the current state of the markets is determined by hedge fund bets. When all those guys run out of money, and when the Demos take over in Washington, Katy bar the door.

Cantor Fitzgerald we understand has started covering Ebay and issued a sell recommendation. Well, duh. Where were they back in January 05 when we really needed them.

September 29 2006 Dark Cloud rains on your correspondent... Dow noses at all time high -- tentatively

Thinking and analyzing are two different things, as we have often said. Conjecturing and stop setting are two different things. While we think that market action here is a fruitless attempt to surpass the previous high our analysis is that this short term trend is intact. Longs should be held and the basing point is obvious in the last wave low. Our long term remarks on this market (12 year) are at Dow 12yearlink

And here is the straight word on taking out the all time high of 11750.28. Using Magee's rule of thumb of a 3% margin the breakout is not valid until it closes over 12102.78.

Silver and gold (below) seem to us to have made a low. We wouldn't buy any futures unless we were experienced at that sort of thing, but GLD and SLV in modest amounts with a stop under the near low (3-5%) might be a good long term bet.

Meanwhile as we have remarked in the 8th Edition groping towards a better way to identify broad market trends, according to Composite Market Theory we need the major indices to make new highs if we have an unambiguous signal and that certainly is not happening with the NDX here.

We know that everything is sideways now. We suspect that everything will stay sideways until we know who will win the election. A Democratic sweep would light a fire to the cat's tail. But they are so inept and such pansies on terror (and everything else) that Rove will drive them into a defensive fetal position and they will manage to lose an election they should win.

Let's hear it for regime change in Iran. (And $100 oil).

September 22 2006 Last Friday and this Thursday cast a dark cloud cover...

We are still conjecturing because we don't have anything better to do and because that's all that can be done at the moment. But... what if in a month or so pundits look back and nod wisely and say "You could tell when the market couldn't muster more momentum than that for the Fed's not raising interest rates that it was the top..." Duh. The nice thing about being a chart analyst is you just have to report what is happening right now and how it fits into the big picture. Readers should be 100% conversant with our analysis. Whether our remarks on the immediate situation carry long term

implications we will know in the long term. For the immediate present we will watch the latest trendline and also watch to see whether in fact Thursday was the wave high and whether September's low is taken out. Our bet: Looks like we are setting up for a test of lows, near and far, towards late October.

AND again we emphasize the multitude of false signals occurring in this sideways market and the capriciousness of investors trading on the latest price of oil. Oil can go to $30 and not measurably affect the long term economic situation. There is nothing short term oil declines can but hypo the short

term volatility traders who are having a ball in this market.

Do not be deceived by a break above the previous 2000 top. Unless of course you are scalping and swing trading in which case have at it. Investors should continue to do what we have advised for months: Look at the individual chart and sell it when the trend changes.

As for trying to profit from the oil market seed chart for oil ETF.

If not equipped for big game hunting stay away from big game. We will watch this market and tell you when we think the time is right to buy. In the meantime it's too late to sell short.

September 18 2006 Is that a volume climax I see before me, the handle towards my hand?

Entirely possible. These volume spikes often foreshadow the end of the wave. Friday's action would, if you were hoping instead of analyzing might be encouraging, but if you looked at the bowl shaped volume from July to present and then the Friday's spike you might get a different idea. Any way it fits (so far) with our analysis of this as a sideways market. And only for traders.

Here is a closeup. Friday doesn't fit the perfect picture of a reversal day, but, hey, you never know till later anyway. And, amazingly the trendline is still intact.

Some information may be obtained from the NDX, namely that after following the Dow for three months it is nose up against resistance. We would bet against it. Same volume pattern as the Dow.

Now isn't this interesting. The CRB which looked (up until May) like a great bet fell out of triangle. The way to be, if at all is short, but we don't think it will really be a long downtrend. We think it will find support maybe about 355 and settle down to a big trading range, but a good trade nonetheless.

Silver will we think do the same thing and based on the charts at the time we would be buyers of silver if bottoms look in at 10.

After the dogs of August went home we settled down to wait for Godot, who will arrive we expect early November, unless the Hezbollah Republicans throw in their hand in October. Also the God of the markets is scheduled to rear his ugly head in October, especially after the markets we have been observing. Wake us up when the fun starts.

September 9 2006 Old Jokes, so Familiar that they are told by number

Presumably every one knows the joke about the jokes. The joke here is on anyone who takes signals seriously, as we have said ad nauseam false signals proliferate during markets such as we have been in long enough to start numbering the jokes. See last week's letter where we expressed scepticism about what appeared signals in silver and gold, which coincided with a few days enthusiasm in securities. Folks you have to look at the big picture (unless you're making your living scalping). We conjectured that this picture would not be fully developed until the November

you-know-whats. (With a large speed bump October 19 or thereabouts.)

The gap in August in the NDX was just such a one. As was the break below the horizontal line. This is the time to get your capital ground to hamburger, unless you observe quietly with a cynical smile on your face and find some good shorts.

Everything is waiting for Godot, including the dollar index. While this is not the time for the general investor to trade (much less invest) it is the time to watch closely. When markets coil up like this there can be some serious consequences.

We suspected the breakout in gold and silver for traders and didn't take the trade personally while remarking that it was a half hearted signal for the serious speculator. The problem with disciplined (or slavish) adherence to any system or method comes with moments like this where jaded experience (AND some serious analysis) inclines you not to follow a mechanical system or method. Now we would not be at all surprised to see it break below the horizontal support line, and we would not want that trade either.

September 3 2006 Whichever way the wind blows this five minutes

A lost and wandering market is driven by whatever is the whim of the minute or this second's news. Of greater interest look at how the trendline from 2004 held up prices in July, in conjunction with the horizontal range line. Then, last week prices appeared to break out of the 2nd upper range. All this is confirmation that the crash is not yet. But until the 2000 high is taken out (decisively) neither is it confirmation of a bull market. Readers of the Major Turning Points Letter know that we think no resolution will come until the elections are decided. Could it be that they are already decided?

Apparently, to the uninitiated the XMI broke out. Not so fast. Robert Edwards rule was 3% more or less for a valid breakout. The lack of a confirmed breakout here weakens the case in the Dow, and strengthens the case for indecision and weakness in the S&P.

There was an apparent breakout in the silver also. We say apparent because we are so deeply suspicious of all the markets right now. Nonetheless this is a tradable signal for the trader. And of course investors we have said for a long time can be long the silver ETF. This pattern is different from the gold pattern which is unresolved and struggling in a big triangle, another thing which makes us suspicious of this. But the two can easily diverge.

You could make something out of the May-July formation here. A complex Kilroy bottom. We continue to think that individual issue charts rule the day. But you could spec long this one, remembering that really smart investors are probably already sitting on the sidelines, or are still in the Hamptons.

August 28 2006 Waiting for Godot, or waiting for the market to go

Talk about a picture of waiting for Godot. The Dow, the gold, the dollar, the CRB commodities index, all shifting uneasily from foot to foot and wishing the November elections were tomorrow. If they are waiting for good news and not Godot they are going to be waiting a long time. Think of some good news that would cheer you up -- fewer CEOs going to jail? Iraqis throw us a farewell beer bust and kiss and make up? Gas goes back to 2.95 a gallon? Administration resigns en masse and turns over government to Ralph Nader?

None of the above. Dow in big line drifting sideways, looking for the iceberg of October.

Gold pointing at extended trading range. Remember, triangle breakouts this far into the apex don't signify much.

Dollar drifting sideways, weak in general, like our foreign policy.

Even the CRB commodities index. Waiting for developments.

Oh, well, back to the Hamptons to work on our real estate letter and our uranium letter.

August 19 2006 Just waiting for October 19 and the apocalypse

Actually we don't see anything nearby which could take the market down, but we feel a shifting of the public mood. A Viet Nam type war will do that for you. But more than anything it will put a crimp in your mood when you have to park your Lincoln Navigator and get out the old bike. We thought this war was going to make the world safe for democracy and keep gas cheap. The market, as always seduced by today's news, threw a party for the end of rising interest rates. A bang and a whimper signifying nothing. As may be seen in this week's charts some long term trend lines are in play. Zip. Walter Lippmann wasn't brilliant today.

Is that a definitive break of the 2003 trendline? Sort of a superfluous question, in that it already appeared from the pattern that a sideways trend had started. All of this, including our feelings about current market tactics (short weak ones, bail out of longs breaking trendlines, look to be long for the long term in the metals) is pretty thoroughly covered in recent letters and the just posted Major Turning Points Letter.

The tide already appears to be running out again the NDX.

For traders gold is setting up a triangle which will give us some indication of short term direction. Long term investors should not be buying now, but holding and preparing to buy more if lower levels are made.

August 1 2006 Dog days of August just ahead. Dog days of July just behind. Dog gone.

Gold, having made a v top and taken back all its ill gotten gains. A trading situation. Investors will still be long GLD. We never promised you a rose garden without thorns. We promised you a rose garden on a roller coaster.

The NDX has broken its support and is in a clear downtrend. Any individual tech issues with broken trendlines should be sloughed. Depend on the ebbing of the tide to affect all tech issues negatively. Do not believe in long term prospects. Money is lost in the short term. You may not live long enough for the long term.

(Quote, Keynes: In the long run we are all dead. At the rate things are going in Iraq many of us will be dead in the short term.)

The S&P busily making new lows in a trading market, and basically confirming the mule market dominated by the Dow, below.

THREATS, THREATS, THREATS. Our oft repeated threat to produce a major turning points letter is repeated here, and composition has actually started. This will be the ultimate (well maybe the penultimate) word on the markets at this time. Watch this space and also the heavens for signs of comets and black holes. How do you see a black hole anyway?

Compare this chart with that just below. At that time we said that what was happening would continue happening, and sure enough that's what happened. Specifically what happen in the Dow was the confirmation of the bottom of the range. In mule, or sideways, markets the rule is be sideways the market, and long or short the individual instrument depending on the chart. Remember that the broad tide, sideways, will affect trading and investment decisions.

And, on the other hand you know what we think anyway, as you couldn't keep us from telling you except with a gag. Dow looks like a trading range candidate unless it takes out the highs or lows.

We will not be answering any email. Most all our addresses will be bouncing email. We might check johnmageeta@sbcglobal.net but don't depend on it.

Gold is recovering from a huge sell off. We specified earlier how we would trade it or invest. We're not particularly worried about it so are flat in our personal accounts except for a little bit of GLD.

We think the S&P presents a clearer picture of the market than the Dow. Just based on your every day chart analysis we would expect it to test the October low. And, of course, all that stuff above it now is resistance.

Gold, dollar and S&P, relative performance. Just to dramatize what's been going on. This chart is not finished. As you know what's happening tends to keep on happening.

June 16 2006 A multiplicity of opportunities to be wrong, or stupid, or unskillful

usually means that the market is vacillating and throwing off false signals. So you're damned if you do and damned if you don't, so damn it all just don't do anything the chart doesn't tell you to do. Certainly if you make decisions based on a few days activity you will manage to optimize the opportunities for being wrong. Sooo, You could be right being out of the indices, and you could wrong. You could be right being short, and you could be wrong (less likely in our opinion but we have said the stance is for aggressive traders).

What the chart says is, hello, looks like a support zone here, so let's bounce catlike and bite a bear. Or could be the quick bears biting the slow bears. Whatever, the bull case is badly damaged unless the previous high is taken out. Probabilities: slim and none, but what a great chance to be wrong. Or to sell options.

BUT (OR, AND) note the volumes scalloping gently and strengthening on the recent trading range and sell off. Looks like smart money distribution to us. Another strike against the bulls.

At the same time gold has given an aggressive traders buy signal (very aggressive). But the stop 3% under the low is so obvious as to invite daring.

Folks, faithful readers, scornful sceptics, this bull market is not over. The purpose of this sell off is to get rid of all the camp followers and Johnny-come-latelies and talking heads. This is a good spot for investors to buy GLD put a deep stop on it and let the hedge funds and locals sting each other to death. Actually a damn good idea anyway you slice it.

Sam situation in silver. But considering the deep gap, only for the agile and skilled or those with deep deep pockets, which is better than being agile or skilled.

June 9 2006 Worser and worser

If everything had stopped Wednesday you would have said, now, that's a one day reversal. Your 200 point ranges are not that common. Certainly an interesting day. Technically it would seem to be a reversal, but these phenomena are always subject to interpretation in context. The external context at the moment is fear and uncertainty springing from the devil we don't know, Bouncing Ben (who better learn pretty quick to talk in oracles, like his predecessor). Internally, or technically as we have been saying for some time prices balked at the previous high and the quick sellers decided to liquidate. We would venture the 200 point day

is the result of short covering rather than buying in. Technically not only was the market shying like a horse at a rattlesnake at the all time highs but Wednesday would have been five days down, so buying a plunge is smart trader tactics. Meanwhile the NDX is approaching the moment of truth (after quite a long time of lies). It fell pretty hard out of the trading range and is approaching a critical low. If we had any tech issues which had broken trendlines and important lows we wouldn't stick around. When it's happening it's difficult to comprehend that it might be the beginning of the next great market, but it might. Certainly nothing is to be lost here but perhaps some upside and much is to be lost on the downside.

The XMI, which we have pointed out contradicts the recent run up, is testing the trading range low after a false breakout. We remind you that a false signal followed by another signal usually indicates that the second signal is valid. Take out this low and the October low and bad things are forecast.

If you missed the run up in gold you are going to be given a second chance. We were short for awhile, and now are watching for a bottom to this major correction to get long again. Now it would be unwise to buy a downtrend. Careful watching is in order to let a bottom get put in place.

As is obvious here the major trend line is not even broken, and the price is nearing it. Time to wait.

Same is true of silver. One is always tempted to try to time the bottom. As someone said the purpose of experience is to allow you to recognize a mistake the second time you make it. Catching the bottom is a lot of fun, but doesn't have much to do with being a successful trader or investor. Staying alive is what's important for that breed.

June 2 2006 Mene mene tekle...is the handwriting on the wall?

Could be. What is surprising is how the Dow has held up compared to the SPX and the NDX which appear to us pretty damaged at this point. As we often point out, when the angled trendlines are broken the horizontal lines then become crucial. In addition to the wave lows (as, Basing Points, Chapter 28, 8th edition). Here the Dow is in support, but has made a lower low. Not a favorable sign.

The S&P took out 4 wave lows and broke important trendlines. The present rally is to be expected after a precipitous decline like this. Basically the rally means nothing until the May low is tested or the may high is tested.

The NDX fell out of its trading range after flirting with a bull trap. The trend line was already broken.

Aggressive determined bears might begin feeding about the edges. The stops are pretty obvious -- the recent highs with a filter of perhaps 2 or 3%. These ideas often get altered if, for example prices surged when attacking the highs on big volume. Then a bear would have to lick his wounds and hide in his cave, which is what conservative bears will be doing. At any rate we would continue to lighten up as until further notice the markets are either in a cross current or turning.

Gold is making a major retracement without having to this point affected the major trend. We are actually short futures, long light GLD positions (much lighter than previously. We regard this as an unparalleled opportunity and will be plungers when a bottom is in and our readers who do the same will rejoice when the golden bull resumes.

We keep sending notes to the Federal Reserve and they keep coming back with "Alan Greenspan no longer at this address". The ones that don't come back they don't answer. But we'll tell you what they say. High interest rates cause inflation, and also cause high profits for people who believe our letters and short the bonds. Here TLT, SHY below. Duh. Was this a no brainer?

Will interest rates go up more? How can they not? Unless you have figured out a way to stop spending $10 B a month in Iraq and running 1/2 $T deficits. In the meantime, cross currents, and probably some near term turbulence as the Fed realizes that

high interest rates cause inflation and that they are basically helpless to do anything about inflation, deflation or interest rates.

Welcome to the Titanic Captain Ben.

The Atlanta Journal Constitution's Mike Lukovich just published a hilarious cartoon of the Titanic going down, with the crew shouting, "Relax, Captain Bush says he's going to ban gay marriage." Ah, so that's what was causing the economic turbulence. Gay marriage.

May 26 2006 The beginning of the end, or the end of the beginning?

It strikes us that the present situation of the market is more precarious than at any time in the last several years. We could be wrong of course (and often are, because the preceding statement is a question of interpretation, not chart analysis). Precarious we think because the market is at a tipping point: Nose up against the all time high (a daunting prospect) with volume picking up on the sell off and analysts running around like chickens littles. It is a time of uncertainty. So what does the chart say? Cluck Cluck. This one says the price decline is stalled at the previous low and support.

But, while the Dow is at least not overtly bearish at this point, the S&P after giving a very bearish false breakout has sliced through four lows and rests at a lower level of support. It has rebounded vigorously there, but as may be seen a nine month trend line has been broken. Signs like these are ignored at the investor peril.

Let us put it this way. If you lighten up some and it goes up all you have lost is some paper profits. And it may just be a case of selling too soon. We have often sold too soon and marveled later after bad breaks at our wisdom. If it should sell off and start the inevitable correction you can sell some more and pat yourself on the back for following good technical procedure.

The NDX is even more negative. Take out the October low and some blood could be shed. Two important trend lines are broken here. We would certainly examine our tech issues and prune any with bearish charts.

If you have a particular issue causing you grief send us the symbol and we will look at it.

bassetti@edwards-magee.com

The silver chart is perhaps a study for what is happening in securities. A failed signal up, a sell signal through the triangle trend line which so far has not followed through, and the entire pattern could morph into a trading range, which is what might also happen in the securities.

Would we be buyers here? Yes, because the stop is so obvious -- 3% under the May low. This is a spec gut trade. There is no signal to make such a trade.

Like silver the gold is in a downtrend, looking for support, which it might find here. Again, the stop is obvious, under the April break by 3%.

The potential damage of the ETFs (GLD, SLV) is limited by the lack of leverage so we think even conservative investors could dip in a toe there.

May 19 2006 Midnight? Smashing Pumpkins?

We speculated (our most prominent character flaw) about the market turning into a pumpkin in our letter quoted in Barron's May 8. Little did we suspect that the light at the end of the tunnel was a pumpkin bearing down on us. And it may not be, but the signs are not benign. An important trend line broken and a weak basing point taken out. Here. Worse in the other major indices. Don't just watch in horror. Lighten up you positions. And lighten up more if the April and March lows are taken out. Is this the beginning of the end? Won't really know till the October low is taken out. But nasty portents.

April's low taken out. March's low taken out. Important trend lines broken. AND May breakout proved to be false signal. You should remember from our previous writings, as well as those of Schwager that an apparently valid signal which is quickly invalidated is excellent set up for a signal in the other direction. Magee called it an end run or false breakout. Bull trap.

The suddenly deteriorated situation is confirmed by the NDX. We have been bleating for some time about the true state of the market being more fragile than the Dow showed. Lambs to the slaughter.

Even in Silver, as shown here you should be hedged out or short. Failed breakout, 1 day island reversal, breakaway down gap, broken trendlines. A god send or a da Vinci code invitation to those lost lambs who didn't get long for the last run up. Buying opportunities lower.

Same in gold. For the conservative wise investors will be buying the precious metals ETFs lower and holding them for years. We lightend up considerably in the ETFs before the break, enough so that our positions there will be left to take the equity drawdown and catch to perfection the turnaround. When the downwave ends we will be doubling up for the next wave up. When will that be? Never know till afterwards.

While this is scary (and looks not unlike the lead up to the great Reagan crash of 1987) price would have to take out the low around 11060 to signal the beginnings of a trend change. Of course, if Monday and Tuesday see a crash, remember, you read it here first.

May 12 2006 Couldn't be better...

Last week Barron's quoted our email letter. Never mind. We know what we said, and so do you. What caught our eye was not our letter which as always was witty and as verbally felicitous as Galbraith, to whom we paid tribute and homage, (well, maybe as felicitous, we hope, could be, might be someday, we keep working at it and praying at the shrine of the great economist), what caught our eye was the letter from the chap right after us who after citing all the wonderful fundamentals said like Goldilocks it couldn't be better. We immediately went white at the gills and rushed out to short the market, but the market was closed (what kind of real market is closed? Just the New York club). The reason of course was the old market story we bore our graduate students with. To wit, or unwittingly, J.P. Morgan took

Here is why we have trouble seeing anything but a bull trap if the market breaks the old highs. For all intents and purposes this is the first attempt of price to take out the old high. Standing like a wall against that attempt is the tulipovolume from the great bubble.

the train down from New York to Pittsburgh to visit his steel investments. He toured the steel plants with the General Manager, those great roaring magma red streams of liquid money with dwarfs from Inner Earth running around making steel. At the end he asked the GM to sum it all up. "Couldn't be better," said the GM. J.P. went back to his hotel that evening and sent a telegram to his New York broker. "Sell all my Steel."

All week long there was an air of weirdness in the air. (Some of these letters will be remembered and quoted and idolized forever in the literature of finance.) (In fact that sentence (not that one, the one before that one) may rank right up there with "It was a dark and stormy night...".) And, where is the Panda Punctuation Lady when we need her? It started with last Friday's runaway spike day and lasted

till (but not necessarily ended with) this Friday's continuation of the break. Brian Brooker, our sometime collaborator and most excellent graduate student said it looked like an upthrust after distribution (Wyckoff), and damned if, in retrospect, this observation seem to have some validity, though, before hand you would have said the pattern wasn't right. Anyway, things have been a little surreal anyway since the silver break. In view of the fact that gold and silver were going straight up probably a consolidation to be expected. Look, when the local financial writers for the Chronicled and the web talking heads start talking about how gold is going to 1000 time to hedge your positions. Top indicator.

Skip the brilliant prosing and get to the point. What does it all mean? And it was flowing so well. Well, that might have been the clock striking midnight in the market, but as always you never know till later. Not enough data to change a trend, but enough to scare the pants off you. Remember the old market maxim: On a limit up day sell some. That maxim is different of course for plungers, which is, on a limit up day buy some more. Given the position of the market price -- that is knocking at the all time high it wouldn't hurt to lighten up. We have been bemused and amused by the ability of the price to make this much progress, as we have pointed out in our comments about the number of times it took price to surmount 1000 in the great mule markets of 1965-1982.

Gold also took its licks as shown in the next to last chart. But the longer term gold picture is shown in the last chart. We are watching gold with close attention as we may see a consolidation period like that which took place in April. Depending on the market circumstances we may hedge our long positions. As for our GLD positions, yawn we would have to see the end of the trend before closing those.

May 5 2006 Cinco de Mayo, gringo. How about a day without a Congressman?

5th of May, day the Mexicanos defeated the French in Puebla, for our readers who wonder about our dishwashers, tomato pickers, etc. Anyone who thinks dirt cheap labor (illegal or not) is a disadvantage is invited to remember what a country we were able to construct using slaves. Not a big thing with us, though we are hispanophiles. Big thing here is this trend. Knocking at the all time high. We think all of us "grumpy old bears" as Professor Hank Pruden calls us totally misunderestimated the effect that $10B a month war spending would have on the market. Well, actually

we didn't know it was that much because they consistently lied about it. But it was there in the market for all to see and is the fount of these trends. Omigod! They have admitted to war costs of $480B m/l costs of the war to here -- meaning the trillion dollar costs we predicted at the beginning of this dandy little war are going to come true. Don't get mad. Get rich. Like here where the S&P is breaking out.

Even the XMI is breaking out. Prof. Pruden is predicting 14,400 in the Dow.

We are just bemused. If not amused.

Meanwhile the precious metals markets are a function of the deep distrust of the really sophisticated and cynical. And likely to remain so. We have been long the futures and the GLD and wishing for the silver ETF.

We think this pattern in the silver, where it has not made new highs is due to uncertainty about the ETF. We are not long the silver right now, having been summarily chased by the break (an erroneous trade). We think we should be long, but are pretty cautious at the moment. Subscribers to the precious metals letter can be informed by email of our trades.

For technical (computer) reasons the yearly letter is divided here. For earlier letters go to