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 unli8ke 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 (a mistaken trade. We think we should be long, but are pretty cautious at the moment. Subscriber to the precious metals letter can be informed by email of our trades.

April 28 2006 On the razor's edge

As may be seen here in the NDX and below in the S&P these two indices are at a crucial point. The NDX looks toppy, and the SPX is right at the five year inflection point.

The Dow, of course is square in the middle of the tulip patch resistance from the bubble, but looking strong. Near its all time high, which the others are miles from.

Still it is an impressive performance after the 02-03 markets and the Kilroy bottom there. Good practice says at this point that longs in hand should be held until trends are proven to reverse. And, with Santa Claus in Washington going wild with the old government credit card and spending $10B a month on travel expenses in Iraq (next on the itinerary, Iran, a much more satisfying target) there is no reason to think the economy will crash until the spending rug is pulled from underneath it.

But readers who are only in stocks are doomed to long term disappointment. On the other hand here is the GLD chart which we have been talking about for several years.

We continue long and expect to be long for a long time. Entering at this time always entails more risk (stop under the reaction at 54) but we are still buying, and still expecting a lot more bull in this market.

More bang for the buck in futures, but leverage cuts both ways.

April 21 2006 Knowing and not knowing.

Sometimes we know the reasons for events, sometimes not. In this case we know the reason. After lying and dissembling and obfuscating the government admitted that the Iraq civil war prevention; regime change; destruction of weapons of mass destruction; peace keeping mission; nation building initiative; democracy spreading effort; correcting dad's mistakes (dad's beginning to look wise beside son); (pick one) is costing $10 B (big ones a month. That means it's

costing about $12 or $13 B (big ones.) Maybe more with those fast pencils at the Pentagon. Can't pour that much money into the economy without hyping corporate profits, and besides that this whole charade has revealed the ugly truth behind fund management: THOSE GUYS ARE TECHNICIANS. THEY KNOW AN UPTREND WHEN THEY SEE ONE and are riding the tiger. Of course when they get off the tiger they will all go over the cliff like lemmings. Nonetheless, true picture here with the major market index.

With a tiger in its tank and a song in its heart the crude market. Crudely about to rip the economy to shreds.

But what a great ride for the riders. As Dogen used to say, ride the tiger in the direction its going.

Collusion? Or heaven sent opportunity for shorts to stop the bleeding? Worth an investigation, but the silver break will never get investigated in this administration. Extremely uncertain situation at this point. Further action will clarify whether the buying opportunity is here or a little lower.

The up bar is the automatic reaction to the panic (?) sell off.

April 14 2006 Two years. Where would you rather have been?

The Dow, in bull uptrend with mules included, basically since last April. We notice that more and more talking heads are talking their heads off about how this market is going to tank. We agree, but the chart is long right now. Our esteemed colleague Professor Hank Pruden consulting his Wyckoff crystal ball says the Dow is going to 14,400. Could be and anyway not to be short right now, but ready to jump when the avalanche starts, but not to be early. We already tried that.

One of the tenets of Pragmatic Portfolio Theory, as expounde3d in the 8th Edition of Technical Analysis of Stock Trends is that moving markets are allocated greater capital, as non performing markets are deprived of it. Two years of silver. And a doubling, and if you were in the futures, which we are, you are purring like a cat licking the cream off his whiskers. Next week -- silver companies.

Same with the gold. These markets are basically in full cry, and likely to continue on as more and more investors are persuaded by common sense if not fear of the economic quicksand the neocons are leading the country into.

We have discussed a number of times the way the general investor participates in the gold market. But participate he should and not cling to hope that the Dow will reach 36,000. It probably will, but not in this lifetime.

Like, it's a head and shoulders top, and we've been talking about it for a year. TLT, easy money on rising interest rates. Duh. Breakaway gap. Sigh. Just do it.

April 6 2006 GOLD! GOLD! IN ....

The best way to own gold for the general investor, GLD, which shows what the physical is doing. We have been long for months, and will be long until a definitive trend change is signaled.

For those who aren't in the know we are hot in the chase of the Maserati at sbfantasyportfolio.com.

But if you hot on the heels of a Maserati, and can't own GLD here are some gold stocks worth looking at.

GFI, clearly still in the uptrend and more speculative since it hasn't broken out. Perhaps that shows more promise. Perhaps more risk.

BGO broken out and running. Has the advantage of being cheap. Might not meet minimum $500MM market cap.

But raises question of what you do when you miss the breakout but want to buy anyway. What do you do? Trade lighter and increase the position if it continues.

GG, same situation but stronger trend. We might point out that any of these stocks bought over the past year while we have been preaching gold would have reaped strong returns.

HL. Cheap and breaking out.

LET US EMPHASIZE! We don't know a damn thing about these stocks, except they benefit from gold's bull market, and that should go on for a long time. But we don't do serious brow furrowing research about the management and sales etc etc. Think of how much time and effort we save. But if you're into stock picking it would be foolish to ignore this group.

NEM, Newmont is paradoxically not as strong as the above, but the gap and advance make it buyable for a speculative buy. We opine based on the chart that it has weaker possibilities than the others.

March 24 2006 How Time Marches on and isn't this the month when it comes in like a lamb and goes out like a.....

Pundits (we almost said "other pundits" and then recoiled in horror at the thought of being a pundit instead of an humble chart reader) have recently remarked on the low volatility levels in the markets. Perhaps that's why we're feeling queasy -- or is it just spring fever? In our experience low volatility is followed by a reversion to the mean -- sometimes viciously so. Like it or not the charts are long, and experience says not too long and not for long.

Once again, we think the XMI is the true picture of the market, and if you were a trading man you'd be shorting it right now.

And until the real thing comes along (the silver ETF) the GLD just gave a little buy signal. Might be a pattern gap. Clearing the recent top would confirm it.

March 17 2006 Vicious spite of market disrespecting pundits

As quickly became apparent this past week the market is ignoring us and every other intelligent analyst, all of whom seem to be saying this market is walking on eggs. Then in short order it invalidated (or appeared to invalidate) the broadening top pattern. Well, you can't add $3 T (rillion) to the national debt and spend $5 B (illion) a month on war games without pumping up corporate earnings. Farther and farther out on the limb with the sound of the saw clearly to be heard. We would stick to the policy of holding any longs with good charts, scalping longs and waiting for the dam to break.

Don't forget the Jim Rogers story. "Everybody always says that Jim Rogers is great at catching the top. They don't talk about the seven or eight times I tried before I succeeded. (Approximate quote: source, folklore)"

We divide our readers into sensible investors (who will not be trying to catch the top) and speculators (the speculator who dies rich dies before his time --old market saying).

The tulipomania top we referred to last week is the all time top; and by taking it out we mean a valid breakout of a minimum of 3%. Here's what we think. If it does take it out it's the biggest sucker play of all time.

This market is like the alps at avalanche time. If a chamois sneezes, or Asian flu gets popular, or if Iran burns.... Watch out.

The SPX confirmed the Dow, but the NDX did not. What does that mean? Well, if you credit our Composite Market Theory it is not a confirmed bull signal.

Meanwhile the gold and silver markets at the XAU are offering a buying opportunity as seen here.

For an analysis of the recent Dow

March 12 2006 So? What's gnu?

Three years of Dow. Nothing gnu. If you only looked at 3 years you'd think we were breaking free. That resistance line lurking overhead is from the tulipomania. Think it doesn't matter? John Magee found resistance lines 14 years long in his charting. We are in the first serious attempt to surpass tulipomania highs. Won't happen.

9 months of Dow showing details of trading range.

3 months of Dow showing broadening top and Friday's about face. A new high could be made without invalidating the pattern, but taking out the high by 3% would presage more upward working. As all of this is built on quicksand the higher up it works the farther down it will fall.

March 6 2006 Mysterious voodoo of ruler lines

Comes true (so far it seems check back later never cackle when you've laid an egg because you might wind up with egg on your face) as price seems to have bounced off the broadening top line. Are we suspicious? Like a black cat on a hot tin roof. Suspicious or not shorts here have a stop that can be seen from outer space. Like the great wall of China and the great pile of economic B.S. in Washington.

Complimenting the Dow the S&P appears to have bounced off the resistance line shown.

And the XMI is in a perfect position to test the bear market hypothesis. Take out the nearby high, more sideways. Take out the nearby low, another nail in the coffin of the bull.

For an analysis of the recent Dow

February 24 2006 Price bounces off resistance line.

But don't start celebrating yet bears. Because this could be only the 355th false signal in these markets. But we could see exploratory shorts here. We could even see really long term shorts if you were really willing to take some heat -- and we do mean heat. It wouldn't surprise us to see prices try to take out the all time high, and even take them out before hitting the bob sled run to Tierra del Fuego. Rest assured though, that is the eventual destination. At the moment we think there might be a few more months of sideways left here.

Certainly the indices are at a major decision point as seen here in the SPX, which has bounced along with the Dow.

The XMI shows the real heart of the market. True sideways with a downward bias since December, but nothing definitive until the October low is taken out.

February 17 2006 On the Razor's Edge.

Interesting moments in the life of the market. The broadening top line we drew in January has now come true, as we conjectured. Significant further price progress will invalidate the pattern and be bullish. A downward wave still leaves things in doubt because the lower pattern line would have to be taken out to be meaningful for your average bear.

While the NDX also sits on the razor's edge, not having confirmed the Dow with a new high. And looking toppy. Once again needing to escape either up or down from the high and low horizontal lines.

Here in the XMI is we think the true picture of the market. Mush.

A reflective thought or word.... we assume our readers are familiar with chart reading and recognize this as a meaningless sideways (or mule) market.

Very shortly (midweek) readers will be able to see a broader market view at

http://www.edwards-magee.com/nf06/dow2006q1.html

We continue to evaluate the metals as the markets with most promise: http://www.edwards-magee.com/nf06/alchemist.html

February 12 2006

Still happy bears in a still sideways market.

Actually, we don't think it's irrational exuberance. We think it's stupid thinking, but that is generally what the market exhibits before the grim black cat comes to call. On the other hand (maybe it's the third hand) you can see this broadening pattern might turn into a diamond. Less ominous than a broadening top but a diamond set the stage for the great sidewinder market of 99-01.

US Real Estate. We think intrepid speculators could sell real estate, using about a 5% stop. If it didn't work we'd try it again higher.

Followed by some bearish looking bond charts from the ishares.

Here's a very bearish looking 1-3 year bond chart with a gap signal for a short sale.

The 7-10 year is just as ugly looking, in fact there is even a gap in there too.

Meanwhile turbulence (or Alan Greenspan) hit the metals markets, altering nothing but the short term futures outlook. Not too late to subscribe at Gold! Gold! Gold in...

February 3 2006 False black cats strike again. For the second week in a row the markets ended on a scaredycat note. We have remarked often over the past year on the numerous false signals thrown off by this market. The market knows that it is on the razor's edge and shys like a startled horse every time a bad piece of paper blows across its path. We had expected this leg of the Dow to exceed the last high, and that may still happen, but even if it takes out the nearest low (Jan) that does not mean the bear market has started, only that prices have returned to the trading range. The signals may not be clear, but the message is: Sit. Hold any longs you have which have not broken their trend

lines. Hedge any shorts you have. Scalp long issues. And find something better to do with your capital in general. The metals and energies are in bull trends. We still expect a real estate implosion. And we still expect soaring interest rates. In the meantime the entry to these trends is tricky and difficult.

The XLE here is buyable with an obvious stop near the low at 45.

The gap and run day in the NDX are more ominous signs, but like the SPX price is headed for a support line. It is a little shocking to an old hand that the painful lessons of 1999-2000 should be forgotten so soon, but the recent plunge in GOOG is a warning of the get rich quick mentality in the markets. And of the over exposed state of all the markets.

Oh, and incidentally our fearless leader just asked for another $120 B for Iraq. As we have predicted for several years the 30 year bond is returning, but the house of toothpicks will not likely crash till the Chinese decide to use their debt holdings for political extortion. Nice knowing you Taiwan, but business is business.

Meanwhile, speaking of bull markets. Let's see, it is about two or three years we have been telling our readers to lay in some gold. Here is the investor's way to do it -- unless you are very well capitalized and want to store it under your bed. Thrill ride seekers can subscribe to our Alchemist Letter where Karnak is position building in the futures.

STANDARD WARNING! TRADING FUTURES IS A HIGH RISK ACTIVITY AND NOT FOR THOSE WITH HIGH BLOOD PRESSURE OR HEART CONDITIONS.

January 27 2006 Cats. Cats everywhere. Dead Cats, Hello Kitty

And your faithful correspondents who startle every time a black cat crosses their path. The irrational strength of this little bull is impressive. And this pattern is still a broadening pattern and should take out the January high and then come back. In the meantime long scalping is the thing to do. What a country! $6B a month in Iraq $85B for New Awlins (actually, sell Washington and rebuild NOLA). $2T long term for the Iraq quagmire. Tribal politics. GDP slows to snail's pace...

It's enough to give a bear heart. But it's being Chinese New Year we are resolving to be attached to nothing but the chart. Unlike the Dow this is a valid uptrend and if a bear you must be hedge or short term trading longs.

Same with the NDX, still a bull trend. All the majors are now in between, waiting to either take out the nearby high or low. Given the enthusiasm of the bounce off the panic days it looks like higher. The panic selling though is an indication of what an adverse news day (Japanese scandals in this case) can do to the markets. At the moment it appears that the disintegration of this market will occur bit by bit -- death of a thousand cuts as the underlying foundation of sand dissolves.

For real bull markets see Metals: Gold/Silver.