April 27 2007 A week of follow-through just in case there are any bears left out there -- or if there are to see if they have any bearskin left...

Frequently breakouts are followed by "throwbacks" to the breakout line. The way this market is running we may well not see a retracement. The Dow and the S&P are both running and there is now a deep zone of support from the Feb high to the Mar low. Round and round she goes, and where she stops nobody knows.

Readers don't know where she stops, but they know where their stops are.

The dollar is also running. Running down like an unwound clock. The chart shows (text) where the bottom is. Our analysis says that all this is the process of putting in a long term bottom for the dollar. When it is complete we will sound the alarm.

The metals are in a long term consolidation. A common habit. We would sit on them and wait. Meanwhile long the indices the utilities and war stocks. Short the prospects of the present administration and Henry (I didn't do it) Gonzalez and Doolittle and the other scuzzes who are finally being brought to justice. Surveying all the president's men reminds us something someone once said to us in NY -- it might have been Michael Bloomburg --

First rate executives hire first rate managers. Second rate executives hire third rate managers. Good work Brownie, Rummie, Wolfie, Harriet, Henry, Jackie, Tommie, my god it looks like the indictment list from the Reagan Administration (or Nixon's).

April 20 2007 What a difference a week makes...

From messing around to running away. The strength of the breakout leaves little doubt as to authenticity. Add to that the fact that the market shrugged off the latest Chinese syndrome drill when the Shanghai market hit an air pocket. The market definitely knows something we don't. We suspect that what it knows is that the sheep will be coming to the shearing, and the shearers (your friendly local professional) will humor them for awhile before the slaughter begins. They know that their agility will enable them to leap clear of the ship before it sinks. Five days with signals as clear as the Hollywood sign. If you peeled off some layers of your portfolio you might even put one back on.

The early warning breakout was over the third line of the fan here and the gap away from the horizontal line was the exclamation point. Two events are possible here. A retracement to the breakout line and a return to the previous range (i.e. false breakout). Just eyeballing and guesstimating we think (note, think) that the market could spurt higher. If there are any shorts left out there they will be looking for a hole to hide in.

How much higher? Well, our colleague Hank Pruden says the market is going to 14,400. We had the amused smirk wiped off our face and are just following what the chart says.

There is a gold signal also. Still ambiguous, but worth taking for the adventurous.

Meanwhile the dollar is headed back south to test the bottom. Chart readers, and our readers can see clearly what happens when trend lines are broken (proceeded by a clear rectangle formation). This business can be astoundingly simple at times. And the analysis of the dollar here is a sterling example.

Study this case if you are new to chart analysis.

April 13 (Friday the...) 2007 Spring has sprung and it's snowing like crazy. What is happening to this country and who's to blame.... No, he's on first...

We look at the people who watch the earnings and employment figures and all those other things and shake our heads and think they're kind of cuckoo, while we wait for the first cuckoo to appear. The first robin appeared, but he froze to death. So how does that affect the building statistics? When that red red cuckoo comes cooking along... Did we have too much to drink for Easter or is it the egg coloring or... Who's to say... anyway the DIA chart says that there are some new trendlines -- the one started in July 06 and (unmarked) a very short term on the present rally uptrend. Taking out the Feb/Mar bottom here would be very serious, but we have s top down there somewhat below the horizontal line.

What is really going on is showed best by combining this with the SPY chart inconveniently placed below. We are in a rally or consolidation from the China meltdown, which furnished a much needed anchor point for a trendline.

Meanwhile, consonant with the fact that most of our dollars have been shipped to China the dollar index broke through the previous important bottom. Traders should be short term short and ready to take long investment positions. As seen from the chart the long term bottom is down there aways When it hits and bottoms there will be some fabulous trades to be made.

The SPY like most everything else show the interim nature of everything that is going on.

As does the silver which we suspect will resume (or is still in) its bull market.

April 9 2007 Bambi lays an egg for Easter...

We never really believed that Bambi was her name anyway. It was not really believable. Anyway she's in a different business now. Talking heads -- just as venal as politicians and financial letter writers. Is Maria still around? Hewing to Magee's advice long ago we ignore the news so thoroughly that we don't even know when there is a new deer in the headlights. Basically that other world -- the one which runs on earnings and fundamentals is shifting from foot to foot waiting for the other shoe to drop -- or maybe the first shoe.

Perhaps it would be better said discount the news and always keep an ear to the ground.

They probably have their eyes on the wrong walnut shell. Here in the DIA we see that we are still in the retracement pattern. Two fan lines. No resolution so far.

What we should be watching is the interest rates.

Looks like Bambi got run over in the TLT and is road kill. So is the TLT. This gap down is most ominous.

It looks to us like somebody knows something, but is not telling. What evil lurks.....? The chart knows.

March 30 2007 Easter Bunny just over horizon and Greenspan keeps laying eggs

Traders used to worry about what Uncle Alan had for breakfast. Now Bernanke worries about what Alan has for breakfast. With Greenspan muttering about a recession and Bernanke worried about sub prime mortgages what should we be worrying about? The chart.

It says that we are in a downwave whose outcome is not yet determined. But, as with our previous stance we remain long until the stops are taken out. The indices are just where the metals are also -- hanging.

OIL on the other hand is moving a bit. We remarked that we thought a bottom had been made, and it is certainly worth a speculation. It is into resistance now, but the last week or so is full of signals for the venturesome -- and maybe even some investment by shy persons.

Here is what your weak dollar policies will get you. A weak dollar. The Euro at 1.34. Looking at this chart and the dollar index we think we might be nearing a long term trend change to a stronger dollar. The charts do not yet say that, but there are hints --specifically that the dollar is near long term support on bottom looking patterns and the foreigns at long term top levels.

Currency trends can be scandalously profitable.

A $2 pound? Really. We're going to have to get a tin cup and sit on the street outside the Ritz (not the Paris Hilton) in London. Limeys (or les roastbifs, as the F---oops, the Freedoms--perhaps, les grenouilles? say) day tripping to New York for the shopping bargains.

That's OK. We're investing our capital in a democratic Mid-East... Uh... Incidentally, what are the dividends going to be from this Mid-East investment?

6 years of feckless foreign policy disasters and economic gross malfeasance have put the country between iraq and a hard place. Mainly we have managed to outsource our jobs and technology to China in exchange for cheap t shirts. In the process we have constructed a pipeline to China which flows night and day with a weakening dollar. Look on these dollars as hostages to a regime of thugs and juvenile delinquents. If they want Taiwan they'll get it without any complaints from us. They can destroy us by dumping out debt on the market.

Well, here's to a stronger safer America. Have a nice Easter and don't take any wooden Easter eggs.

March 26 2007 More of the same, or same same...or more of the same same...

Lower lows, higher highs off the China syndrome market. That might hint at another test of the sell off lows. In the meantime what is happening is in the meantime, by which we mean watching and waiting is what's happening. It is worth noting that this long wave from July 06 has not had a correction of any significance whatsoever except for the current pullback. Wave followers know that long waves can be both profitable and perplexing. But the principle of waiting for the wave to top and recede and than advance again in order to set the stop at the new wave low is so solid and has kept trend followers in big markets through pull back after pull back.

All the charts that we have looked at show that we are in an interregnum - or intermission. Some like the 20 year rates are worth noticing. Early identification of patterns can leave egg on your face, just in time for Easter. But If this is a head and shoulders we could see higher 20 year rates with all that implies. At any rate we wouldn't be long the TLT at this point. We would be waiting. That's what we do most of the time anyway, and that's why we have so much time to indulge in the devil's game of cheap cynicism.

Today's cheap cynicism is lovingly dedicated to the new Congressional leadership where the French (Argh, no, not those guys, call it the Freedom phrase) plus ça change should be embroidered on the red white and blue if not on the blue white and red. Or, better the phrase, vive l'extortion, which is what our new leaders are doing, extorting lobbyists for their campaign chests.

Are these poltroons and crooks and hypocrites responsible for the fall of the dollar? Yes and all the other evil and meretricious things which are happening in this our beleaguered country. The dollar is coming back to test the support zone. We will be enthusiastic buyers if it gets down to 81 and we expect with a new administration (which can't come fast enough for us) an uptrend in the dollar.

There is no question that the euro is either at the top or near a top, as our sister in law has just changed a bushel of dollars to buy a condo in Croatia, ah, romance, a condo in Croatia. (instead of Serbian gunboats.)

Grind your teeth. New poltroons will be in charge of the civil war in Iraq and your friends will be calling you to donate to George Bush jr's presidential library. (He can read?)

March 16 2007 Beware the Ides of plus one -- an interesting week (Old Chinese curse: May you live in interesting times...)

The less than interesting thing about the NYSE is that trading is not continuous so you wake up Monday morning and discover that they have ripped your head off on the opening. Currency markets will eventually deprive NY traders of their 18th century model. In the meantime traders will be feverishly working over the weekend trying to figure out what to do Monday. Chartists already know of course. Thursday we had another panic sell off and automatic bounce, all in one day. What to do, what to do. But not for us. We know the crucial stop is at 118.75 in the DIA. Hit it and we go to the beach. Now we watch to see if there is another test of the Thursday bottom.

A possible hint of things to come (and not a bullish one) is in the Qs. This looks suspiciously like a broadening top which is never a positive sign. But there have been broadening formations before in these markets. In this case in the Qs there is a fairly obvious stop, 40.73, a bit above the horizontal line determined from other points.

This long wave got overextended by any measurement, and the corrective downwave could take back more than this without invalidating the bull trend. But, as in the case of Enron, if the stops are violated the wise action is to go to the sidelines.

GLD appears to be stabilizing. We would be buyers here with a stop under the nearby low. We do not think the full effects of the huge 9 year rounding bottom have been realized yet. In fact --speculating once again -- we think we are in a relatively quiet cross current in the commodities and the metals which will be broken by some as yet unforeseen Chinese fire drill or terrorist attack or Iranian war or impeachment or sale of Ben and Jerry's to Saudi Wahabbist interests. Who knows? We live in interesting times.

March 9 2007 A tempest in a Chinese teapot?

Could be. There is a model of panic sell offs by Wyckoff. We won't go into it at great length here except to say that in all likelihood it would be completely expected to see the bottom in the major indices tested again. Lack of a test is a sign of market strength. These "corrections" or "sell-offs" are in the natural order of things. Their purpose is to spook the weak hands, and that appears to have happened here. In order to avoid being ejected from the market you trail your stops below wave lows where the panic and sheep running have a hard time reaching them. So far none of the majors has reached our stops as we have noted for a couple of weeks. So the bull market is still on. Our stop setting method is explained in Chapter 28 and 28.1, and shortly we will offer an ebook here which will be a comprehensive treatment of the subject. Stay tuned.

In the classic Wyckoff sell-off we expect a panic, an automatic bounce and then a further test of the panic bottom. V bottoms are quite possible. There have been a couple of automatic bounces here. Very agile traders (if we had been trading it) would have taken a flyer last Friday, buying an exhausted bounce try. Since trend traders should still be long -- and certainly not have sold on the sell off -- a new tight downtrend line will develop here from the Feb top and offer a reentry both for traders and for those who take this as a buying opportunity. Exemplary strength would be an invitation to lighten up even more, but core portfolios (legs 1 and 2 of a scaling position) should still be long.

TLT and the 20 year treasury gives a sell signal here. A handsome gap out of what might be a tiny triangle.

More or less the same comments about sell offs apply to the gold market also, but it's a different animal. Long term positions are in no danger and moderately bold investors and traders might be buying here. Stop under the nearest low. This is not yet a basing point wave low.

March 2 2007 Ours not to question why....

Actually, we do know why. The Dow had picked up around 18% from wave bottom on this wave without a correction. That alone is enough to account for the China syndrome (market melting down to China, for those of you who are not nuclear engineers). All the aware participants knew sat around the trading floor looking at each other waiting to see who would blink first. Or who would rush for the last available musical chair. So the explanation for the "market break" is completely technical. Now that we know why let us explain what it means. Nobody knows. Nothing has changed in the short term economy. It is still rosy. Unaware traders are now aware of the interdependent character of world markets. The long term prospects for the economy are as grim as ever. The Bush administration has done damage it will take a decade to repair. (Equal time for Democrats: Phooey Styner is now extorting the lobbyists who used to suck up to Hastert and Delay. Plus ça change.) But now everybody is looking at each other and saying, Is that it? All a question of public mood, but Greenspan's comments that the recession cometh is not a good auger. So much for speculation. What does the chart say? A clear message to short term traders. Head for the hills and wait to see what develops. We have been saying for months that long term investors should be lightening up and finding shorts. Lighten up some more and honor any stops which are hit in long positions. If you are uncertain as to where stops should be read Chapter 28 and 28.1 of the 9th edition. Or send a query.

The DIA and the SPY gave a clear sell signal -- note gap and panic sell day -- to short termers. As we noted last week the stop in the DIA is 118.75 and a similar stop for the SPY for long term traders. We think prudent caution is in order here. We theorized at great length that this entire wave was a bull trap. The way not to lose a foot in it is to honor the stop signals.

The metals gave a sell signal also. Certainly for short term traders. We have not bothered to worry about our long term positions here yet. Worriers would have stop about 5% under 120.

Oh, we forgot to tell you all the reasons for the sell off. Full moon. Eclipse. Chinese New Year. Al Gore's winning the Oscar.

February 27 2007 SEE LAST WEEK'S LETTER.

We have been wondering for some time when the music would stop, and what would make it stop. Ah so, China. If interested the stop in the DIA is 118.75.

If we were speculating we'd be out. If we were long term investors we would wait for the stop to be hit.

February 16 2007 Ah, sweet Valentines from Bernanke raise market spirits

Gary Anderson (equitypm.com) spoke at the TSAASF (tsaasf.org) meeting this week and showed some of his tools for market analysis. Two striking graphics showed a remarkable similarity between present conditions and those of 1987. As is probably obvious from our letters of the past few months we have been getting that old 1987 feeling, so the graphics were just projections of our more inchoate chart reading and crystal ball gazing. Will those technical similarities produce the same Niagara Falls like chart pattern and avalanche in the market? Only Karnak and Allah know for sure.

As for you, dear reader, we repeat here what we have said many times. A well constructed portfolio has some good shorts in it. If the marble does roll off the table it will hit the floor softer if it's parachuted by some shorts. (Is the National Book Award Committee alert to these letters? What prose! What metaphors! What similes! What the ---? Anyway, every since Herb Caen died we have been bereft, only now to discover that we are indeed, channeling Herb Caen.)

No news is good news in the Dow. Unless you count Gary Anderson's news as bad news. While the NDX (not shown) looks toppy and in a trading range the Dow marches upward over a path of disbelief and bearishness among analysts with any brains. Unfortunately it's not brains you get paid for.

A trading lesson in the OIL. Or two lessons. The trendline combined with the upwave length started a downwave. One lesson, the trendline. The other that a downwave (or consolidation) follows an upwave as the night doth the day.) The upwavae which started in January has not had a downwave until what is on right now. At this point you wait with your stop below the Jan low to see where the next trendline will be drawn.

For all intents and purposes no downwave has occurred on this wave in gold either. Readers who pay attention should be rolling in enough profits in GLD to pay for this letter (and the editor) many times over.

February 9 2007 The other markets--buy signs everywhere.

Friday was a little strange on the face of it in the S&P. Sometimes it's difficult to tell if people are spooking or it's just the traders jumping on the short term trend. At any rate it was expected. Five days of very compressed range will invariably be following by some fireworks in volatility. The pattern follows along with previous waves in the market, short sharp and then a downdraft. But this bull will not be discouraged, so far.

Meanwhile buy signals are all over the place in other issues. SLV silver gave its first signal in January and is looking at the December high. We expect it to meet some temporary resistance there. The long term stop is back there under 120. Sorry it's so expensive, but that's life.

The DJU has given a number of signals. If you buy it now plan on a reaction, on which you could add to a scale in position.

Strong signal in GLD. Investors in gold will do well over the long term.

People talk about a Goldilocks market. they should be talking about an Alice in Wonderland market to go with the science fiction fantasy delivered to the Congress as a budget. Budgets like the latest are made for short term enrichment of thieves and scoundrels (plenty of those in Washington). When the music stops the slow witted will find there are no chairs to sit on -- and may not be for years.

Stay tuned. We're cooking up a whole post of cheap cynicism laced with vitriol.

February 4 2007 No new news. All old news.

Which is to say that this little bull keeps bulling along, so why not look at some other charts? A few weeks ago we conjectured that a corner of some sort had been turned. Evidently it wasn't turned in stocks, as this trend continues intact, and really without even any signs of deterioration. Then almost independently the dollar is bouncing off the bottom (as we speculated it might) and the metals are in big consolidation patterns, some of quite large ranges.

The CRB made a picture perfect island reversal and sent all sentient beings a buy signal with the breakaway gap. Not a lot is meant until it clears the recent high of December, but it is a straw in the wind.

Gold bounced off a resistance line and continued its sideways trend. Pictures us blue in the face saying that gold is an investment for the general investor, and a wonderful speculation (along with the silver) for the speculator.

The ups and downs are intended to line the pockets of the pros and frustrate amateurs. Mature readers of this letter will frustrate the pros by sitting on SLV and GLD.

We remarked on the volume climax in OIL and expected higher oil prices. We think OIL is good part of any portfolio. Purchases should be staged in in tranches -- maybe three to five. Strong movement above the long term trendline would warrant a second tranche.

In December we published the dollar index letter which said it was time to get ready to buy the dollar. Good timing. The dollar has rallied and now is in the process of consolidating. It could be a reversal of course. Even if it is a reversal the outcome is pretty certain -- stronger dollar over the long run.

January 26 2007 Hunt for the killers....

The most important thing that happened this week was that Howard Hunt died. There is every reason to think that Hunt was involved in the assassination of John Kennedy. The NY Times completely ignored the question in its obituary. Wikipedia is a little more informative. Being amateur conspiracists we think he was in on the kill. These things occupy our minds when there is time to kill and we get bored with saying the same thing week after week: trend intact, and alive and strong and as yet no sign of the sharp reversal we think is inevitable. We think it remains intact because the public (i.e. the pundits, analysts, advisors, hedge funds etc.) expect it to fall apart. As a minor pundit (minor minor?) that's what we think too. As chart analysts we think that long is the way to be. It's really tedious when your gut tells you one thing and the charts tell you another. Chart rules.

January 19 2007 Life is short, Art is dead...

The most important thing that happened this week was that Art Buchwald died. Our favorite thing he said was "I'm not a Democrat or a Republican. I'm against whoever is in power." He shoulda stuck around to satirize this market. Because like it or not it gets farther and farther out on a limb. And it is also a real bull market, against all belief and against Richard Russell and everyone else who thinks.

But, then, why shouldn't it be an Alice in Wonderland market? We have an Alice in unreality government and an Alice in fantasy economy and a president in iraqiland. Hey. We never thought we'd miss Reagan and Nixon. And Harding. And Hoover. And Coolidge. And Taft. Come to think of it, these guys are in a great historical karass.

John Magee labored at great length in The General Semantics of Wall Street to convince us not to worry about the why of things, but about the what and how. Early American zen masters. So man is an animal which needs to know why, even when the why is invented. It's the economy stupid! Anytime you pump $500B (that they admit to) into a war you done got economic stimulus. Open the money floodgates, Let the super rich off the tax hook, PARTY!

Bernanke dropped the first boot the other day when he pointed out the mastadon in the hearing room: It's social security and medicare stupid.

So eat drink and be merry and stay long while lightening up. We don't see any signs at the moment saying slippery road ahead. Except that ironically the Democrats could upset the bandwagon by trying to reestablish fiscal responsibility in Washington. No good deed goes unpunished.

The charts speak for themselves. Bulls in the indexes, cows in the corn (or at least in the CRB which is sideways-- a mule by any other name).

The silver and gold are sideways and the dollar is bouncing off the bottom.

Is the end of the world as we know it still at hand? Not while this party is going on. It's been postponed for the moment.

And that whistle you hear coming down the tracks? Ignore it. Means nothing.

January 12 2007 Never one to throw iraqs at wasp nests...

But always willing to climb out on a limb and paint ourselves into a corner. Which is what the bulls have on this market. A corner. We suspect however that there is no exit from this corner, and that success is not just around the corner, not here nor in Iraq. Which is our long way of explaining what this hot air balloon is filled with: namely hot money financing the war in Iraq is lifting this balloon. Wait. Is there any metaphor we haven't mixed? If so please send an application to our publisher who will do with it what he does with all our other pleas, exhortations, brilliant ideas, plaints, etc. Fertilize the ocean with it, evidently. What we were trying to say when we wandered into the labyrinth of metaphor was that with hot money in a hot air balloon you just have to stay on board the balloon until it bursts. Well, we'll try to anticipate it, as our recommended strategy has done over the past several months -- lighten up but don't jump off. If we think we see the avalanche starting during the week we will post an email to the group list: http://groups.google.com/group/edwards-magee/about

Here we are moving back to take a stereoscopic view of the markets. (There's nothing that can be said about the microscopic view -- it just keeps on keeping on.) From the yellow notes you can see the important trendlines which are so far away from the present price they might as well be in Iraq.

Among other considerations being long (even while lightening up) is probably the thing to do right now, considering that everyone in the country is expecting a vicious correction (Motley Fools, 25%). When everybody is expecting something, no matter how smart they are, they have become the public, and the public is on balance wrong about 85% of the time. Dividing 85% by pi we get .... the pi in your eye ratio, which says copper the public's bet. So you think we drank too much at New Years? No, looking at these charts gives us vertigo.

The near term trend lines are so steep that they have no practical use. And there has been no downwave on which to base a new trendline. You can, of course always set a money management stop -- say 5 -7 % under the market. We have been racking our brains (what's left of them after New Years) about crashes -- studying some of the great crashes of our experience -- looking for the clue. At the moment we think that a trigger for a crash might be sudden sharp long down days on steadily expanding volume. More on this later. Our letter on the dollar remarked a few weeks ago that the dollar was approaching long (really long) term support. No sooner were the letters out of our computer than the worm turned and started eating shorts alive. We don't think it's the end of the bottom, but it may be the beginning of the.... Is anyone still listening?

Didn't the oil speculators hear about the new war in Iran? You would think from this chart that oil was headed for new lows, and, as Damon Runyon and Napoleon said, that's the way to bet. But remember, it's a slippery issue. We wouldn't want to be long OIL as we said earlier. In fact you could be short -- but remember this is a riverboat gambler's game. Of course, King George just tried to go all in on Iraq.

Stranger and stranger. Look for our new editorial policy of abusing Democrats. Coming soon.

January 5 2007 Is this the beginning of the end? Or the end of the beginning? Or the beginning of the .....

Well, whatever. No doubt it's the beginning of the year. The main doubts are about that volume the last day of the year. It is a little too exaggerated to be just year end tax selling. Once again we would be scaling out. Clearly some kind of corner is being turned, or some kind of tipping point is being tipped.

Richard Russell also thinks this is a weird market and is due to be corrected -- violently we think.

Keynes is in order here: A game of Old Maid is being played and the card is being passed from hand to hand. Woe to the investor holding it when the music ends.

A close up of the year end action. Four especially squirrely days. When Motorola can be taken down 8-9% in a day the market is sending you a message, just as the sea sends you a message in the Bermuda Triangle. If we saw down days accelerate on volume next week we would increase our selling. The second low of November is a crucial benchmark.

As we previously remarked copper looked to be in a descending triangle (Bermuda as it turned out). For copper this means lower prices and for our readers who took the hint to the wise of being short the metals for trading purposes it's party time. For the economy (US and world) it is an ominous sign.

The center of the universe is the U.S. dollar, and it's dead -- only no one has officially told it yet.'
— Peter Grandich, Grandich Letter

Oops. What is that I see before me, the handle towards my hand? A live dollar? At the very least the dollar making a bottom.

Metals, oil, commodities in a downdraft, dollar biting shorts, stocks looking nervous and toppy. As the Chinese say, may you live in interesting times.

See above for link to 15 year analysis of the dollar.

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).