Bernie Mitchell’s Fib Commentary 10/31

On Oct. 17 we wrote: “The likely scenario…is a modest pullback with SPY targets 119.86…before another assault on new recovery highs.” Actual low 119.82. The spike to new highs, fueled by the bailout accord in the Eurozone, was greater than anticipated, taking the market to 12 week highs. A pullback is now expected, with SPY targets of 121.30, 119.08 over the next few weeks. Bullish sentiment has reached extreme levels, with our Call/Put ratio touching a 13 week high; Oddlot Shorts/Volume at a 4 week low and Big Block/Volume recording the 2nd highest high in 13 weeks. Bearish Momentum Divergences have also shown up. Finally, the New Economy sector has faltered in not confirming the new highs, having peaked 6 weeks ago. Conclusion: A modest pullback is to be expected, with the all-important follow-up rally the key to the markets staying power.

Back on Oct. 2 we wrote: “Several factors point to a bottom…in bullion and the gold stocks…(with) GLD (reaching) 170-171.” Friday’s high 169.94. And, on Oct. 17: Next price objective: GDX 58.93, 60.85…” Actual high on Friday 60.81. With gold highly correlated with stocks, a pullback is also expected, with GDX targets 58.18, 56.81. GLD targets 164.48, 163.04. With last weeks huge 12.5% run-up in the shares, the gold indexes achieved the strongest Bullish Momentum in over 1 1/2 years, and is now likely to start to outperform the metal.

On the bailout accord in Europe, UUP broke support at 21.48, and may test the 20.87 low. Fibonacci Cluster Resistance comes in at 21.52, 21.65.

Interest rates spiked higher on the Eurozone accord, following the stock market, as we suggested 2 weeks ago. TBT is running up against short-term resistance, and should correct along with stocks. Fibonacci Cluster Support 20.88, 20.32. Eventually, a major target is 26.04, with Treasuries going to 2.65%.