A sharp drop in stocks on Monday was followed by a strong four day rally that resulted in 2% gains by Friday. Bernanke held out the possibility of a new round of QE, which got the market off and running. Despite the incredible rallies in AAPL and AMZN, the New Economy sector continued to lag overall. The market is still in corrective mode, and should continue to decline over the next several weeks with 133.27 our maximum SPY downside target. By the end of the week bullish enthusiasm had returned to extreme levels with our Call/Put ratio recording 10 week highs. With our Volume Demand Index (VDI) still bearish, breadth barely improving, and news from euroland not fully discounted, the market remains vulnerable to sudden shocks, witness the Spanish downgrade Thursday night, which resulted in a 1% futures market swoon in minutes.
Gold

The gold shares and the metal are on the verge of sustaining impressive rallies, with the shares leading the way. The low is likely in for the shares, with the XAU registering a 157.12 print. Our VDI has turned decisively bullish, but this does not mean a one-way street, as the rally which will take 5 to 7 weeks. will be extremely choppy, but when all is said and done, has the potential to reach 177.31 – 182.58, a 16% gain. The 182 level is an important confluence resistance level and will likely take several weeks to overcome when reached. Equivalent rally points in GDX are 50.87 – 53.54.
Dollar (UUP)

An inverse relationship between stocks and the Dollar continued with the Dollar (UUP) falling for 4 consecutive days while stocks rallied. Last week we wrote: “Next stop is 21.76, a level it held on 2/29.” Actual low 21.77!! An important trendline has been broken, and although a bounce is likely to take the Dollar (UUP) back to 22.02 – 22.09, further weakness to 21.45 is likely.

The announcement by the Fed on Wednesday of no change on interest rates was a non-event, as rates ended the week virtually unchanged. The market remains in the grip of a potential new round of QE, keeping rates suppressed. At some point rates will spike spectacularly higher, as inflation will no longer be controlled by erroneous government data
New short term target for TBT 19.74. Longer term remains 21.96.
Bernie Mitchell
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