Bernie Mitchell’s Fib Commentary December 27, 2011

Last week we wrote: “…the futures on 12/4 took the theoretical SPY level to 120.02 — a level expected to be reached… (before) a final year-end rally (for) a final top at SPY maximum 125…” Actual SPY low 120.03!! We underestimated the exuberance of the PPT in wanting to jack-up IRA’s for a “feel-good” Christmas, as the SPY soared past 125 on the way to 127. Actual high 126.62!! The top should come this week as our “weight of evidence” show an intensified bearish Volume Demand Index (VDI); new multi-month high in our Big Blocks/Volume ratio; (institutions are selling into this rally), lowest share volume in 51 weeks; 22 week high in our Call/Put ratio; and failure in New Economy leadership with an 18 week low. The continued bright spot which should limit the downside:Odd Lot Shorts/Volume to new highs. Downside targets for SPY 124.25 – 123.70 with a maximum 121.50 before another bounce.

Last week we wrote: “It’s likely a tradeable bottom was put in, and a strong bounce should take paper gold (GLD) to the 163-165 range into mid to late January…the coming rally will be led by the gold stocks…” The gain last week –after early weakness — was a scant 1%, but should continue over the next several weeks, taking GDX to 55.94 – 57.49. After a good pullback, the rally should continue with targets 58.90 – 61.04, a typical gold share rally of 15 – 20% off the low. Bullish Weekly Squats ocurred on 80% of the stocks that comprise the XAU index.

Last week we wrote: ” A Bearish Daily Squat formed which gives a downside target of 22.06, 21.86 (Major Fibonacci Cluster Support). This dollar decline will be supportive of a gold and stock market rally.” A sharp early break Tuesday night took the UUP to a theoretical low around 22.15. We expect our downside targets to be reached.

On Monday, investors sought the safety of Treasuries, driving long rates to new historic lows — but by weeks-end the love affair was over — as rates moved higher, with the TBT bouncing 10% off the lows. Near term TBT targets 20.36 – 21.83. Longer term targets 27.31 – 29.97, the latter major Fibonacci Cluster Weekly Resistance,