Bernie Mitchell’s Fib Commentary January 9

Our “weight of evidence” points to an immediate stock market decline. The main reasons: New all-time highs in our Big Block/Volume ratio, suggesting institutions are bailing out of stocks big-time; a 40 week high in our Call/Put ratio; and a Bearish Weekly Squat. Breadth remains neutral with Odd Lot Short Selling tapering off. Putting it all together, we don’t expect a severe decline at this point. Our worst case scenario is a 7% decline with SPY targets of 124.38, 122.71, with a maximum 118.54. The final top should come after a follow-up rally which should challenge the recent highs.

Gold will follow the market down, albeit modestly. Paper gold (GLD) met resistance at our Daily 89 line on Friday. With the metal rallying $100 in 6 days, the market deserves a pullback. A low should come in around January 13. Our initial projected targets for paper gold (GLD) remain 160-161, with a short-term top around January 19. The gold miners are quietly engineering a turnaround, with a 10% rally in 5 days. Our contention is the leader in the next gold rally will be the miners which are slowly creeping to a crossover of its 13 week moving average against its bullion counterpart.

After starting the week lower, the Dollar (UUP) ended up 1% on the week, the highest close in nearly 1 year. The Dollar (UUP) remains in a bear market rally, and has almost reached its terminal point. Formidable resistance comes in at 22.96. It will take 3 Weekly closes over 22.96 to break the bear stranglehold. Good Fibonacci Cluster Support is 21.88, 21.66. We expect the Dollar to be in a trading range for most of the year, before breaking to new lows — at which point it’s “Katy bar the door and hello gold”.

Rates closed higher last week, with TBT reaching very short tern resistance at 19.27, and stalling. Higher levels should be reached (20.36, 21.83), before a sizeable correction, ultimately trading up to 27.31, 29.97.