Bernie Mitchell’s Fib Commentary March 12

The market rewarded us with instant gratification, plunging 2.6% in 2 days, only to quickly recover the bulk of its losses by Friday, as the Greek debt restructuring was met with cheers, and the job numbers continued to show improvement. This drop only represents about half the forecasted decline of 5-6% over the next several weeks, with SPY Fibonacci Cluster Support 131.32 – 129.69. This should represent a good bottom for stocks, with a potential rally to challenge, and possibly exceed, new highs. The significant technical event that supports our thesis is the rapid deterioration in market breadth evidence by the 12 week lows in 52 week highs, and 8 week highs in 52 week lows, despite the out-performance of the Russell 2000, which gained 2% on the week.

A 3.8% plunge in the gold stocks took the XAU to a 9 week low, and an historic low, when compared to the metal. The good news: Bullish Momentum Divergences have finally developed, along with a Weekly Bullish Squat. With the shares as undervalued as they’ve ever been, the implications for a monster rally are approaching. A weekly close on the XAU over 188.41 — not far from Friday’s close 186.85 — is needed to trigger the rally. The full momentum of the rally may still be a few weeks away, as our Volume Demand Index (VDI) is still bearish, but on the cusp of turning.

The Dollar (UUP) was the immediate beneficiary of the Greek debt restructuring, as investors fled the Euro. As we wrote last week: “The Dollar continues to chop in its bear market rally. Next important Fibonacci Cluster Resistance 22.33.” Actual high 22.29! The Dollar (UUP) should back track over the next couple of weeks, and again approach the 22.00 level. Range trading is in the immediate future before it resumes its bear market. To break the bear market stranglehold will require 3 consecutive Weekly closes over 22.89.

With the Fed unveiling its latest hair-brained monetary sterilizing scheme of “putting a foot on the pedal and the break” at the same time, the net result was more tight range trading for treasuries. If the payout on the CDS insurance policies ever pays out on the real losses, expect rates — and inflation — to skyrocket, and the final “nail in the coffin” on what will be viewed as the greatest bubble in history. We expect a huge 50% rise in yields, with TBT soaring to Fibonacci Cluster Resistance 27.31.