Stock Market

We repeat our call for no new lows at this juncture, despite Friday’s drubbing. In fact, the large cap OEX actually closed higher on the week. One caveat: An OEX close on 10/3 of 496.25 or lower, would bust the Bullish Momentum Divergences that are forming, and would have us rethink our position. The SPY should find Fibonacci Cluster Support at 112.37. Sentiment is the main reason for our short term bullishness, which saw a 5 week low in our Call/Put ratio, with an historic all-time low on 9/28. Odd Lot Shorts/Volume was extreme at a 21 week high. When these line up at extreme levels a decent rally is not far behind. Market breadth, based on NYSE 52 week Highs/Lows backed into neutral, but still has not turned bearish. CONCLUSION: Longer term, we expect significant new lows, based on our bearish Volume Demand Index (VDI). The rally once underway, could stretch to the end of Oct — but not much more.

Fibonacci Cluster Resistance levels on SPY are 116.39, 117.52, 119.14 and max 120.98 (low probability), about a 4-7% rally.

Gold

Several factors point to a bottom forming in bullion and the gold stocks. Based on the price action in the GLD (bullion), a short term bottom is forming. A rally over the next few weeks should carry GLD to a max 173.76 (which would close the gap prior to the big sell off), but more likely is 170-171. The actual bullion low was hit in Hong Kong at 1549, bringing the correction to 20%.
Bullish factors for bullion:

 

  1. Bullish Weekly Squat
  2. GLD made 10 week low.
  3. Friday’s close (158.86) was over the mid-point of Weekly Range.
Bullish factors for gold stocks:

 

  1. Downside Volume did not match weakness in the shares, taking our VDI from bearish to minor bullish. The first in 9 weeks.
  2. Bullish Weekly Squat (minor).
  3. XAU in the process of building Bullish Momentum Divergences.
Therefore the rally will be choppy with GDX Fibonacci Cluster Resistance showing up at 57.43, 58.33 and 59.22, or about a 6 – 9% rally.Recent longs should take profits as levels are reached. As the stocks back and fill, Price Improvement (PI) trades should be taken.

Dollar (UUP)

After an early drop, the UUP rallied sharply on Friday. Important resistance is 22.47, with a final blow-off objective 22.65. From there, expect the bear market to resume. It will take 3 consecutive Weekly closes over 23.15 to break the bear stranglehold.


The TBT rallied 10% from the low only to give-back 4.5% Friday. We expect interest rates to follow the market higher, with the 10 year Treasury rising to 2.65%, with TBT reaching 30.

Bernie Mitchell
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