Fwd: Bernie Mitchell’s Fib Commentary Dec 4

After catapulting to a 7.6% gain last week, on the deal struck by major central banks – led by the US – to lower the cost of dollar loans to European banks, our “weight of evidence” indicates a decent correction is now at hand. Primarily on overly bullish sentiment, lack of New Economy leadership, and a 5 month high on our Big Block/Volume ratio, indicating the institutions are selling into the rally. SPY targets 122.43 – 121.29. The all-important follow-up rally is likely to take the market to a cyclical peak on Dec 7 – 11, and a new recovery high.

For most of the week the gold shares were the strongest group, before faltering on Friday, but still netting a sharp 7.8% gain on the week, besting bullion, which gained a respectable 3.6%. Last week we wrote: “Some base-building needs to be done as Bullish Momentum Divergences are created. A sustainable rally is 1 to 2 weeks away.” This is still the case. For most of the year the gold shares have severely lagged behind the metal. The shares are now closing in, and over the next several weeks this should change, with the shares besting the metal. When this finally happens expect the shares to surge. But first, the shares should trade lower with GDX targets 57.20 – 56.19, approximately a 2.5% decline from Friday’s close (58.25).

The Dollar (UUP) declined 1.3% last week, after finding Fibonacci Cluster Support at 21.98. Good support at 21.86. Major Fibonacci Cluster Resistance comes in at 22.65 – 22.83. The Dollar is in a bear market rally.

Based on the TBT, long term Treasury rates increased a solid 3.2% last week, on the heels of the central bank deal, despite pulling back Friday. As inflationary expectations increase, and the economy picks up steam, rates should follow higher, with Treasuries heading for 2.65%. Short term TBT targets 20.59 – 22.13.