In my earlier notes I had stated that this week would end badly. We seem to be clearly on our way to achieve this as New York returned from a long weekend in a rather sour mood with falls across the boards. Looking at the S&P, I think I will get a chance to review the situation at 2500/2520. About the only thing I could find that might give it a rally is that markets gapped down today and may need to go back and fill those gaps or at least have a look at them. But be aware, that I still believe the S&P topped last September and that the rally we have enjoyed since the Christmas Eve massacre was no more than a major bear market rally. The fact that all markets formed upslanting wedges, which is a particularly bearish pattern, does not fill me with much joy. I believe we will ultimately see markets considerably lower as the bear collects his winnings - but it won’t be a straight path.
The US dollar was slightly weaker which helped gold. Still think the weakness in gold at the end of last week was a evil plan by gold to panic people out at the exact wrong time. Crude rolled over and must hold above $50 if it is going to form a base pattern. I would feel more relaxed about crude achieving this if natural gas hadn’t finished lower. But the rest of the commodity scene looked like a slaughter house. Cocoa, coffee, sugar, corn, soybeans, copper…… the list goes on. And if that wasn’t enough iron ore and steaming coal were in the firing line as well.
XJO has clearly broken down from the upslanting wedge that we had formed. As mentioned yesterday, I am preferring at the moment to use the XNV which is the inverse of the XJO as a good gauge of our market as not so many people are focussed here which I think gives it a nice clear picture. It broke topside yesterday from the most perfect downsloping wedge (remember the opposite of the XJO). I think I will get to review the XJO at 5760 and then 5620. But as with New York, upslanting wedges are a particularly negative pattern and I think it signals that the bear market is not over. But one step at a time on this journey.
One thing that is bothering me a little bit – our 2 year government bonds are set at a lower yield than the 90 day bills. I would have thought if our economy was doing as well as the government would have us believe, wouldn’t that mean that the two year rate should be higher than the 90 day rate? As usual all comments in this regard welcome.
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