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Decline
The market has reached a temporary top. Yesterday’s
price action broke some significant support lines on the Dow
and the NASDAQ Composite. While the volume was less than significant,
I believe that this will trick the bulls into
staying around too long.
The rally appears to have been mostly generated by "short covering," as
the market moved sector by sector, squeezing
them out. This is evident by the big moves in very low priced stocks
with horrid fundamentals. This is not how a
strong bull market starts. I expect the decline to be vicious.
The composite cycle indicator on the Value Line
Geometric turned down decisively, pushing through
the 80 level, over bought line. We should see the
first part of the decline last at least until May 28th
which marks a confluence of Fibonacci time spans
from past highs and lows.
The rally itself was impressive, from a technical
view. It created a series of higher lows and higher
highs. This accomplishes the definition of a bull
run. The price also surpassed the December 2nd
highs. After a 50% or 61.8% Fibonacci
retracement, we could see the making of the next
leg up. That leg will tell us if we are in an ABC
bear market correction or a 5 wave bull run.
Recommendation:
I have sold all long stock positions, added to our international
bond holding in the MGGBX, and opened a short in the Rydex
Arktos for the moderate and aggressive accounts.
I expect international bonds to continue to do well. We still
own U.S. Government bonds in the fund families that do not
offer the international bonds, but expect only modest growth
from them.
Our XAU and HUI gold systems are on a buy. The last three
weeks have preformed well. We have avoided this signal
because the 81-Trading day top cycle is due to come in tomorrow
May 21st. I believe the risk out weights the reward. While the
metals may continue to grow too often the mining stocks will
decline in sympathy with the equity market.
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