June 3, 2006
Long Term: Both the Dow Industrial and Transport Averages are in primary up-trends, confirming a bull market despite current turbulence. We need to remember that the Dow is poised to make a new all-time high if it can overcome resistance at 11600/11700. As long as the index holds above 11000 we are in bull territory. Between 11000 and 10000 is neutral, while below 10000 is bearish.
Long Term: The S&P 500 is in a slow up-trend.
Weaker than expected May Employment figures restored hopes of a pause in interest rate hikes at the next Fed meeting; and the 10-year treasury yield continues to test support at 5.0%.
Medium Term: The Fed is likely to maintain its focus on inflation at its June 28-29 meeting unless further signs confirm that the economy is slowing. If the 10-year yield respects its 100-day exponential moving average, expect another rally.
Long Term: The yield differential (10-year T-notes minus 13-week T-bills) is edging lower. This is not a good sign as low yield differentials pose a significant threat when combined with higher short-term interest rates.
Developed recently by Fed economist Jonathan H Wright, the Wright Model combines the yield differential and fed funds rate to calculate the probability of recession. Looking ahead at the next four quarters, the probability remains a modest 23%.
Spot gold broke through support at $640, continuing the sharp secondary correction. Expect further support at $600.
Medium Term: If support at $600 fails, we could see a test of primary support at $535. A weak dollar should support a strong gold price, limiting the potential downside.
Long Term: The gold-oil ratio remains below 10. Up-turns below 10 signal buying opportunities; down-turns above 20 are selling opportunities. Expect a rally if crude oil remains above $68/barrel.
Crude respected support at $68 and is trending upwards, with a higher peak at [d] and higher troughs at [c] and [e], headed for a test of resistance at $76. A fall below $68, on the other hand, would be bearish.
The dollar continues to weaken against major trading partners.
EUR/USD: The euro is consolidating in a narrow range below resistance at 1.30, signaling that the up-trend is likely to continue. A break above resistance would signal another test of 1.35/1.36. On the other hand, a fall below [D] would complete a major head and shoulders reversal. The euro remains in a primary up-trend.
The FTSE 100 formed a higher trough at , but has not yet confirmed the up-trend with a close above the high of [b]. Failure to make a new high would signal another test of support (and the long-term trendline) at 5500.
Medium Term: Twiggs Money Flow (21-day) is trending upwards, signaling early accumulation.
Long Term: The FTSE 100 remains in a primary up-trend, with support at 5150.
The Nikkei 225 respected primary support at 15500 three times in the last two weeks, the long tail and high volume at  signaling strong buying support.
Medium Term: The bullish divergence on Twiggs Money Flow (21-day) reflects support. Failure of support at 15500/15000 would signal a primary trend reversal, but, if support holds, expect a rally to test the previous high of 17500.
Long Term: The index may be forming a stage 3 top.
The All Ordinaries formed a higher trough at . Wait for a new high, above 5070, to confirm the up-trend. Strong volume at  signals buying support at 5000, but a weak close at  shows that interest is waning.
~ Benjamin Franklin