Stock Market Indexes                                      Currencies & Commodites   

Dow – 11,279.65  (+203.32) +1.8%                  U.S. Dollar – 88.94 (-1.89) –2%

Transports – 4,563.33 (+102.79) +2.4%              Euro – 121.93 (+2.76)

Utilities – 408.11 (8.18)  +2%                              Yen – 86.34 (+2.32) +2.76%

Nasdaq – 2,306.48  (+44.44} +1.96%                Pound – 175.66 (+3.03) +1.75%

NYSE Comp. –  8,271.61  (+192.37)                  Swiss Franc – 77.55  (+1.61) +2%

S & P 500 – 1,307.25 (+25.67) +2%                  Canadian Dollar – 86.35 (+0.20)

Amex – 1,927.83 (+53.57)                                  Australian Dollar – 72.81 (-0.66) 

 

U.S. Interest Rates                                            Commodities

30 yr. T-Bond – 47.17 (0.25)                            Gold – 554.20 (12.25) +2.26%

10 yr. T-Note – 46.74 (-0.81)                           Silver – 10.36  (+0.40) +4%

5 yr. T-Note – 46.21  (1.45) –3%                      CRB Index – 325.83 (+6.41) +2%

2 yr. T-Note – 46.74 (0.56)                               Crude Oil – 64.20 (+2.36) +3.81%

90 day T-Bill – 45.17 (0.27)

                       

Indicators                                                           Gold & Silver Stock Indexes 

Put/Call Ratio – 0.79 (1.12)                                HUI – 302.43 (+0.83) +3.36%

N.Y. Highs/Lows – 259.00 (-78.74)                   XAU – 131.74 (4.94) +3.8%

Volatility Index – 12.12 (0.27)

N.Y. S.E. Advance/Decline – 364.00 (–551)    

McClellan Oscillator – 529.71 (+73.72) 

 

Foreign Stock Markets 

Dow World – 249.95  (6.82) 

London FTSE – 5,999.40 (+91.50)

Nikkei – 16,339.73 (+241.10) +1.49%

 

Market Comments

Gold & Silver

Gold and silver both had good weeks, but silver went up twice as much: 4% as compared to 2% for gold. The gold stocks put in a good week with the XAU up 3.8%.

We are at a crucial junction right here, as the 50 dma for gold is $554.23 and it closed at $554.20. Gold will have to make up its mind next week, which ways it chooses to go. See the charts below for more details.

The XAU remains below its 50 dma, which is at 138.88. It closed at price 131.74. The index first needs to clear that hurdle and then it will be facing its trend line face to face.

The 135-price level is both the 150 dma and the trend line. It may prove to be formidable overhead resistance. Time will tell. This trend line connects the Feb & March peaks.

For now, I am standing aside on the sidelines – watching. I am also starting to put together a shopping list of gold and silver stocks that will be in next week’s market wrap.

Gold Continuous Daily Contract

 

 

XAU Daily Chart

 

As we have stated before (in the last couple of weeks market wraps in the archives) the XAU outperforming physical gold to the downside is not a good omen. This also remains true if physical gold rallies back up and the XAU index diverges and goes down or stays flat.

The price action we want to see is the gold stocks outperforming the physical pog to the upside. This would suggest that the correction has bottomed. The following chart shows the point and figure projected price objective.

I will use the change in the XAU to physical gold to initiate accumulation of my pm stock positions . I will use the breaking of the XAU’s downtrend line as my second signal to accumulation further positions.

On any pullbacks that test support areas, I will use such to accumulate further positions as long as higher lows stay intact.

XAU Point & Figure Chart Price Objective

Low Pole Reversal on 3/14/06

Price Objective 110

[Chart courtesy of Stockcharts]

 

The following chart of the HUI is from my dear friend Alexandra, whom I remain eternally indebted to for the selfless graciousness in sharing her unsurpassed charts and skills with us. Thanks Alex.

The chart shows the very early beginnings of what could develop into a bullish scenario. Notice that the present price level of 302.43 is above the neckline of the head and shoulders pattern we showed in last week’s charts.

As long as the neckline level holds, things are positive. A breakout above resistance at 311 needs to occur to give a buy signal. If such price action occurs along with the XAU diverging positively from the price of gold we would be feeling much better about jumping into the water.

 

HUI INDEX

 

[Chart courtesy of our dear friend and chartist extraordinaire – Alex]

[Thanks Alexandra]

Presently we are leaning towards the probability that further downside action needs to occur to shake out the weak hands, and to allow the pog/xau ratio to improve. We would not be surprised at all to see such further downside action as we wrote in our latest article: Gold Wars: Gibson's Paradox and the Gold Standard.

 

Spot Silver

[Chart courtesy of sharelynx]

 

The above is a very pretty picture of the recent silver price action. This is why we said in the last several market wraps that we favored silver over gold at this particular time. Moreover, silver was kind enough to respond in kind. We tip our hats to the silver white goddess of the moon.

Below is another chart of silver that portrays a very interesting picture that is reminiscent of a cup and a handle formation without the handle. In our last two papers entitled, The Charts Are Talking. Who's Listening? and The Charts Are Talking: Is Anyone Listening? we mentioned the cup and handle formations that were alluding to the subsequent rally that occurred in the precious metals.

In the second article, we stated that things were going a bit parabolic we warned of a downturn, which unfortunately developed. We wish we had been wrong so that no one suffered through the correction.

However, the truth be known – it is better in the long term for the gold and silver bull. It provides a stronger base and stronger hands from which to catapult to new highs.

 

Comex Silver Prices

[Chart courtesy of sharelynx]

 

The chart speaks for itself; all we will add is to notice the volume in the bottom right hand corner. This guarantees nothing, as anything can happen in today’s interventional markets, but it does paint a pretty long-term picture. And we are prone to pretty pictures.

 

The Debt Markets

Two-year US Treasury yields fell 9 bps to 4.64%. Five-year government yields lost 15 bps to 4.62%. 10-year Treasury yields retreated 9 bps to 4.67%. Long-bond yields gave back 3 bps to 4.72%. The spread between the 2yr and the 10yr ended the week just about how it started the week: with a positive spread of 3 bps.

The Current Account Deficit set a record at $224.9 billion. The deficit is now a full 7% of GDP. Not to be outdone the 2005 Current Account Deficit was up 30% from last year at another record level of $805 billion. Perhaps it should be heralded as a new event in the Olympics. At least we would get some gold we could take home and save.

Japan continues to tighten with the 10-year JGB yield up 6 bps for the week to 1.71%. It did not seem to bother the Nikkei 225 index as it rose 1.4%. Raising rates seems to be the rage of late. Nothing like a good game of currency devaluation to make one want to – buy some gold.

M3 money supply fell $2.4 billion to $10.340 Trillion. Year-to-date, M3 has expanded $151.3 billion, approximately 8%. Real Estate loans are rising at an 11.0% rate y/t/d.

Commercial Paper (as opposed to government paper – but paper is paper and you use it with you go camping) climbed to $15.4 billion to $1.712 Trillion. Total CP is up 18% for the year to $261 billion. There is no shortage of paper but I can hear the trees whispering in the distance.

The Fed is most concerned with the 10-year bond, as they do not want the long end of the interest curve running away from them out of their control. As we have repeatedly said: if the long end of the bond market goes – real estate goes with it, and that means we would have to clear the monopoly board off and start a new game. It will be interesting to see what the banker wants to use as money.

 

10 – Year Treasury Yield

 

 

As the above chart illustrates, the Fed has been lowering interest rates for the past 20 years, and even though they are now raising rates – they are doing it ever for gently.

The Fed wants the short end to rise but not the long end. An inverted yield curve is their goal. Will the Fed get what it wants? We shall know in the fullness of time. Long term: I am not betting on it.

The US dollar remained in its apostate position and fell 1.89 to 88.94, a 2% loss for the week. Perhaps the irreverence comes from something we do not know that Mr. Dollar does.

 

US/Euro Foreign Exchange Rate

 

Japan/ US Foreign Exchange Rate

   

 

Commodities  

Commodities regained some of their recent lost ground with the CRB rising 2% for the week. Crude oil was up almost 4%. We still feel as though the upside is limited for the near term. The long-term future for oil, however, appears quite favorable. What this means for the consumer we will leave for the reader to decide.

The chart below is of natural gas, which if you have not noticed, has been going down ever since Katrina came around providing everybody and their grandmother a reason for predicting much higher prices.

As we have written, however, the fall in the NG price was accompanied by JP Morgan receiving permission from the Fed to dabble in the gas market. Who would have thought?

We are favorable disposed to the energy market on the long-term horizon, as it is one of our three main investment themes: precious metals, energy, and commodities. Of all of the above natural gas appears to have the best risk to reward ratio at the present time. The bloodletting has already occurred.

Natural Gas Spot Prices

 

Stock Market

The stock market continues to defy gravity and floats higher on a sea of liquidity. Hats off to Chairman Bernanke and company – they sure know how to flood the system with funny money that provides a rising tide to carry all bubbles higher.

It would best to remember, however, that the sea of liquidity is the bubble of all bubbles, and when it pops, the sound will resonate around the world. Dominos come to mind.

Just about all stock indices in the US rose by around 2% for the week. We must note that the primary trend of the market is still down – but it has been one hell of a counter-trend rally so far. We are of the opinion that it is another bubble biding its time.

 

Geo-Political

Lots of stuff happening round the world. Here is what caught our eye. Although the Iran issue appeared to worsen – we believe it is more saber rattling then anything else. If calmer heads do not prevail, then heads may begin to role. However, we think the immediate issues regarding nuclear energy will be put to rest without a major incident. We reserve the right to be wrong.

Note the much talked about oil burse has been put to bed that everyone was so concerned with. As we stated in the article: Black Gold: U.S. Dollar Hegemony we were doubtful that it would happen by the much advertised March timeframe, and even if it did we did not think the effects would be a big deal. We remain of the same bent.

Iraq – well Iraq is Iraq and it is a big mess. We should not have gone there, and we should not remain there. Unfortunately, with the present leadership we our so lucky to have, the occupation will remain. We would not be surprised to see it spread to adjacent lands. The surrounding regions are chock full of black gold, which just might have a bit to do with it all.

Nigeria is another mess that will not end anytime soon. It is very unfortunate for the people of Nigeria, who should be reaping the benefits of what is below the ground they walk on; that the turmoil the greed for money brings with it is descending upon them. It does not appear likely to end anytime soon, and we wish the indigenous people of the country the best.

Russia is becoming increasingly in the spotlight regarding international issues, especially in the Middle East. They are also heavily involved in the oil and gas business. The bear appears to be waking up from his extended winter nap.

Japan has apparently ended its zero interest rate policy. It could get interesting in the forex markets if they continue to raise rates, as the yen carry trades may come under fire as they are unwound. Spinning tops come to mind – reminding us of our age.

China is making the news daily, as they are involved in just about everything – or at least the transnational corporations that have set up shop there are. We have written on this as well: Transnational Corporations: The New World Order. What we find most note worthy is that they have amassed not only a considerable amount of commodities, but over 800 billion in foreign reserves. Hmmm.

 

Conclusions

We remain on the sidelines content to watch the show as it unfolds. We are making a list of precious metal stocks that we will share next week. Natural gas is also on our radar screen. We want no part of the stock market at these valuations.

The one thing we know for sure is that the Fed wants to protect the long end of the bond market. As the long end goes, so too goes the real estate market.

As we recently wrote in Gold Wars: Gibson's Paradox and the Gold Standard the Fed’s worst nightmare is the unwinding of the real estate market and the 200 trillion dollars worth of derivatives the boys have conjured up. And with that, it is a wrap.