- USA TRADERS THREAD -

Our blue chip key trend-finder indicators for the Dow Industrials and S&P 500 generated a new “sideways” signal Tuesday, December 27th, 2005 as the 14 day Stochastic indicator moved to a “sell” signal. The Fast measure fell to 33.33, decisively below the Slow at 47.33. However, the S&P 500/DJIA Purchasing Power Indicator remains on a “buy” signal, coming in Tuesday at 75.45. It would need to drop below 72.93 to generate a confirming “sell.” With both key indicators at odds with one another, this is a “sideways” signal. The Dow Industrials fell 105.50 points to 10,777.77, the S&P 500 fell 12.12 to 1,256.54, and Trannies fell 50.49 to 4,216.26.


We nearly saw a confirming second Hindenburg Omen generated Tuesday, but did not see enough NYSE New 52 week Lows to trigger this. All requirements were met except New Lows, which came in at 65 (a minimum of 77 were needed). New Highs came in at 127. The McClellan Oscillator fell to negative territory again at minus -23.98, as NYSE advancing issues fell to 1,040 while declining issues grew to 2,335 (69 percent of issues traded). Total NYSE volume was light, at 77 percent of its 10 day moving average – which is to be expected this week. Downside volume was strong at 79 percent. Our Secondary Trend Indicator fell to +8, still within the neutral zone for this Intermediate-term trend indicator (from -30 to + 30).



The decline Tuesday still technically fits inside a sideways triangle pattern, so we cannot be assured that the final major top we are expecting is in. It may be, but we do not have confirmation of that. It is still possible for one more thrust higher to occur. Thus the sidelines, as our signals are indicating, may be a wise place to be. The percent of DJIA stock above their 30 day moving average came in at 43.33, while the percent above their 10 day moving average fell sharply to 20.00, as did the percent above 5 day. It would be unusual for a major decline to begin from a point where the percent above 10 day is already near an oversold level (oversold would be below 15.00).


The NASDAQ 100 fell 14.55 points as our key trend-finder indicators for the NASDAQ 100 remained on a “sideways” signal Tuesday. The NASDAQ 100 14 day Stochastic remained on a “buy” signal, with the Fast coming in at 20.00, below – but not decisively below – the Slow at 23.40. At odds is the NDX PPI, which comes in Tuesday at 96.83. It would have to rise above 102 to generate a “buy.” NASDAQ 100 total volume came in at 66 percent of its 10 day average, with downside volume at 69 percent, and declining issues a huge 84 percent.



The Russell 2000 small caps index fell 9.86 to 676.58, with volume at 80 percent of its 10 day average, and downside volume a strong 81 percent. Declining issues were 79 percent of total issues traded.



The HUI Amex Gold Bugs Index fell 2.34 to 268.54 Tuesday, and remains on a “sideways” signal – as both key trend-finder indicators are in disagreement. The HUI 30 day Stochastic remains on a “sell” as the Fast measure comes in at 78.95, above the Slow at 71.35, but not decisively above the Slow, while the HUI Purchasing Power Indicator comes in at 170.46, remaining on a “buy” from December 22nd. Volume came in at 66 percent of its 10 day average, with downside volume at 62 percent, and declining issues at 58 percent.



Today’s brief inversion of the yield curve, where short-term Treasury yields exceeded long-term Treasury yields, was largely blamed for the equity market sell-off. Inverted yield curves have been correlated with recessions in the past. In fact, I made a ton of money managing a three-quarter billion bond portfolio in my past life by buying bonds once the yield curve inverted, as it often was a precursor to economic slowdown and lower interest rates. However, here’s the problem. How can we be sure that the reason for the inversion isn’t that the Fed is buying the long end of the curve, rather than that a recession is being forecast by free markets? In other words, is this inverted yield curve the real deal, or is it contrived by Master Planner intervention? Our work suggests we are seeing a major top form in equities, thus there may be something genuine to the inverted yield curve. Risks here are that the long end of the yield curve rises further as the Dollar falls under pressure from hyperinflation of the money supply. Or, that the long end of the curve declines as the Master Planners step up long-term maturity buying to push down mortgage interest rates. We will continue to follow developments as they arise.



Best regards,


Robert McHugh, Ph.D.