Bank Share Concerns

My market comments are based on my own highly specialized price momentum models. This work suggests that J.P. Morgan and Citigroup shares could go significantly lower from here. Major U.S. banks tanked a couple of months before the market peak that led to the 1987 share price debacle.

If I'm right about bank share price weakness ahead, we should be watching for a general market downturn once there is clear evidence that a bank selloff is underway.

Just a heads up. I hope I'm wrong about this.

Nikkei Tokyo Index (12439)

I had previously noted that this index was making its sixth attempt to penetrate the 12000 level, and I thought it would likely fail again. One word from me and it popped above 12000 resistance as if on cue.

Now it appears to be overbought short term, and I'd like it to build a top here and then sell off. Short term support is in the 11000 area. It might have to struggle to make its way back down through 12000.

As a result of the breakout above 12000, I am moving to a neutral positive stance for the intermediate term. As I see it, we are looking at a grudging intermediate term recovery in a longer term downtrend.

Oil U.S. Light Crude Futures ($66.13)

It would appear that we are in the process of completing a top formation just below my short term target of $70. A correction to the $60 area would make sense once this top has run its course.

The longer term call is more difficult. I can say that the pattern is long-in-the-tooth. It is also at the top of its trading range within a powerful uptrend channel ( long term math model). A short term correction will take us to the lower edge of this channel, but in order to comfortably state that we have passed a longer term top, we must break down through uptrending support.

I don't provide advice here (only commentary), but for my own hypothetical account, I would be taking profits as the oil price pushes toward seventy dollars from here on the chance that we are in the process of passing a very important price peak.

Market Alert

S & P 500 (1220)

I follow over 200 senior U.S. and Canadian stocks in addition to indexes, currencies and commodities. Market Alerts are reserved for moments when most of them fall into line to signal important market change points, and such is the case as I write today.

What I'm seeing is a tendency for the formation of short term tops almost across the board. If I was a trader it would be a strong inducement to step aside for the time being. I'm prepared to accept the possibility of being a few weeks early here, because short term tops sometimes take several weeks to run themselves to completion.

Stocks in strong longer term uptrends fare better than others during short term corrective phases, but on this occasion when so many groups have aligned at tops, even the best could feel some pain.

Two hundred senior stocks might not provide a representative sample, but top formations clearly show up in oil and gas stocks, metals (including gold), e-commerce, retail, consumer products, pharma, insurance, hi-tech, auto manufacturers, defence, brokers and more.

I get mixed messages from the senior bank stocks, and with my limited sampling, I could not find tops among the strong healthcare or biopharma stocks. These were the only exceptions, and with such an impressive top formation alignment everywhere else, I am erring on the side of caution across the board.

U.S. Dollar Index (86.80)

I was hoping the U.S. dollar would get stuck at the 90 level in its early stage recovery. It has now backed away from 90 as expected, and near term support would appear to be in the area of 85 (the 200-Day Moving Average). Any short term evidence of real support in the area of the 200-Day Moving Average, would add further credence to my view that a real recovery has been launched.

Canadian Dollar Futures (83.72)

I didn't expect the Loonie to challenge its November 2004 high in the area of 85 cents, but that's what it appears to be doing. We are witnessing the anomalous condition where both the Canadian and U.S. currencies are moving higher if one looks out beyond the near term. I'm reluctant to accept this but I have to acknowledge that it could happen. It forces me to abandon the assumption that the Loonie will move lower beyond the near term.

How does one rationalize this? The U.S. Dollar Index is recovering against a basket of currencies of which the Loonie is only a small part. The Canadian Dollar is rallying in spite of federal corruption problems because our commodities sector (in particular our world oil reserve position) is exceptionally strong.

U.S. Natural Gas Futures ($9.59)

Anticipated short term strength has come to pass and the recent high at $9.91 has all but achieved my $10 resistance target for the time being. An intermediate term backing and filling process from here would be satisfying. Long term underlying strength suggests that further gains are ahead beyond the intermediate term.

U.S. Light Crude Oil (66.86)

Oil remains in a long term uptrend and has exceeded my short term upside expectation. I now look for the $70 area to provide a resistance challenge that will extend beyond the near term. I had hoped that we would see a short term correction prior to arrival at the important $70 price level.

Gold Futures (U.S. $445.90)

The price of gold has exceeded my short term target of $440 in the recent rally and the next resistance is at the December 2004 high in the area of $456. I continue to believe that $456 represents an important stopping off point in the long term uptrend. While I'm not optimistic about penetration of this resistance level on the near term, I suspect that gold producers will do exceptionally well even if gold hangs around at this level for several months.