Market Comment

On February 1st 2006, I suggested a possible general market selloff to include the resource stocks. If you own securities chances are they are lower today than they were on February 1st. However, you'd never know there was a selloff underway when you look at the recent high made by the Dow Jones Industrial Average. To my way of thinking, it's a sad statement about the Dow.

As I see it, the general market is weak, and the resource area correction is just beginning. I'm hanging onto my hat.

DJII 11115
S & P 500 1287
Nikkei 15802
U.S. Crude Oil Futures $59.88
Gold Futures $551.80
TSX 11758

Political Comment

Michael Wilson is Canada's new Ambassador to Washington. As a Canadian, I see him as a much needed breath of fresh air. There is no question that he has his work cut out for him.

We had the pleasure of living state-side for many years, but that was before our previous Canadian federal government took on its vitriolic doll-stomping attitude toward Americans. Back then, Americans knew very little about Canuks, but most would have said that we were good and reliable allies in freedom.

Today, after years of hurled insults from Canada, every American from the man on the street to the White House knows that Canada dropped the ball on freedom.

Mr. Wilson will face American disillusionment with Canada at every turn. It will take as many years to heal this travesty as it took to create the unfortunate divide in the first place.

Mr. Wilson is the perfect person to spearhead the effort to throw off Canada's unfortunate Liberal legacy toward the nation that many in the world recognize as the enviable land of opportunity.

Economic Comment

How did Fed Chairman Greenspan rack up such a stunning record of success? I call it fourth dimensional thinking that can only be spawned out of Ayn Rand's style of free market thinking.

Does Bernanke have it? If the yield curve can be used as a measure, the street may be saying "no". The yield curve had inverted out to the ten year as he took office, and stretched to a thirty-year inversion on the eve of his initial Congressional Finance Committee testimony.

Did his testimony change street perception? I don't think so. Among his many level headed responses, he threw in a couple that concerned me. First, I think I heard him say something to the effect that this time the yield curve inversion doesn't necessarily mean there is a recession ahead. Perhaps he's right. Perhaps the inversion will evaporate - but why try to push a rope??

I think I also heard Bernanke say that thirty-year Treasury Bond issues were previously cut off because the deficit was declining, and they were relaunched recently because the deficit has gone back to its old habit of expanding. To my way of thinking, it's bad news if he believes this, and it's also bad news if he thinks that Wall Street is gullible enough to believe it.

You must remember that during the Clinton years, SEC and NYSE market oversite was systematically short circuited. You can probably recall the total disappearance of what were formerly our most respected national auditing firms - firms that shut themselves down in disgrace. With no SEC, NYSE or audit oversight, reported earnings were padded and they soared through the roof. Markets followed all the way to the bubble of the year 2000. We all remember that, of course.

Now here's my point. When criminals took over Wall Street, markets soared, but U.S. credit quality plummeted toward third world status. Third world countries don't issue 30-year bonds because nobody will buy them. In my view, that is why the U.S. stopped issuing 30-year bonds.

Since the year 2000, many Wall Street criminals have gone to trial, and after six years of work by the Bush administration, we are finally at a point where the 30-year Treasury maturity can be issued at less than third world rates of interest.

I would be a lot happier with Mr. Bernanke if he'd simply said nothing about 30-year bonds, and even if he's right about ignoring the yield curve inversion, why take the risk of talking about it. I miss Chairman Greenspan.

Natural Gas U.S. Futures ($7.32)

Among commodities, natural gas recently led the pack on the downside, with a spectacular plunge from the $16 area. I've been working with it long enough to know that it's a forecaster's nightmare. I called for the rapid upside into October, and looked for a sharp selloff from there. Today, I have my sharp selloff, but in the midst of the downside move that started in October, natural gas spiked to a $16 high that simply wasn't in my forecast, or any other forecast that I know of.

At this point, we're wildly oversold on the intermediate term, and a short term bounce in March would make sense. Thereafter, a base building period might set the stage for another recovery.

Gold Futures (U.S. $550.20)

Gold has seen a twenty-five dollar correction since I called for a resource selloff on February 1st 2006. As I write today, underlying intermediate and long term price momentum remain healthy, but wildly overbought, and my unique short term momentum charts are busy hemorrhaging on the downside.

In my January 10th 2006 comment on gold, I said I was looking for a first downside correction target in the area of $500. This still seems reasonable to me today.

Copper U.S. High Grade Futures (222.60)

Copper has not corrected in any meaningful way since February 1st 2006, when I called for a resource selloff. This is a testament to the strength of the underlying trend. At this point I will be pleased if we pause below the 230 area (the recent high) for weeks or months from here.

On the short term, we are moving into oversold territory, and I suspect that we could see a snap-back rally in March.

Oil U.S. Light Crude Futures ($61.04)

In my Market Comment on February 1st 2006 I called for a general market setback, including resource stocks. Light crude has sold off by almost ten percent since then. Now, we are approaching an important short term support area ... round-numbered support at $60, along with 200-Day Moving Average support, and uptrending technical support, all of which are convergent on the $60 area. To my way of thinking, this hints at the possibility of a knee jerk bounce from the $60 area as we move into the month of March.

Are we gradually building an important long term top below the $70 area? So far my unique long term price momentum models suggest a possible long term top formation, but no trend reversal is indicated as yet. A pause rather than a reversal? The jury is still out, but even a pause here has important investment implications.

Canadian Dollar Futures (86.72)

I've been looking for a modest setback for the Loonie since last September (84 cents) and it hasn't happened yet. Now I'm getting mixed messages from my intermediate term price momentum work, so I can no longer justify calling for a correction.

The long term picture looks overbought but strong. A long term overbought condition can take months to unwind. I have no choice but to go to "hold" position for the Canadian dollar until there is clarification in the numbers. I'm really surprised that there was no reaction to the recent setback in the resource area.

Nikkei Index (16258)

The Nikkei has fallen almost 400 points from its high since I called for a general market pullback in early February. Short term price momentum was hemorrhaging as I wrote back then, and more recently my unique intermediate term price momentum models have signalled possible trouble ahead.

The long term picture remains positive, but after such a huge recent runup, a great deal of damage is possible if an intermediate term correction takes hold. I'm standing aside.

TSX Index (11651)

In my February 1st 2006 Market Comment, I called for a general market correction including resource stocks. Since then, the TSX has experienced an abrupt selloff. So far, I cannot see an end to the steep slide, but from my unique price momentum models, it is clear that only short term influences are at work here so far.

The TSX had a fantastic intermediate and long term head of steam up before the selloff began, and nothing much has changed, in spite of the fact that meaningful short term damage has been done. I'll be watching to see if we will put in a short term price momentum low before we impair the otherwise strong intermediate term pattern.

If we get a short term low without damaging intermediate term price momentum, we might just look for a "snap back" rally in March. For now though, the short term steep selloff continues and I remain on the sidelines. It's "wait and see".

T Bill Yield Index U.S. 91-Day (4.54 percent)

The T-Bill yield continues to soar. In December I said my next upside target was 4.5 percent. We're through 4.5 percent now, and my unique math models didn't even hint at slowing down as we approached the area.

From here, there is heavy technical resistance above us all the way to 5.5 percent, but there is no suggestion from the math models that sellers are showing up to slow down the upside action.

We have already seen a yield inversion all the way out to the thirty-year bond. It's only two days old, but if this wild upside ride in T-Bill rates continues, the inversion could be with us for awhile. Of course, yield curve inversions traditionally precede economic recessions.

Where do we go from here? I'm hoping my math models will foresee the end of this upside extravaganza before it arrives. If we roar through resistance at 5.5 percent, the next resistance level I can see is at 6.5 percent, and then it's wide open as I see it, all the way to the area above 9 percent. And all this without inflation?? A wild ride indeed!

S & P 500 Index (1267)

Upon review, I refer you to my S & P 500 Comment of January 10th 2006, which remains valid today.

Nasdaq Composite Index (2261)

Looks like an intermediate term corrective phase in a modest longer term uptrend to me. Using this logic, I would look for the 2100 to 2200 area sometime in the coming four to six weeks.

My long term bias remains neutral only because my unique math models continue to call for caution beyond the intermediate term. So far, the reason for gradual long term momentum deterioration is not manifest in the share price trend.

Hang Seng Index (15425)

I have been looking for an important market top formation in this area for some time. An effort to retest the recent high at 16445 may be possible in the process, as I see it.

CRB Index (353)

In my February 1st 2006 Market Comment, I said I thought we were looking at a resource bubble, and I called for a general market correction as the bubble burst. The CRB index had peaked the day before at 363.30

My unique math models indicate that corrective action so far has been largely driven by short term factors. Intermediate term math remains stubbornly overbought, and both intermediate and long term math models have not yet slid away from their strong uptrend indications.

Now I'm looking for the intermediate term math model to confirm something more than a sharp painful short term setback.

Short term support is indicated at 350 and 337.

Philly Bank Index (103.18)

I expect continuing intermediate term corrective pressure to give way to base building over the coming three to six weeks.

Beyond that, my longer term outlook (which had been neutral) has now shifted to a positive stance which is a huge adjustment as it relates to the market outlook in general.

Economic Comment

Today the U.S. issued 30-year Treasury Bonds for the first time in many years. There was good news and bad news.

The good news: After six years of work, President Bush has succeeded at regaining world confidence in the U.S. economy. It was sliding into chaos when he took office.

The bad news: With this issue, a yield curve inversion from fed funds all the way out to 30 years showed up on the spot. Inversions often precede recessions.

It's bitter-sweet.

U.S. Dollar Index (89.90 Feb 4/06 close)

In my February 1st, 2006 Market Comment, I said I was looking for a general market sell off to include the resource sector. Now that it looks like this correction is underway, I've been looking around for ideas on what might buck the trend.

To my way of thinking, the U.S. dollar is building a short term base here with a view to moving higher in a recovery that began late in 2004.

Market Comment

A lot has changed as we launch into the month of February 2006. Federal Reserve Board Chairman Greenspan has retired after 18 years at the helm. To my way of thinking, there is simply no one to fill the shoes of this Ayn Rand protege. He was a giant in our time, and suddenly he is gone.

The U.S. yield curve has hinted at inverting recently, and today a 2 /10 year inversion stayed in place all day long. U.S. yield inversions have reliably predicted impending recessions in years past. Perhaps a one-day inversion is an aberration, but nonetheless I am carefully watching.

I have been a resource bull for months on end, but I'm re-examining my position on this. In the past, "irrational exuberance" in any industry sector you can name, has turned out to be a bubble, and every past bubble has eventually burst with a devastating bang. Now, resource price charts look like they have a serious case of "bubble-itis".

Before the price of natural gas collapsed, I said "hang onto your hats" when it turns lower. Bubble tops don't form overnight, but "hang onto your hats" when the rest of the resource sector begins moving lower.

Greenspan gone, a U.S. yield inversion, and a resource price bubble. I'll admit I'm worried here. A general market selloff? What kind of news would it take to trigger such an event?

Dow Jones Industrial Average (10954
S & P 500 Index (1282)
Gold (U.S. $574)
Crude Oil U.S. ($66.87)