1. Administrative Comments:

Synopsis of stock picks from hot sectors in this weeks newsletter:

2. General Market Comments:

The market had another good week: The Nasdaq is just a few points away from a yearly high, while the S&P is well into yearly highs and very close to 1200. The DOW is also performing relative to the Nasdaq and S&P, but the chart looks bullish on daily and long term charts. However, this is what we want to see, technology should out perform old economy stocks during a healthy market rally. Also, small caps are still leading big caps which is also healthy. Oil has also been pulling back which is helping the market.

All of this is not surprise, as the market is currently in that 'warm and fuzzy' time of year. Generally the market does well from November - January, and this year is no different.

However, the market is getting topy in the short term and may pullback soon. I'd like to see anther pullback in the next week or so, which would set up the market for another strong rally through the holidays and into January 2005. The index and sector charts look great, but warning signs are beginning to appear which hint at a pullback. Keep an eye especially on the following indicators: VIX 60 minute chart, NASI, BPCOMPQ, NASDAQ 50

Let's look a look at the charts:

As stated above, oil has been pulling back strongly, which has greatly helped the market. However, as you can see, oil has a support level approaching near $41 at the uptrend line and horizontal line. This area is a short term breakpoint: Either oil bounces off this area, or it crashes through it. If oil can break this uptrend line, then it would be positive for the market and economy in the short term.

However, keep the big picture in perspective: Even if oil breaks support at $41, oil has strong multi-year support levels in the mid. and low $30s. Therefore, I will consider oil to be in an uptrend as long as the bottom uptrend line near $33 holds.

A FEW INDICATORS TO TAKE NOTE OF:

First, take a look at the 60 minute chart of the VIX. To me, this indicator is one of the most useful in predicting market trends. As you can see, the VIX correctly predicted the market rallies in August and November after uptrend lines were broken to the down side.

Currently the VIX is forming a descending triangle, and the direction this triangle breaks, either to the upside or the downside, will set the next short term market trend.

- If the VIX breaks the triangle to the upside, then the market will pullback, it's as simple as that. The market indexes would likely pullback to test support levels.

- If the VIX breaks the triangle support, then the market will rally strongly.

Keep a close eye on this chart, I consider it on the of most important indicators to watch in the short term.

The NASI chart is very useful at predicting the market trend: As you can see below, the NASI gave buy signals in mid. August and early November. Also, notice how these buy signals exactly match the buy signals generated in the VIX chart above.

Currently, the NASI is still in 'buy mode' however it is beginning to shows signs of toping : Notice that stochastics have been pegged at 100 for weeks now and there is slight negative divergence in the MACD.

Anyway, the NASI is currently strong, but keep an eye on this chart for signs of a reversal.

The next chart is the Semiconductr/Nasdaq ratio: As you can see, semiconductors have under performed the Nasdaq all year. However, the ratio is nearing a downtrend line, which if it can be broken, would be very bullish for the semiconductor sector, and the market - especially the Nasdaq itself.

When searching for breakout stocks, make sure to look at the semiconductor sectors.

3. Market Index/Sector Analysis:

The Nasdaq hit the January high on Friday and looks very bullish, as volume has also been strong. I would like to see the Nasdaq break this resistance level on good volume, and then pullback on light volume to retest it.

This chart shows you the progression thus far of the cyclical bull market which began in March 2003. As you can see, resistance around 2160 is very important.

A larger time frame shows us that the Nasdaq has broken out of a large symmetrical triangle which is very bullish.

My target for the Nasdaq is 2330!

The next chart shows us Fibonacci lines connecting the lows in Oct. 2002 to the highs of January 2003. As you can see, Fibonacci numbers are useful in predicting support levels and targets on index charts. The chart below shows us that the Nasdaq bounced perfectly off support at the 38.2% Fib. number.

On the next chart, I have drawn Fibonacci lines connecting the March 2000 highs with the October 2002 lows.

A possible target for the Nasdaq is the 38.2% Fibonacci line at approximately 2640. This seems very far way, but it's definitely possible.

The final chart is the monthly big picture chart of the Nasdaq. This chart resembles a very bullish cup and handle pattern!

This long term chart of the DOW resembles a bullish flag that has been broken to the upside. However, the important resistance line is the 5 year downtrend line. If the downtrend resistance line can be broken on good volume, then it's off to the races for the DOW as it will likely go in to the 11,000s.

Looking at the moving average ribbon chart of the DOW shows us that the DOW is on the verge of another large price movement. If the move is going to be to the upside, then we will soon see the ribbon begin to unfold from its coiled state.

The S&P 500 looks great as it it has taken out resistance at 1165, which will not act as support.

The long term chart of the S&P shows us that a rally to the low 1300s could occur.

This next chart shows us that the 20 year uptrend line was broken in 2002 of a secular bull market. It's likely that the current rally the market is experiencing is a cyclical bull market.

As you can see, the S&P has a lot of room to move up and retest the broken uprend line.

STOCK PICKS BASED ON STRONG MARKET SECTORS:

Here is a list of various stocks from strong sectors. I'm short on time today, therefore I'm not going to go over the individual sectors as I did in the last two newsletters:

One sector, as I've already noted above is the Semiconductors: The semiconductors have a nice base with clean resistance at about 1200 Once this level is broken, the semis could really take off. I'd expecially focus on breakout stocks in this sector. Last week, many semiconductors already broke out, however they will likely continue to move up to new highs.

As I pointed out above, the Semiconductor/Nasdaq ratio shows that an important downtrend line breakpoint is near. If this line is broken to the upside (which I think is very likely) then the semiconductors and the Nasdaq will really take off.

4. Gold and Precious Metals Analysis:

The chart of gold metal looks fantastic as it broke through a bullish ascending triangle to the upside in early November.

Gold metal could run up a little more in the short term as the US Dollar has more room to fall, however I think the gold will pullback soon, especially if/when the US Dollar bounces. Former resistance will not act as support on a pullback in the mid $430s.

On a long term basis, gold does not have substantial resistance until about the $500 level. I think gold will hit the $500 level in 2005, though not without some kind of pullback first.

"Just as I stated above, commodities are now in a Secular Bull Market: This means that commodities will be the next big movers in the next 5 to 10 years. I think we will see gold well over $1000 an ounce in the future, possibly even 2 or 3 thousand. The general public is not yet interested in gold, but when they do, gold and gold stocks could one day move like internet stocks did in the late 90's. We are still in the beginning stages of a bull market in precious metals.Gold stocks have very low market caps and it won't take much to really move them up. Remember the 90's when you would go to parties and people would talk about their tech. stocks? Mark my words, the same thing will happen with gold, commodities, and precious metals. When this finally occurs, then it will time to start looking for a final top. I think there are, and will be, fantastic opportunities to become wealthy in this area. Day trading is fine, but the real wealth will be made by those who buy low into commodities and simply hold them. This is much easier said then done of course, and it's hard not to take profits when you have them."

Personally, the best time to by gold is during pullbacks, I would wait for a pullback to support before buying the metal.

Good news, the gold exchange traded fund (ETF) is finally trading - symbol GLD! This is great because it allows investors to trade gold without having to own the physical metal. Of course, die hard gold bugs would say that this is still fiat money and would rather own the metal. However, to me the gold ETF is welcome addition. Also, the gold ETF may spark more public interest in gold as it is now much easier to invest in the metal than before. I think the gold ETF has the potential to become at least a part of everyone's portfolio.

The gold ETF trades exactly with gold, GPD is simply the price of gold divided by 10.

Personally, the best time to by gold is during pullbacks, I would wait for a pullback to support before buying the GLD.

Gold Stocks:

The long term chart of the ratio tells me that the red dotted line may be the next major breakpoint that sets off the next major uptrend in gold stocks once it is broken to the upside.

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As you can see via the HUI 60 min. chart, the uptrend line was broken last week. The next support level is at 220.

The daily chart of the HUI shows us there is support at the 220 area. Also notice that stochastics is nearing the oversold region.

HMY looks interesting here, notice how it barely pulled back last week and it has formed a bullish falling wedge.

HMY is also near multi year support:

MNG has formed a hammer on good volume, maybe a reversal pattern here?

AUY retested support on Friday, but then strengthened to form a hammer candlestick. Maybe a reversal can occur here?

OZN is trying to bounce off support near the 1.10 level.

As you can see, the US Dollar is in a melt down, however major support at about 80 is fast approaching (which you can clearly see on the next chart below). Keep a close eye on the US Dollar because a substantial oversold bounce could occur at any time.

The long term picture shows us that the dollar has support at about 80 going back to 1995. Also notice that there is a slight positive divergence in the MACD, and stochastics are way oversold and are under 5. I think there is good possibility that the Dollar bounces soon, probably near this 80 support level. The Dollar could put on a nice rally off this 80 level, possibly all the way to former support at about 85. If this occurs, gold, precious metals, and commodities will likely pullback.