1. Administrative Comments:

Big announcement, we are current re-designing the Breakpoint Trades website, and the result will be a much better and far more useful website:

The new website will still be a month or more away, therefore I'm not going to go into too many specific details at this time, however here is a little information to get you excited...

- The website will be reorganized and will flow much better. Many new subscribers initially have problems understanding the layout of the current website, this will be rectified.

- There will be an integrated chat room, thus it will be easy for members to access the chart room and not have to download software, etc.

- A new partner has joined Breakpointtrades who brings 20 plus years trading and investment experience to you. He is currently the CEO of a gold mining company, and is on the board of directors of several companies.

- The new website will be muti-tiered and will offer two levels of membership: One level will be just as it is now but also improved. However the second level will offer far more, and will be aimed at the professional trader/investor. Our new partner will be maintaining this section.

Keith Kern will continue his current duties i.e. the daily watch list as well as the chat room. Though improvements will be made to these sections for your benefit.

Myself (Matthew Frailey) will continue writing the newsletters (but they will also be emailed) as well as the gold section, insider setups, and market sectors pages.

- etc. etc. etc.

More details will be given once we are close to launch....2005 will be a big year for Breakpointtrades, and you'll want to make sure you come along for a very profitable ride!

2. General Market Comments:

This is the final newsletter of 2004. It's a long one, so be sure to give yourself enough time to read it!

First off, I hope everyone had a great Christmas holiday if it applies to you.

The market drifted up and closed the week positive, just as I and everyone else thought it would based on the time of the year. Practically every market index and sector closed positive for the week, especially the DOW and S&P which both hit 3 1/2 year highs.

Next week could be slow as there are also no earnings announcements, and news is sparse.

As far as the market for next year, I think at least the 1st. half of 2005 could be another good year for the market, though a pullback is likely to occur before another sustained rally occurs: All the long term charts of the major indexes look very bullish and have a lot more upside, unless the charts drastically change. For example, I would not be surprised to see the Nasdaq hit 2300 and possibly even 2600 based on long term charts, which I will show further below. The DOW and S&P should also go substantially higher.

Currently, the trend is up, however I expect some kind of short term market pullback in early 2005, possibly beginning in January. But again, I expect it simply be a pullback in an uptrend, unless the charts drastically break down, which I do not see happening. When we do get a pullback, the charts will tell us how the pullback behaves once it occurs.

Fundamentally does it make sense for the market to go much higher in 2005??? Hell no! Unfathomable personal, corporate, and government debt; rampant government spending; peak oil; an ever expanding record trade deficit; a US Dollar that will continue to decline in the long run; rising prices of raw materials and future inflation; jobs and manufacturing going overseas, etc etc. However, we at Breakpoint Trades will trade according to what the charts tell us, and currently they tell us that the market moves higher for now, unless something changes, so be it.

When the time to short arrives, the charts will tell us and we will act accordingly. Personally, I think the US Market entered a long term secular bear market in 2000, and this current bull market which began in March 2003, is simply a cyclical bull market that will end sometime in 2005. The secular bear market will then likely re emerge later in 2005.

Also, for you gold bugs out there, 2004 was not a good year at all for gold stocks. However, I think gold stocks will bottom in the early part of 2005 and will begin the 2nd leg of their secular bull market. Gold entered a secular bull market in November 2000 that will likely last for many years. I think we will see gold at $1000+ an ounce one day, however our first target is $500, which will probably be hit sometime in 2005.

Let's look a look at the charts:

As you can see from the chart below, the rally in to confined to the US markets, but is essentially a world wide stock market rally.

However, a common knowledge in technical analysis is that former resistance is commonly retested after a breakout - this may occur in the chart below: Take note of the negative divergence in the MACD, this tells me that a pullback in the world markets could likely occur soon, probably beginning sometime in January 05. However the pullback will probably simply be just that, a pullback to retest support, followed by another world market rally to new highs.

2. A FEW INDICATORS TO TAKE NOTE OF:

Again, I must stress that the current trend is up and there are very few short candidates. However, the market indicators are telling us to be cautious, and are signaling that a pullback could soon occur soon, unless the market rallies strongly in the short term to nullify negative divergences.

This first chart is very interesting: It is the ratio of the Nasdaq to the S&P 500. Typically, the market does well whenever the Nasdaq outperforms the S&P 500. In other words, technology should lead the market higher during a healthy market rally.

As you can see, the Nasdaq under performed the S&P 500 from January until August, and especially from July to August. During this time, the market went sideways or fell. However, notice how the Nasdaq outperformed relative to the S&P 500 from September to December - the market rallied strongly during this time.

Currently a warning sign is flashing: Notice that the Nasdaq is currently under performing relative to the S&P 500. Unless this trend reverses itself very soon, the market will likely pullback at any time and test support levels.

Therefore, trade nimble and take profits quickly, now is probably not the time to let positions run, unless supported by news or strong fundamentals.

This next chart is the Profunds Ultra Bear mutual fund. This mutual fund is a bear fund which shorts the market. Notice how positive divergence is now present via the MACD, thus hinting that this fund will soon rally. Logically, in order for this bear fund to rally, the market has to fall.

Again, another warning sign of an impending pullback...

The VIX 60 min chart broke support which is positive for the market in the short term - when the VIX falls, the market generally rallies, and vice versa.

However, how low can the VIX really go??? The lowest the VIX has ever been is in the mid to low 10s, therefore it's very close to strong support levels.

Remember, when the VIX rallies, the market falls. Therefore, the only way this market can continue to rally is for the VIX to continue falling - this can only continue for so long before an oversold rally in the VIX occurs, and thus a market pullback.

Here is the long term chart of the VIX, as you can see the lowest it has ever been is 10.40 back in 1994. Again, it's hard to imagine the VIX going much lower and I'd expect some sort of bounce off this multi year support - which would cause the market pullback we are currently over due for.

The NASI chart can be very useful to predict market trends. The NASI is still flashing a warning sign via the sell signal on the parabolic sar and negative divergence on the MACD.

Anyway, this may simply be another false sell signal, however you should at least take heed and tighten up your stops and take profits quickly. The market is getting over extended in the short term.

The next chart shows us the percentage of Nasdaq stocks that are above the 50 MA. Once again, negative divergence is very obvious via the MACD and hinting at a pullback in the near future. A strong rally however would cancel the negative divergence. We shall see.....

As you can see, the NYSI has also given a sell signal and negative divergence is very prevalent in the MACD indicator. Again, just a warning sign to take heed and protect profits.

As an example, a pullback could take the NYSE down to retest support at about 6800. There is also negative divergence present in the MACD.

Once again, a strong rally in the short term would cancel the negative divergence.

The next chart is a ratio of the DOW Transports with the DOW Jones. DOW Theory states that Transports tend to lead in a healthy uptrending market. However, if you see a divergence take place between the DOW Jones and the Transports, then something has to give. In other words, these two sectors can only diverge for so long.

As an example, if the DOW is rallying, but the Transports are falling or lagging behind, then this is a warning sign that the DOW will soon breakdown and pullback.

Currently, there is negative divergence present in the MACD which hints that the Transports will soon began to under perform relative to the DOW, and is another warning of a market pullback in the future.

Again, continue to play breakouts, but take profits quickly.

3. Market Index/Sector Analysis:

The Nasdaq has a bullish chart with year high resistance just overhead. However, as I already stated above, a pullback to support at about 2055 could occur soon given the sell signal in the NASI indicator.

Anyway, the good news is that any pullback will probably be a pullback within an uptrend, but we shall see...

Here's a 60 min. chart of the Nasdaq: The nearest supports are 2100 and 2055, which may be tested on a short term market pullback. The Nasdaq has resistance near about 2170.

However, a larger time frame shows us that the Nasdaq has broken out of a large symmetrical triangle which is very bullish - just as I discussed above.

My target for the Nasdaq is 2330 once the January 2004 highs are taken out!

However, a pullback will likely occur before the target is hit.

The final chart is the monthly big picture chart of the Nasdaq. This chart resembles a very bullish cup and handle pattern! Also take a look at that bullish ascending triangle that is currently forming. A target on a breakout from the ascending triangle is the 38% Fibonacci number at about 2600.

Once again I must stress that any market pullback that may occur will likely be short term. As you can see, the weekly long term charts are very bullish for the Nasdaq.

The Semiconductors need to rally soon, otherwise the uptrend line will be broken and a pullback will commence. This is important because the semiconductors strongly affect the direction of the Nasdaq, i.e. if the semis. pullback, then so will the Nasdaq.

Keep a close eye on this chart, as will be an important factor which determines whether the market pulls back in the short term.

This long term chart of the DOW is very bullish: Notice that the bullish flag has been broken to the upside, but more importantly, the 5 year downtrend line as been broken to the upside! This long term chart is very bullish and I think we will see the DOW Jones in the 11,000s sometime in early 2005.

Similar to the Nasdaq and DOW, the yearly S&P 500 chart shows us a slight negative divergence via the MACD. Therefore, don't be surprised if the S&P pulls back and at possibly tests the horizontal support line at 1165 in the near future.

The 60 min. chart more clearly shows us the nearest support and resistance areas:

Long term chart of the S&P is bullish: Strong support at the uptrend line, and a price target over 1300. A short term pullback may cause the S&P to retest the uptrend line.

The very long term chart shows us that the long term uptrend line of the S&P is broken, and the current bull market is simply a cyclical bull market. The area in gold at the broken uptrend line is a possible target.

The Russel 3000 is probably more relevant then the DOW or S&P. As you can see, negative divergence in the MACD hints at a probably pullback. 660 is now strong support.

Stock Picks From Strong Sectors.

Note: Be careful as a market pullback could commence at anytime. Be nimble and take profits quickly:

Soft drink sector has a nice base and could rally off this level.

As you can see, the Basic Materials sector looks strong, with clean resistance just overhead:

The Autoparts Sector has resistance just overhead and could soon breakout:

If the Semis can rally off the uptrend line, the following stocks could rally as well:

3. Gold and Precious Metals Analysis:

Gold metal has pulled back from new highs to retest the former resistance, now support in the $430s. Gold bounced off this area last week, but is this just a temporary bounce? Again, the US Dollar will likely determine golds fate here: If the US Dollar rallies, then this current bounce will likely fade and support in the $430s will fail, thus resulting in a pullback to the multi-year uptrend line.

Given that the US Dollar has multi-year support near the 80 level, and is currently oversold on the weekly chart. I think a pullback to the uptrend line is the most likely scenario. However, it's also possible that gold metal simply consolidates in this range for another month or so before it's ready to move up again, we'll see.

The chart of gold metal is a beautiful chart, therefore as long as the uptrend line holds, I will consider gold to be in a powerful bull market.

Again, gold is in what I and many others consider to be not just a cyclical, but a long term secular bull market. The 1990s were the decade of tech. stocks, but I think will turn out to be the decade of commodity stocks.

Over the weekend I read a slew of gold articles and one of them written by the Aden sisters entitled 'Back to Basics' caught my eye. This article discussed that gold historically has strong support at the 65 week moving average. Obviously, the best place to buy gold is on pullbacks near this 65 week moving average.

As you can see from the chart below, the 65 week moving average seems to work very well as a support level. Though the question remains, will gold pull all the way back to this 65 week moving average or will it find support at the horizontal support line instead? You can see that on the two previous pullbacks, the horizontal resistance lines were in the same region as the 65 week moving average, but this time it is not. A couple months of sideways consolidate would bring the two together and is what I personally want to see happen. If this occurs, then I will buy big back into gold.

However, long term traders or investors have nothing to worry about and could actually begin to average in a little here just in case gold bottoms here.

Taking a look at silver, one can see how volatile it can be. Silver quickly pulled back from the low $8s all the way to the high 6's in a few days time. Currently, Silver is once again at an uptrend support line and is oversold an the daily stochastics. Silver is obviously at a breakpoint and will either rally off this line or break it to the downside. I think there is a good chance that silver tries to bottom here, keep a close eye on it.

Gold Stocks:

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The daily chart of the HUI shows us that $220 was major support, which has been broken. A test of the gold area in the $200 range could potentially occur, and is the area where I will begin to buy gold stocks if a pullback to this support level occurs during the next month or two.

Next, let's take a look at the long term weekly chart of the HUI:

As you can see, the HUI is forming what may be a bullish ascending triangle with support at the red uptrend line in the low $200s and resistance at about $260.

As long as the bottom uptrend line holds, this chart is very bullish, and the most obvious place to go long gold stocks is when the HUI approaches the bottom uptrend line.

Also note, the price target of the HUI when based on triangle measurement is about $360!!!

If this triangle plays out, 2005 will be a very good year for gold stocks.

Let's look at a few gold stocks in particular that I like:

DEZ is a fairly new gold stock with great fundamentals, and has held up very well during this gold stock correction. This is currently one of my favorite gold stocks and I currently own shares.

NXG is another one of my favorite gold stocks with strong fundamentals. Notice that NXG is at a long term uptrend support line. I may acquire this stock next week and place a stop just under the uptrend line.

As you can see from the short term chart, NXG is near support. I may buy next week with a stop under 1.50.

EGO is another one of my favorite and also has great fundamentals. Notice that EGO has found nice support in the high $2s. One could buy here with a stop under $2.75

CEF is a slow mover, but is also very save. CEF is trying to bounce off the long term uptrend line.

As you can see, CEF is also finding support on the daily chart.

AU is nearing long term support at a muti year uptrend line.

CAU has the potential to eventually rally and fill the gap, note the positive divergence via the MACD. I acquired shares in CAU last week.

RGLD looks bullish on the daily chart and has good fundamentals: I may pick up some RGLD with a stop just below the uptrend line.

RGLD also looks great on a long term weekly chart.

Rangy is another gold stock with good fundamentals:  I would be a buyer of Rangy if it clears the $1.80 area on expanding volume.

BVN is right at mutli-year support and has consolidated in to a symmetrical triangle:

I mentioned GSS last Sunday, and it has a great week. GSS has major resistance at the downtrend line of a large flag pattern.

KGC looks good on a long term basis with strong support at the multi year uptrend line.