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 has been trading full time for a living since 1987, but prior to this time, he worked on wall street before that in the structured securities area. He is also currently the chairman a resourse mining company.

- 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:

I'm sorry for the late posting, my broadband internet connection was down for most of Sunday.

First off, I hope everyone had a fantastic New Years Holiday! We are now in 2005, can you be believe it? Times passes so fast anymore. Anyway, 2005 will be an exciting year for us at Breakpointtrades and for myself personally, I'm very excited. I hope all of you stick around for this exciting year!

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The Market ended on another up note last week, and did well the last part of the year - no surprises there. For 2004, the Nasdaq and DOW ended up about 9%, while the DOW was up about 3%

The market almost always does well at the end of the year, and also during an election year when the President will try to slant everything he can in a positive light so that he an get re elected as statistics show below.

As you can see, the Market has historically performed well during an election year and last year was now exception: With only three down years and a total average yearly gain of 13%!

However, it should come as now surprise that the post election year is statically weaker than normal as the President no longer has to worry about getting re elected. The following chart from www.chartoftheday.com shows this perfectly. Notice that the market historically performs below average following an election year: Will 2005 act the same? Well just have to see...

One more thing about the chart above: Notice that the market typically does not do well in the early part of the year of a post election year. Based on the charts I will present below, this could occur once again. As you well know, I have been stating for the past couple of weeks that the market looks topy, and will likely correct soon to work off oversold conditions. Many of the daily sector and index charts have either bearish rising wedge patterns, or negative divergence.

Anyway, do not get complacent: The trend is still up, but take profits relentlessly.

Even though the short term index charts look overbought, the long term charts look great. Therefore, I think a pullback will be just that, a pullback within an uptrend. Following a pullback, the market will likely hit new highs once again.

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 I stated above, the market looks like it has the potential to pullback in the short term. Therefore, let's take a look at the 60 min index charts first:

The Nasdaq 60 min. chart shows us that the Nasdaq is near a support uptrend line. However, notice that the Nasdaq has three fan trendlines. Generally, a three fan trendline is bearish, we'll just have to see.

The dotted line near 2150 is the significant trendline as it is of an ascending triangle. If 2150 is broken, then a retest of the next support levels will likely occur at 2100 and 2050 respectively

For the DOW, as you can see, it is currently at the uptrend support breakpoint. If the DOW fails to rally here, then a retest of the next support levels will likely occur at 10640-10650 and 10430 respectively.

As for the S&P, it looks similar to the DOW, if the uptrend line is broken, then a retest of support levels will likely occur at 1190 and 1165-1170 respectively.

Next, let's take a look at some of the daily index charts.

Same thing for the NYSE, a possible bearish rising wedge hinting at a pullback:

Same deal for the Russel 3000 index: Sure looks like a bearish rising wedge to me...

The Nasdaq could pullback to the uptrend line near 2100.

Next, let's take a look at long term charts to give us a 'big picture' perspective.

As you can see, while market looks like it may pullback in the short term, it looks very bullish on the long term monthly charts:

The Nasdaq for example has a bullish cup and handle / or ascending triangle. Therefore, the Nasdaq has plenty of room to pullback and still stay within this pattern. The bottom uptrend line is near 2000,

As you can see, the DOW looks very bullish on the long term chart as it has broken out of a bullish flag and 5 year downtrend line. The DOW thus has plenty of room to pullback and maintain this bullish pattern.

As you can see, the S&P looks very bullish on the long term chart. The S&P has plenty room to pullback and still stay above the uptrend line.

A FEW INDICATORS TO TAKE NOTE OF:

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.

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 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. Also, take note of the bearish rising wedge.

It would take a strong rally to cancel the negative divergence.

The percentage of stocks above the 200 MA also show negative divergence hinting that a short term pullback could occur at anytime.

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 up trending 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.

Sectors:

However, I consider the Semiconductor sector to be one of the most important to watch as it will likely determine if the market rallies or enters a correction in the short term.

As you can see, the SOX is near an uptrend line: In short, if the SOX rallies of this uptrend line the market will rally, but if the uptrend line is broken, then the market falls.

It's that simple:

Here's a list of stocks in the Semiconductor sector that look like breakout candidates if the SOX can rally:

MISC.

In August I pointed out a bullish situation occurring in the Nikkei market. As you can see, the Nikkei has a bullish inverse head and shoulders with a major target of about 15,000.

In order to take advantage of this potentially bullish situation, I currently own UJPIX which is a mutual fund from Profunds which invests in the Japan market. My long term target of this fund is about $75! Keep in mind, this will take a year or more to come to fruition, so don't email me in a week complaining that it hasn't moved much.

A close up view shows us that UJPIX might is finally beginning to move:

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.

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.

The big picture chart shows us that gold metal has long term support at the uptrend line, now in the low $400s.

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, however this pattern also resembles a bearish flag, therefore I wouldn't be surprised to see a pullback that breaks the uptrend line.

Gold Stocks:

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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.

Uranium stocks have been hot and have the potenial to continue running up. The price of Uranium is in a strong uptrend, though I do not have a chart to show you:

CCJ has the most bullish of the Uranium charts and is going to split 3 for 1 in early January.

USU is another uranium stock: