Happy 4th of July 2004!!!

Table of Contents:

(click on the numbered sections below and you wil be taken to that corresponding section)

1. Administrative:

2. Misc. Comments:

3. Major Market Indices (multiple time frame analysis):

4. Market Sector Breakdown:

5. Foreign Markets Breakdown:

6. Gold, US Dollar, Precious Metals Stocks, Commodities:

1. Administrative Comments:

I've will begin to update the Insiders Section sometime early this week and will do so every week or two from now one.

Also, per request from the message board, I've placed a date that the section was updated at the top of most sections, such as Market Analysis, Insiders, etc.

Also, there has been requests for me to post the newsletter earlier in the day on Sunday. I shall try to meet this request, however it will not always be possible. Many times I am busy during the weekend and go on trips and get back late. Also, sometimes, like today, I get writers block and it's hard for me to just write something and post it. I like the words to flow and once and a while, if I'm not in the mood to write the newsletter, I can't force it. Does this make sense?

And finally, in an effort to organize the weekend newsletter a little better, I've broken the sections down into six sections. This organization will most likely be a standard format from now on.

2. General Market Analysis:

First off, I hope you all had a good 4th of July weekend.

Well, the saga continues, the market is still teetering near resistance lines and could go either way at this point. However, unless the market can gear up and rally soon, such as this week, I will have to change my stance to bearish.

Lots of important, market moving, financial news last week:

1st., the Federal Reserve raised short-term interest rates, or federal funds rates, by 0.25% from 1.0% to 1.25%, and the first time in 4 years the Fed. has raised interest rates. The federal funds rate is what banks charge each other for overnight loans. The 0.25% rate hike was totally expected and likely already factored into the market. Frankly, I'm happy that it's finally over with as the financial media was totally obsessed with the latest Fed meeting.

Of course, the medias fascination with this latest Fed meeting is understandable given the fact that this 'first' interest rate hike represents the beginning of a new era, or a change in Fed policy of interest rate hikes that will likely continue for years to come. Also, now that the holiday and the FOMC meeting are finally over with, I think the market may finally tell us the 'real' trend it wants to follow, whether it be up or down.

2nd., after three straight months of strong employment growth that met or exceeded expectations, the economy added only 112,000 jobs in June, less than half what most analysts were looking for. The report was the latest of several indications suggesting that economic activity slowed sharply in June after a strong spring.

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The following chart is the 3 month T-Bill Yield, which is basically set by the FED. The reason I am showing you this chart is because it is useful in guessing what the FED will do before FOMC meetings. Notice how the IRX moved about 0.25% higher before the FOMC meeting? In other words, the IRX was anticipating a 0.25% move up in interest rates.

This is a good chart to look at before FOMC meetings to gauge what the FED is likely to do with interest rates.

The FED is in a rock and a hard place, despite what you hear from 'mainstream' economists, higher interest rates will only hurt our fragile, debt ridden economy. Our society is based our debt, and a lot of it at the moment, more than in any country in history. The FED realizes this and knows that raising interest rates is a dangerous game. However, the FED has it's hands tied. You see, the FED only controls short term interest rates, it does not control long term interest rates, bond traders do. Basically, the FED does not want the spread between long and short term interest rates to become too large. However, as evident from the chart below, long term interest rates have broken out of a major downtrend and are on a new uptrend. Because the FED does not want the spread to get too large between short and long term rates, it has no choice but to raise short term interest rates if long term interest rates are going up and based on the chart below, long term rates are definitely going up.

The chart below is of the 10 Year Yield, which incidentally, closely follows home mortgage rates. Long term interest rates are clearly going up, and by my analysis, the first target for TNX is 5.5%. Notice how TNX broke the downtrend line and has recently pulled back to retest the broken downtrend line? The broken downtrend line was former resistance, but now it is support and will act as a launchpad for a rally in TNX, and thus long term interest rates.

Pulled from June 20th, 2004 Newsletter:

Market Cycles:

The market moves in repeatable cycles of long term (also called secular) which last approximately 10 - 20 years, and short term (also called cyclical) which last from 1 - 3 years. Secular markets represent the long term trend to the market, but short term counter trend cyclical markets always exist inside a secular long term market - usually 3 - 4 cyclical markets exist inside a long term secular market.

For example, the DOW was in a secular bear market that began in 1966 and lasted until 1982. To give you some perspective, the DOW topped out at about 1000 in 1966 and hit a low of around 800 in 1982!. Even though the long term trend was slightly down over all this time, there were also 4 short term cyclical bull markets interlaced inside this secular bear market.

After the secular bear market ended in 1982, the DOW began a secular bull market that lasted from 1982 to 2000, or 18 years. There were also several short term counter trend cyclical bear markets during this time, but the overall trend was up.

Next, in March 2000, the general market most likely began a new secular bear market. History shows us that the current secular bear market will probably last at least until 2010 to 2015. My point is, a cyclical bull market began in early 2003 but will eventually end, possibly this year, and the long term secular bear market we are in will re-manifest itself.

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As stated above, I think the general market is in a long term secular bear market that will likely result in the market going sideways to slightly down over the next 10 years.

Here are are two charts of the S&P 500 going back to 1982. These charts give you a good perspective of the last secular bull market and both charts clearly shows that the last secular bull market ended once the uptrend line was broken.

In technical analysis, when an uptrend support line is broken, it often becomes resistance and is usually retested once before the stock or index plummets downward.

Which of the two following charts is right??? I have now idea, a strong case can be made for both charts, both are very bearish and show that the market is now in a secular bear market, but the second chart allows for the market to rally a little longer before crashing again.

Either way, in the long term both charts equal out, in the long term, the result will be the same, the next 10 or so years will not be a good time for the market.

#1. Most Bearish Scenario:

The first chart is obviously bearish for the long and the short term; here you can see that the S&P 500 has broken the secular uptrend line and has rallied back to retest it. This 're-test' is usually the end of the rally and a large downtrend soon begins.

This chart suggests that the market has almost topped out for the year, and will soon enter a large downtrend. Based on this chart, the highest the S&P 500 could go is about 1250, which also corresponds with a 62 Fibonacci retracement from 2000 highs.

# 2. Less Bearish Scenario:

The 2nd. chart represents a 'less bearish' scenario in the short term, but of course it is just as bearish as #1 for the long term. What do I mean by this? Well, obviously the uptrend line of the secular bull market has been broken and the uptrend is over, which is bearish and shows that the market has entered a secular long term bear market. However, when the line is drawn this way, it gives a little more room for the S&P to rally before hitting resistance at the broken uptrend line - possibly 1350 to 1400.

So which of the two charts above do I think is right? I'm not sure yet, either one could happen. However, that said, I am very bearish on the market for the long term. The Fundamentals of the US economy are very shaky, with huge debt and manufacturing leaving overseas our main problem.

I think the market has an okay chance of staging a late summer rally into the fall. However, I personally think 2005 will be a 'blood bath' for the US Market and I plan to be in Rydex Bear Fund, precious metals, and short housing stocks by then, if not before depending on what the charts do.

3. Major Market Indices (multiple time frame breakdown)

Last week, all three major indices (Nasdaq, DOW, S&P) closed slightly negative, with most of the decline occurring after the Fed meeting on Thursday and Friday.

Just as I stated above, the FOMC meeting and the Holiday is finally over, I suspect the market may finally reveal its true trend this week or next.

However, I think the market will rally early this coming week, possibly beginning Tuesday. The Nasdaq, DOW, and S&P 500 all have positive divergence in their respective MACD indicators which signals a bounce or rally is just around the corner.

Also, the Arms Index, TRIN has closed over 2.75 for 2 days in a row which is extremely rare, usually signals a rally is about to occur to work off the extreme conditions.

As you can see, the TRIN is at extreme levels, thus suggesting a rally may soon occur, probably on Tuesday or Wednesday. Also, positive divergence on the intra day Index charts support this and are also indicating a bounce will occur.

Nasdaq:

The following chart basically shows the same thing as the above chart, once again you can clearly see the positive divergence in the chart. However, once again, this indicator desperately needs to turn up soon, otherwise the positive divergence will disappear.

The DOW Jones:

Intra Day:

Per the discussion above, positive divergence in the short term 10 minute chart indicates that the DOW may rally early this week:

Daily:

With the FOMC meeting now over, let's see if this week the DOW can establish a definate trend.

The DOW as formed a possible bullish flag which appears to have broken to the upside. The broken downtrend line is now acting as support and may provide a lift-off for a rally. However, the DOW needs to rally soon, otherwise it risks falling back below the support line and negating this pattern.

Big Picture:

The long term chart of the DOW shows that the DOW is in a multi year downtrend which began in 2000.

You can clearly see the bullish flag pattern.

The S&P 500:

Intra Day:

Per the discussion above, positive Divergence in the short term 10 minute chart indicates that the S&P may rally early this week:

Daily:

The daily S&P chart resembles the DOW chart as it has formed a bullish flag. The S&P needs to rally and break the downtrend line to ignite a market rally, otherwise a downtrend could soon begin.

Big Picture:

Which of the two charts is correct:

The first chart hits more points with the trend line, however a strong case could be made for both chats.

Either way, it is evident that the secular bull market is over and a new secular bear market has begun. The broken downtrend lines are now resistance.

Most Bearish of the two charts and shows that the market is basically topped out:

Various Sectors	Chart Symbols	ETF	Comments
Aerospace	$DJUSAE		Took out resistance and made a new high, now pulling back to retest former resistance
Airlines	$DJUSAR		Broke resistance, and possible inverse head & shoulders, bullish
Transportation	$TRAN		Strong sector, breaks symmetrical triangle to upside, pulling back some
Trucking	$DJUSTK		Very strong sector, support at 210
Advanced Industrial Equipment	$DJUSAI		Broke a bullish flag to the upside, very bullish
Industrial Diversified	$DJUSID		Breaks a symmtrical triangle to the upside, very bullish
Industrial General	$DJUSIS		Strong sector, resistance at 140
Industrial Services	$DJUSIV		Strong sector, resistance at 174
Auto Parts	$DJUSAT		Failed to break resistance, falling back, major support at 220
Basic Materials	$DJUSBM	XLB	Broken downtrend resistance line
Aluminum	$DJUSAL		Broke downtrend line, bullish:
Coal	$DJUSCL		Strong sector, making new highs
Steel (US)	$DJUSST		Strong sector, breaks resistance, 110 now support
Crude Oil	$WTIC - ST $WTIC - LT		Strong uptrend, support at uptrend line Multi-year long term uptrend
Oil Index	$XOI		Strong uptrend, strong sector
Oil Companies - Major	$DJUSOL	OIH	strong sector
Oil Companies - Secondary	$DJUSOS		Very strong, rallying to new highs
Utilities	$UTY	UTH XLU XLE	approaching new highs, reacts strongly to the US Dollar
Electric Utilities	$DJUSEU		Broke resistance but still under recent highs, reacts strongly to the US Dollar
Gas Utilities	$DJUSGU		Strong sector, resistance at 283, reacts strongly to the US Dollar
Natural Gas Index	$XNG		Strong sector, making new highs, support at 235
Advanced Medical Devices	$DJUSAM		Symmetrical Triangle
Biotechnology	$DJUSBT	BBH	Bounced off support
Biotechnology Amex	$BTK		Bounced off support, consolidating sideways
Healthcare Providers	$DJUSHP	XLV	Strong sector consolidating into triangle
Medical Supplies	$DJUSMS		Strong uptrend
Pharmecuticals	$DJUSPR	PPH	Bearish, broke symmetrical triangle to the downside
Banks	$DJUSBX		In downtrend, resistance at downtrend line, unless it breaks downtrend line soon, will turn bearish
Banks Index Philadelphia	$BKX		near downtrend resistance
Diversified Financial	$DJUSSB	XLF	Consolidating, 50 MA under 200 MA
Investment Services	$DJUSSB		Consolidating, major support at 650, could easily turn bearish
Full Line Insurance Life Insurance	$DJUSIF $DJUSIL		Possible bearish Head & Shoulders on Full Line Insurance, aviod
Casinos	$DJUSCA		Support at 200 MA, large descending triangle formation, could turn bearish or bullish soon
Home Construction	$DJUSHB		Resistance $620, large head & shoulders pattern
Housing	$HGX		Trying to break downtrend line, use caution with rising interest rates
Real Estate	$DJUSRE	IYR	Bearish Rising Wedge
Retail	$DJUSRT	RTH	Sector is weakening, major support at 300
Nanotechnology	$NNZ		New sector, broke short term resistance, now support at 222
Semiconductors	$DJUSSC	SMH	Strongly affects the Nasdaq: Strong and important resistance at the downtrend line
Telecommunications - DOW	$DJUSTL		Consolidating near multi-year uptrend line, at a breakpoint!
Telecommunications - Amex	$XTC	IXP	Resistance at $600, and major support intact below

5.Foreign Markets Breakdown:

As I've been stating for weeks now, many foreign stock markets look like they are on the verge of major market rallies. Why is this important you aks? I think the majority of the world stock markets are linked together, thus if the world markets rally, so will the US, and vice versa.

The foreign market that look particularly bullish are: Chile, China, Germany, Spain, Sweden, Switzerland, Taiwan, United Kingdom and especially Japan. Chile, Germany, Spain, Switzerland, and the United Kingdom have formed bullish flags, while Taiwan is bouncing off major support and Japan appears to have formed a large inverted head & shoulders pattern.

Of particular interest to me is the Japanese market, Nikkei Index.

The Nikkei Index looks very bullish to me as it has formed a bullish inverted head & shoulders pattern. The first target would be near 15000, but I think 17500 is possible.

Again, the Nikkei looks very bullish to me and there are two ways to take advantage of this the bullish situation in the Japanese market: 1. EWJ which is an ETF (exchange traded fund) of Japan, and Profund Ultra Japan, UJPIX.

To me, by far the best bang for the buck is UJPIX. Below I plotted UJPIX on the same time scale as the Nikkei chart above. As you can see, above, the 1st. price target on the Nikkei is about 14500 to 15000 once the resistance neckline near 12500 is broken. Such a movement would represent about a 20% price appreciation. Likewise, the ETF, EWJ would be expected to increase by about the same degree.

However, take a look at the graph of UJPIX below: Notice that if the Nikkei moves from 12500 to 15000, then UJPIX will move approximately from $35 to $75 which is more then double.

I personally plan to buy a nice stake in this fund if the Nikkei breaks the neckline resistance.

Bullish flag breakout for the Chile Market:

Chile has broken a downtrend line and cleared near term resistance at 12.

The Chinese market has broken a downtrend line to the upside. The broken downtrend line might now act as support and a launch pad for another rally.

Bullish Flag on the German Market.

Bullish Flag on Spanish Market:

The Swedish market has formed a large horizontal rectangle with resistance at 18 and support at 15.5.

Horizontal Rectangle on the British Market with support at the 42 weekly, or 200 MA. If this breaks to the upside, the target is about $20.

Taiwanese market near major support and could be a good place to buy this ETF.

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6. Gold, US Dollar, Precious Metals Stocks, Commodities:

Gold is in a nice uptrend with major support at the uptrend line. However, what worries me is that the uptrend now resembles a bearish flag. If this is the true pattern, the downside target would be in the high 340's based on both an ABC corrective Elliot Wave and pattern measurement using height of the double top.

On the chart below, I show one of the measurements based on height from a double top, not shown is the ABC corrective Elliot Wave. For an ABC wave, the fall from April to May would represent wave A, the rise from May to now would represent wave B, and a fall equal to the height of the fall from April to May would be the future wave C.

I currently own gold and silver stocks, but will sell if this bearish scenario begins to play out. I will likely exit some of my precious metals if the uptrend line breaks to the downside, but I will definitely exit all of them if 380 fails to hold.

Once again, the US Dollar is the key to golds strength and weakness.

Gold is indirectly correlated with the US Dollar, i.e. when the Dollar falls, gold rallies and vice versa.

In order for gold to begin another strong uptrend, the US Dollar will probably have to breakdown and re-enter the long term downtrend. For this to occur, the support area in gold must first be broken.

The chart below resembles a bullish falling wedge. If this wedge is broken to the upside, then gold, precious metals, and corresponding stocks will tumble. This chart is linked closely with the gold chart above. For example, if the Dollar breaks the wedge to the upside, the gold metal will likely break the uptrend line and enter the ABC Elliot Wave and retest the high 340's. However, if the wedge on the Dollar breaks to the downside, then gold will do well.

Be sure to monitor this chart very closely if you own precious metals and corresponding stocks.

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