November 9th, 2003

Table Of Contents:

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Part 1: General Market Analysis

Part 2: Gold Analysis

The General Market made new highs once again this week. My thought is that the General Market may hold up this year and possibly rally to new highs by the end of the year. We are out of October and are in the historically good months, November and December. The market pulled back late Friday and it's possible that a pullback will continue this coming week.

I personally would like to see a nice 1-2 week pullback. I think such a pullback would set up the General Market for a nice end of year rally.

Taxes: Also, consider the fact that the market is up so much this year, that many investors are riding on huge profits. Thus, many of these investors may not want to sell until next year due to tax reasons. This is probably why the General Market seems so resilient to a sell off. If this is the case, that investors are holding locking in profits until next year, then we could see a strong sell off in January or February.

I've talked about Ten Year Bond Yield (TNX) in past newsletters, and it is time to bring it up once again. The 10 Year Bond Yield correlates well with long term interest rates (such as mortgage rates). The TNX chart is thus a good way to see which direction long term mortgage interest rates are going.

Notice how damn close this chart is to breaking its downtrend line! I suspect that the TNX will likely break it's multi year downtrend line any day now, thus ending the 'era' of low interest rates. If you still want to refinance your house, you had better do so soon, before rates break their downtrend line and begin an uptrend.

Higher Long term interest rates could spell disaster for certain sectors of the economy, if not the economy as a whole. The first sector I think will be hit the hardest is the Housing Sector. All time low interest rates have fueled the Housing sector and its stocks to what many economist are saying is a 'Bubble'. Rising interest rates would likely be the pin that pops this bubble.

I haven't seen interest rates mentioned too often in recent financial publications. However, if this chart breaks to the upside, then I imagine interest rates will be talked about once again. Do not be surprised if 'mainstream' economists try to put a positive spin on rising interest rates. Economists are likely to say that rising interest rates mean the economy is rebounding nicely and that this is a healthy thing to see, especially since it quells the fears of deflation. Rising interest rates point to higher inflation and economists and the FED have been so worried about Deflation. Therefore many economists may see rising interest rates as a blessing. However, I think higher interest rates could hurt the fragile, high debt ridden, US economy at this point.

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Below is a short term look at the 10 year bond yield. Note how it is in a strong uptrend with near term resistance at 45. Long Term interest rates look like they are going up...

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As stated above, if long term mortgage interest rates are going to go up, then the Housing Sector is probably going to be hit hard because low interest rates are what has fueled the Housing Sector.

Housing stocks have been on a tear over the last three years, with many up 500 % or more since 1999! Friday, the Housing stocks took a big dive and I shorted OHB and WLS below. I think the housing sector represents great 'long term' shorting opportunities. If you are want to look at long term shorting opportunities, the housing sector stocks might be your ticket.

Even with Fridays big fall, you have not missed the boat. Actually, it is much safer to wait for a bounce in the housing stocks before shorting. Remember, downtrends are defined by a series of lower highs: what I want to see is the housing stocks fall a little more and then rally to form lower highs. A lower high would represent a good confirmation of the start of a downtrend.

For those of you have little experience shorting, here are a few tips: Shorting is much harder then going Long for many reasons. One reason is that it's psychologically hard to bet against the market, analogous to playing the 'don't pass' line in craps. Also, in my experience, the best way to short is to short a small amount first and then add to your position on bounces. For example, you might only want to short 1/3 of your desired total position initially, then eventually short the rest on bounces. Take my word, Shorting is much harder then going Long and requires patience.

Below are a few stocks in the Housing sector, notice the big dips that occurred on Friday.

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Last week I presented this chart on the US Debt, but thought I would show it again just for fun...

Here's an interesting chart for ya...The chart below shows the total credit market debt as a % of GDP. Do you see anything to be alarmed at here???? Boy I sure do.

Of course, keep in mind while this chart is ominously bearish, it may still take years before it finally catches up with us. However, we will eventually have to pay the 'Piper'.

From www.comstock.com

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Keith (stt) posted his Story Stock back in early July (FARO). At the time FARO was profiled, FARO was in the low to mid. $7's. Last week, FARO hit a high of $27!!!

This chart makes me sick, I did not hold FARO long enough. This chart goes to show you that the best profits are made by holding strong stocks for the long term.

I apologize to the day traders, but you will make far more money by holding stocks that are in a strong, long-term uptrend, then by simply day trading them. Many subscribers on this website bought FARO when it was under $10, and sold it when it hit $12-$14. While these traders made great money, notice how much more money they would have made if they would have held onto FARO!

I am guilty of the same thing....I too Sold FARO in the teens! Looking back at the chart, there was no technical reason for me to sell FARO. FARO's chart was strong when it was in the low teens, it formed a small Ascending Triangle and a Bullish Flag. I wish I had kept a few shares of FARO.

Oh well, it is prudent it keep a journal of your trades and go bank over them to review your past trades. This will help you identify mistakes so that you can improve your trading.

Anyway, our next Story Stock is SUHG, I will try not to make the same mistake as I did with FARO. Our price target is $15 Don't forget to play the new stock stock recently profiled, SUHG.

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SUHG is our most recent Story Stock. This stock has a very pretty Bullish Flag or Descending Triangle that was broken to the upside on good volume. SUHG is nearing resistance at $8.65 and could breakout any day. Remember, this stock is for a long term hold, you will make far more from holding it to fruition then you will from day trading it. Remember FARO!!!

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Major Indicies

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The chart below gives you a long term view of the Nasdaq. The Nasdaq is near the 'Psychological' resistance of 2000 and may have some trouble there, however I don't think it stop the Nasdaq rally. The much stronger resistance will be the 2100 level which is the high set back in January 2002 and is my price target for the Nasdaq.

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One thing holding the market up is the Semiconductor Index: This index remains in a strong uptrend, and as long as this uptrend continues and the Semi's make new highs, so will the General Market itself.

The Semiconductors will pullback shortly, however a pullback will not hurt its uptrend. There is strong support at $40, the 200 MA, and the uptrend line when a pullback does occur.

At this point, I'd have to say that any pullback will be yet another buying opportunity for the market.

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DOW daily chart:

The DOW is trading in an upward channel formation with a possible bearish Rising Wedge formation. Support levels are the red uptrend line, the 50 MA, and the bottom of the channel.

Last weeks weakness could continue and possibly cause a nice pullback here, however I think a pullback will be temporary and the DOW will probably post a nice year end rally.

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The chart below gives you a long term technical view of the DOW: The DOW is near the 'psychological' resistance of 10,000, of which I feel will be broken this year.

Remember, the General Market is in a Cyclical Bull Market and the DOW could likely rally to the multi year downtrend line sometime next year before this bull market finally peters out.

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The S&P 500 daily chart:

The S&P looks similar to the DOW, with an upward channel formation and supports at the red uptrend line, the 50 MA, and the bottom of the channel.

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The chart below is a muli-year chart of the S&P 500. In hindsight, you can now see that once the downtrend line was broken, a large market rally would ensue - which has been the cause of this years powerful Cyclical Bull Market.

The S&P is approaching resistance levels: the first one is about 1080, which I think is minor, while the 2nd resistance level is 1175, which is major resistance.

I think a potential price target for the S&P 500 is 1175, which would not likely be hit until next year and would probably represent the top of this Cyclical Bull Market.

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Part 2: Gold Analysis

Gold metal has in a small corrective phase since the late October. This is most likely due to the rally in the US Dollar. Gold still maintains its uptrend line and may now be forming a small Bullish Flag. If so, then Gold could soon rally, but will need help from the US Dollar (which needs to fall).

I still think any correction in Gold will be temporary and that we will see Gold metal at $400 and above either later this year or early next.

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Below is a plot of the gold metal on a longer term basis. Basically you see the same technical picture as above, but on a muli-year expanded view. Gold has major resistance in the $390's, that once broken, will cause Gold to rally to the $400 plus area. However, at this time, it's hard to say when Gold will breakout, it could break out this week, or in three weeks. A Gold breakout will most likely need the cooperation in the form of a falling US Dollar.

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The XAU looks very bullish on a monthly long term chart. Notice the Inverse Head and Shoulder pattern. The neckline was recently broken and an objective price target is about $140-150! Keep in mind the objective price targets will take many months to achieve as each candlestick here represents one month.

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