The Ord Oracle - 02/03/2009

It appears to us that a potential Head and Shoulders bottom is forming on the SPY (see chart below).  This potential Head and Shoulders bottom has an upside target near 105 which is a target we have had previously using another method.  To confirm this Head and Shoulders bottoms the SPY would need to have a “Sign of Strength” through the Neckline (Neckline is near the 90 range).   Today’s rally turned back up the Full Stochastics, which suggests momentum has turned back up.   Today’s Advance/Decline line was modestly positive but probably not strong enough to turn up the NYSE Summation index today but if another up day is present tomorrow then most likely that will turn the NYSE Summation index up and give confirmation the next rally phase has started. We are holding our SPX long position (840.24) for now.

Long XLF at 9.50 on 1/30/09.  On 4/2, we Bought ASTM at 1.92, Biotech group.  Long POWR at 13.70 on 12/14/07.

We are not bearish here but this is probably not a good time to add to gold stocks positions.  Above is the McClellan Oscillator and Summation index for GDX.  Over the last month or so, GDX has inched higher and the Oscillator made lower high.  This condition shows that the stocks carrying the rally is becoming fewer and a bearish sign for the short term and suggest a short term pull back could start.  However the Commitment of Traders report (COT) does not show any worthwhile top forming here. The COT Small Specs. are still in the buy area but the Commercials has backed off some and in the neutral area, but as a whole the COT is still bullish.

We been saying that GDX may be drawing a Head and Shoulders bottom and that still may be the case.  However there have been short term negative divergence forming on the McClellan Oscillator (see previous chart) and there is also a negative divergence on RSI as well as the Full Stochastics are starting to roll over.  The RSI has made a lower high as GDX has made a higher high and is a negative divergence.  The volume has been good on the rallies and is a bullish sign.  We think near term the market could pull back to support near 27 (the previous low) before heading higher and extends the trading range that has been going on since mid December.  This Trading range could still be forming the Right Shoulder of this potential Head and Shoulders bottom.   If the market does pull back to support near 27 then that would be a better place to add to gold stock positions.

Sold PMU on 2/29/08 at 1.20, bought at .81 for gain of 48%.  Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. We are holding NXG, purchased at 3.26.  We are also holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46).  We are holding a long term position in KGC at 6.07 and NXG at 2.26.  We are long the XAU at 162.05 on 12/18/07.