Tim Ord Oracle 11-25-08

Above is the SPX weekly chart back to the 2002 low.   Notice that the SPX is running into the 2002 lows on much higher volume.  The test of a previous low on higher volume implies at some point the lows will be exceeded and keeps the bigger picture bearish.   However for shorter term the market is extended to the downside and the weekly RSI is showing a positive divergence where price is making a lower low and RSI is making a higher low and this condition suggest a possible bounce in the market is not far off.   The weekly SPX does not show it but the SPY does and that is that there is a gap left open on the weekly chart near the 1100 range.  When and if the market does rally the gap will be like a magnet and also a resistance zone one the market does rally to the gap level and the next potential topping area.  Back to flat the market for now.

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

Above is the weekly SPY chart.  On the SPY, you can see the gap level near 110 is left open, which will provide resistance on a rally to that area.  Last weeks decline was on high volume and most high volume lows are tested at some point.  Our thinking is that the SPY may go back and test last week lows and if tested on lighter volume could produce a bullish signal.  The weekly RSI is producing a bullish divergence here also. 

The Rydex Cash Flow Ratio defines the ratio of the funds in the bullish funds compared to the bearish funds.  Previous important lows have appeared when this ratio reached 1.10 range and less important lows developed when this ratio was near 1.00.  This ratio is currently at .88 and at the bearish camp.  We are assuming to get a bounce in the SPX the Rydex Cash Flow ratio will need to approach 1.00.  For that to happen the market will need to decline and get more Rydex traders in the bearish Camp and push this ratio near 1.00.  This would be another reason to expect a test of last weeks lows.

It’s possible that the Gold issue sector, XAU may have seen it’s low on October 24 at 63.52.  On the bigger timeframe we think this sector will be the strongest in the months and years to come.  The previous large crashes in the market such as 1929, 1873 and so on have produced strong rallies in gold and gold issues.  If history is any guide, it will be the same here.  In Elliott wave terms, we have labeled on the XAU chart above of what we expect is the correct Elliott wave count.  Our count is that October 24 marked the bottom of large wave 2 and large Wave 3 has begun which should take us to new highs.

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.

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