May 3rd, 2010

Market Update
For daily commentary see
SeattleTechnicalAdvisors.com
Short Equities

Sentiment Short Equities and Long Gold

The S&P 500 triggered a CCM sell signal last Monday and the Dow
US Equities and NASDAQ have joined the large cap index with their own sell
VIX signals since then. Gold has re-loaded and appears to have nothing but blue-sky
%>200 ahead of it to the upside. We’re targeting 1,247.
Dow Industrials

Foreign Equities
Sentiment
Nikkei
Emerging Markets

US Treasuries
TLT
TNX

Commodities
CCI
Crude Oil
Gold

Currencies
Dollar
Yen

Just so we’re all clear on this concept…sentiment is a CONTRARY indicator. The

most recent ICI numbers show the retail investor showed up at the top of the
market (again).

The latest Investors Intelligence showed the bull camp rising last week, to 54.0%
from 53.3%. Investor sentiment is now so extremely positive that the bull share of
the II survey is the highest it has been since the market was rolling off its peak in
late 2007

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US Equities
While signs are bleak for equities we do expect today to close up given the oversold nature of the
market. That won’t last long. The VIX saw a bullish monthly reversal on Friday. Very Bearish.
VIX, Volatility Index

Figure 1: Volatility Index, VIX, S&P 500

NYSE Percent of Stocks above 200 Day Moving Average

The indicator has dropped below its own 200 and 50-day moving averages. Bearish.

Figure 2; NYSE Bullish Percent Index

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Dow Jones Industrials

We remember when this head-and-shoulders was first formed. We thought “no way is that going
to be fulfilled”. Here we are, over a year later, and sure enough, the measuring implications of
the formation have been fulfilled. Note how the Bandwidth indicator (bottom window, black
indicator) has confirmed the over-sold 14-day Relative Strength Index (middle window, red
indicator) by breaking above its own upper Bollinger Band. All three US equity indices we
follow are in sell-modes and have triggered sell signals. 10,700-10,750 includes the 38.2%
retracement of the post February advance and a Fibonacci confluence zone. The index should
find first support at that point. The Dow closed below the post-July advancing trendline on
Friday but only just barely. Once it is apparent to all, stocks should drop quickly to first support.

Figure 3; Dow Jones Industrials

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Foreign Equities
Nikkei
The Bandwidth indicator breached a previous low on Friday changing the mode to “buy” but so
far there has not been a buy-trigger. The post-November trendline and 50-day moving average
are at 10,833 and should provide some support. A Fibonacci confluence zone exists at 10,850
which is the 38.2% retracement of the post February advance, and should also provide support.
We expect a final target closer to 11,700 but stiff Fib resistance exists at 11,300. A Fib support
zone exists at 10,850.

Figure 4: Nikkei

MSCI Emerging Markets, EEM

EEM’s Bandwidth indicator confirmed the downtrend last Wednesday and it looks as if the herd
has turned. Stochastics and MACD are dropping too.

Figure 5: MSCI Emerging Markets, EEM

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U.S. Treasuries
30-Year Treasury
Treasuries continued their advance as equities started their long-awaited correction. We don’t
see another 107-day cycle top until May 21st. The time for negative seasonality is over (Jan-Apr)
and we are now into a bullish season until this autumn. Resistance at +124 on the long-bond.
TLT is into a Fibonacci confluence zone which extends from here until 92.3. Next resistance
surrounds 95. A 61.8% retracement of the post-Oct’09 decline is at 95.5.

Figure 6: iShares +20-year Treasury Index, TLT

TNX
The yield on the ten-year treasury has Fibonacci confluence zones both at Friday’s close and near 35.50
which can be expect to provide support.

Figure 7: TNX, Yield on Ten-year Treasury

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Commodities
Continuous Commodity Index, CCI
CCI popped up after giving a sell-trigger last Thursday but negative divergences exist in RSI so
we’re confident this is a sell candidate. Again, CCI is back into the Fib zone surrounding 485 so
it looks toppy. 485 is also the 61.8% retracement of the Jan-Feb decline.

Figure 8: CCI, Continuous Commodity Index

Crude Oil
Crude gave a fresh buy signal on Thursday but the Bandwidth indicator is now within a day or
two of breaching a previous low and turning the mode to “sell”. 3-day RSI has been unable to
break above 80 since 4/19/10 when it breached 20. While crude may have re-loaded to break
through overhead resistance, it is now touching the bottom of that Fib confluence zone
surrounding 87 and we would wait for it to break through the zone before buying. 88.50 is the
50% retracement of the July-December’08 bear market…a natural stopping point.

Figure 9: Crude Oil

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Gold
Well, we didn’t expect that! Gold’s Bandwidth indicator has been dropping for the last few
weeks and we fully expected it to breach the previous low and turn the mode to sell. Instead, it
curled up just prior to breaching the previous low. A buy signal triggered last Thursday and gold
blew through the Fib zone near 1,175. Recent price action has led us to believe that the Fib
resistance we’ve been discussing at 1,185 isn’t as serious as we previously thought.
A bullish head-and-shoulders points to 1,230 but no serious Fib resistance until 1,250. May 28th
is the next full moon and despite the fact that gold blew right past the previous full moon date,
full moons are often associated with tops in gold; using that date and the 1,250 fib level, our
Fibonacci trendline model lines up for a possible top in gold on May 27th at 1,247. That will be
our new target for now.

Figure 10: Gold

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Currencies
US Dollar
The Dollar took a break late last week but is definitely on a roll (up). The first chance for a 107-
day cycle top is May 20th. Longer term, we believe the advance since Nov’09 was the first move
of a larger advance which should extend well past the 83 target derived from the cup-and-handle
formation. Fib zones (resistance) exist at 83, 84, and a significant zone is between 85 and 86.

Figure 11: US Dollar

Japanese Yen
The Yen has moved into a sell-mode but no sell signal has been triggered. The Fibonacci
confluence zone surrounding 105.50 has held support. Non-farm payrolls are this Friday so
we’re “expecting” a bottom near then. Fib resistance at 118 and 126-127. A triangle also
measures to 127.

Figure 12: Japanese Yen