The only sector, which was up in yesterday's grizzly trading session, was the gold sector… right on schedule. This is it… the moment we've been waiting for to find out whether gold shares can buck broadly collapsing stock prices. So far so good.

Global stock prices continue to fold, and generally yield to the bearish case. This week it was a bad earnings report from 3M (citing the strong dollar), followed by Amex news that earnings have fallen by 76-something-percent due to big junk bond losses, which traders can point to as catalysts. We suspect that there is even more trouble at this company than meets the eye - the chart of American Express reveals a conspicuous break down on the very day that the FOMC first lowered interest rates: January 3rd.

At any rate, U.S. share markets went into a tailspin right off the bat yesterday morning, as bears had some unfinished business to tend to, from the prior day. The move was bearish on all the charts and we might get to 9000 on the Dow in less than a week. The blue chip averages had been rising in a quiet wedge like form with absolutely zero conviction up until Friday, and we view the failure by the Industrials to rally through 10700, as a failure by the bulls to turn this thing around, even in the short term.

Bears wiped out in two days what took the bulls seven, to achieve.

Consequently, we're headed for new lows in this sequence of lower lows and lower highs. We also consider the intermediate upside reversal in US T-bonds as confirmation for another material down leg in stocks; only this one should be the most severe because it is the third down leg in the primary sequence of lower lows and lower highs.

If we are referring to the bearish intermediate trend, it is still down. If we are referring to the primary trend then there is yet another failure that the bulls have to contend with: the Bull Trap, which began in April, and followed through with a 2000 point rally, came close, but also failed to turn the bearish case around.

This leg could easily accelerate. The NYSE composite chart looks weaker than the Dow chart, but not by much. Dow bulls have to defend 10100, which represents the first low under the 200-day moving average since April, and then the 10000 mark, which is the psychological threshold.

The next stop should be at 9000, and we see no compelling reason why that should be anything more than a resting place. The Dow Utilities appear to be breaking down, and the Transports now may not be far behind.

The Nasdaq completed another bearish pattern (a 3 day head and shoulders) within what is already an intermediate and primary bearish sequence, and which could easily result in a test of 1600, or lower.

The same in fact could be said for the S&P 500, which technical form has been emulating the technology averages for a few years now.

Bye-bye stock market economy… did Wall Street really believe that we could sustain an entire economy on ridiculous stock market (read: risk) assumptions?

Bonds
Last week's higher high on the Bond is holding and may be poising itself for a test of the March 2001 high, which we believe can only happen within the context of a stock market decline, or equivalent deflationary shock. The rest is up to the dollar.

Currencies
Trading in the US dollar index was down across the board yesterday. Dollar bulls retreated from a half-hearted jab at the important 118 level; and now the Pound, Euro, Yen, Franc, which looks particularly strong, and even the Canadian dollar look to make higher highs (short term first) against the dollar.

European currencies are due to rally here and markets may perceive it as a reward for stable interest rate policy in the face of political pressure cookers.

Commodities
As far as the energies go, and as oddly as it may sound, they are still hanging on to a bullish primary trend, and in fact, the bulls just pushed the bears back into bullish territory again, over the past few sessions.

September Wheat futures are holding their g(r)ains many times as well as the Dow has held its gains, and bulls are looking strong enough to follow them up with a real break out. All of the grains put in a clear one-day reversal on Monday, reversing the four-day down trend, and following up yesterday with a mild bounce.

Coffee prices may be breaking out, as of today, from a well defined falling wedge.

All of the metals, on the other hand, have been trending down over the past few weeks, except for Gold, which has been one of the strongest performing metals this year. Accordingly, the XAU continues to forecast higher prices for the metal.

We concur with that message of the markets.

We are looking for Gold, grain prices, and the energy complex, to lead a reversal (to the upside) in the CRB (as well as the other major commodity indexes), and to confirm the July 10th Dollar Reversal. A quick move through 210 (CRB level) ought to be enough to persuade the bulls into action.

If you liked that, there will be more in this week's issue of the...

Global Investment Climate