The following Pivotal Events was available to subscribers of Institutional Advisors on January 18, 2006.

Signs Of The Times:

"Selling Stampede Shuts Tokyo Stock Exchange" - Reuters, January 18, 2006
"Sayonara To Japan's Deflation" - FP, January 2, 2006

No sooner than a boom is really celebrated, it seems that it becomes vulnerable to change.

The blowout going into the turn-of-the-year (TOY) time window has been expected to conclude some fabulous speculations, which would mark a cyclical peak in stocks, corporate bonds, and base metal prices.

This makes the hit to the Tokyo markets more of an indicator than functional glitch at the stock exchange. This is reinforced by the discovery of bad dealings, which is also symptomatic of a peak in speculation.

Stock Market: Since early November, we have been looking for a speculative surge into the late/December - late/January period, which time window has often ended stock bull markets as well as legendary booms.

These have included the Dow on January 11, 1973, gold on January 21, 1980, and Tokyo on the last trading day of 1989.

As noted last week, big moves usually conclude with impetuosity and that showed up this time with 7 consecutive up-days for the senior stock indexes, including Hong Kong as well as supposedly diverse items such as emerging debt prices (MSD) and our base metal price index.

Seven or eight days up is about as impetuous as it gets and the recent outbreak sets what appears to be key highs.

So far, this is the record:
January 11 DJIA, S&P 500, Nasdaq, BKX, SOX, Russell, HGX, Mexico, High-Yield Spread
January 12 Frankfurt
January 13 HUI, Hong Kong, Tokyo
January 16 Brazil, London

Needless to say, but in some cases such as Tokyo the reversal is dramatic. Adding to the importance of the developing reversal is that it is encompassing so many different items from financials to base metals as well as stock exchanges around the world.

It is worth emphasizing that the universality of the change is paramount. Specialists in each field or exchange will undoubtedly explain it as due tospecific events.

This was the case, for example, with the bottom of January 11, 1973 to late 1974 bear market. It only took two days to complete the low and local stock pundits in London, New York, and Tokyo each had a different domestic explanationfor what turned out to be a cyclical turn of a global nature.

This has all the aspects of a cyclical peak, soon to be followed by a cyclicalcontraction.

Defensive positioning in most sectors is appropriate.

Sector Comment: On banks and financials, our Bank Trading Guide reached a high of 172 on December 28, from which it has declined to 162. This is the lowest it has been since November 1 so it is a move worth noting.

What is needed for the "sell" signal is for the Guide to test thehigh and fail.

However, in looking at the huge weighting of position and complacency inthe sector, it would be prudent to increase the selling.

Aggressive selling can await the "sell".

Based upon the "selling" pattern set by Phelps Dodge, we have beenlightening up in the cyclicals.

In looking at Cameco, the uranium play is becoming as overbought as it waslast February-March. This is an "alert".

INTEREST RATES

Credit Spreads: As part of the TOY (turn-of-year) change, credit spreads would likely reverse as well.

The high-yield came in with the party from 360 bps to 335 bps on January11, from which it has widened to 353 bps.

Going through 360 bps would resume the trend.

Some sovereign debt spreads have widened. For example, Argentinas from 3911 bps to 4237 bps as the yield increased from 43.7% to 46.7%. Despite strongcrude prices, Russians have widened from 113.5 bps on January 10 to 124.8 bps.

This also shows up in the price as the MSD took a sharp break on Tuesday and Wednesday.

Of importance is that this is part of what could be a reversal in the credit and business cycle, in which case this sector should be avoided.

The Long Bond has been likely to firm a little as the various speculative games roll over.

The Yield Curve remains at flat after a brief inversion.

Of interest is that the U.K. curve which inverted into September then flattened in November, from which it extended its inversion.

In September, the yield ratio reached .93, from which flattening took it to 1.00 in November. It is now at .9048.

The U.K. and U.S. curves are now in phase and our watch for the reversal intensifies.

The reversal, when it comes, will provide another indication of contraction.

The Dollar Index is basing in preparation for the resumption of its bull market.

The dollar was likely to weaken into the year-end and the low was 88.9 on January 5. This needs a test to confirm the trend resumption. Yesterday's close was 89.3.

The last page of Tuesday's ChartWorks #1 included a technical update on the dollar.

Canadian Dollar: Canada's federal election on Monday January 23 could establish a majority Conservative government. This would briefly rally the dollar.

After that, weakening base metal prices and a resumption of widening corporate spreads would weaken the C$.

On the longer term, a Conservative majority would likely be associated with a recovery in the Canadian unit to par with the U.S.

COMMENTS FOR METAL AND ENERGY PRODUCERS

Energy Prices: Most pundits think that bouts of instability in the Middle East drive oil prices.

If this was the case, then crude would enjoy one long bull market without seasonal, or even cyclical, variation.

However, the historical chart clearly shows cyclical and seasonal factorsimplacably at work.

With the seasonal forces so reliable, it is possible, as an intellectual exercise only, to anticipate when Middle East tensions will not be at the forefront.Of course, this is when crude is approaching a seasonal low, such as in December.

Then when the price is soaring, too many pundits become distraught about "concerns".

This week they became almost hysterical about Iran pricing oil production in euros. So what? - the euro will need some help, but such a step, iftaken, may not have a lasting effect on the U.S. dollar.

The other part of the hysteria is that Israel and the U.S. are going to whackthe Iranian attempt to build a nuclear weapon.

Realistically, it needs to be done because with such a weapon Islam would enjoy virtually God-like powers of religious conversion. Of the great religions, this one is unique in making converts. Deniers are murdered, as are those whowish to leave the fold.

The piece going the rounds by Assimir Petrov seems to be entitled "MustRead ASAP".

Well, we did get around to reading it and it seems a polemic against the U.S. "empire" written by someone adding to the old noise about the pending foreign exchange repudiation of the dollar. (Our point has been that when it comes it will be the "management" of the dollar that willbe repudiated.)

Petrov's research needs to be expanded enough to present the recurring patterns of chronic price inflation and experiments in authoritarian government. This would cover 2000 years and would recognize that the Twentieth Century was oneof three such centuries of tyranny.

To make it as short as possible, we will focus on the end of such monstrous experiments. For all the usual Liberal (20th Century version) or Pre-Marxian persuasions, Rome was changed from a republic to a murderous police state. It collapsed due to its own contradictions and that any centralized movementis an uneconomic model.

Its final excesses were bypassed by the ancient Anglo-Saxon tradition wherebygovernment was limited and existed at the pleasure of the people.

The next such experiment in inflation also ran about 100 years and endedwhen currency stabilized in the early 1600s.

Again, top down government reared its ugly head and corrupted the only existingorganization - the Roman Catholic Church.

This was essentially thrown off by Anglo-Saxon legal and cultural traditions of freedom.

Once again, these traditions are being sorely tested by those who crave authoritarian means and, with this, the U.S. has become the focus of their hostilities - that'sboth in domestic and foreign affairs.

Reluctantly, the U.S. has picked up the baton of freedom that was so effective against tyranny at the end of the Roman police state and its revivals in the16^th and 20^th Centuries.

A paper on this phenomenon was this writer's address to the Fall 2004 Dinner Meeting of the CMRE (Committee For Monetary Research & Education, Inc.).This is linked.

Energy Wrap: Using our new "forecasting model", Middle East tensions are a little "overbought" now but could continue to increasefor 4 to 6 weeks before taking a well earned pause.

This could occur with crude's usual weakness into late June - earlyJuly.

Natural gas is still working on a choppy bottom, from which it could recoveruntil May-June.

We have been long the oil patch since October 19 against a possible intermediatehigh in the latter part of February.

Base Metal Prices have definitely been the life of the party. As we have been noting, copper's real price has made the biggest gain on a data base back to 1900.

The gain from the cyclical low in October, 2002 to recent has been 200% (well,199.6%), which compares with the next largest at 172% to March, 1956.

There has been some probability that the action in metals and the stock marketwould blow out around now.

As noted above in the cluster list, this appears to be working out. Withinthis, nickel has some of our attention.

The key high for nickel was 6.71 on January 11 and for the Nasdaq it was 2331 on the same day. The last cyclical high for both was also on the sameday - March 10, 2000.

Of course, this also relates to the treasury curve as the last time it invertedwas with that bubble.

The January 5 edition of Pivotal Events included our "Checklist For A Top" and the conclusion was "It could take a few weeks for the very popular story to roll over. This would provide opportunities to sell. Metals analysts at mining companies could adjust their analysis of supply and demand to provide a bearish outlook. Producers should aggressively sell forward."

The action in Phelps Dodge fit the ChartWorks topping pattern and is now breaking down. This is anticipating the failure in copper's price trend as well as the rest of the base metal prices.

BHP and RTP are reaching the technical dynamics that PD reached a few weeks ago.

Golds: A correction in the gold sector is pending and it could last for 6 to 8 weeks. Senior golds could decline by about 20%.

The advice for traders has been to lighten up on the big caps with the reentry into the smaller caps.

On the exploration side, the Gold Colony index (www.goldcolony.com) soared to 167 on Monday. That's up 69% since June. This exceeded the key highs of 163.49 on December 1, 2003 and 163.08 on January 5, 2004, but it shouldn't be celebrated as a breakout.

There is bound to be some congestion at this level and it will take some work to accomplish a long term breakout.

In the meantime, the exploration sector has advanced sufficiently such that outstanding results from the field could rally some individual stocks, even in a correcting gold market.

The unification of so many different speculations is remarkable and the initialslump may not enjoy the usual safe haven of "rotation".

Some 2,500 years ago, Atheneaus made a wise observation: "Men having often abandoned what was visible for the sake of what was uncertain,have not got what was expected, and have lost what they had."