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fib_1618

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So as we move into the month of October, last Wednesday's break down in prices moved many of the breadth and volume McClellan Oscillators to new reaction lows, but there wasn't enough uniformity to call an internal (flag) bottom as yet for this current correctional sequence. Because of this, we are left open to the probability of another sharp shake out to where ALL of the index MCO's will move to "oversold" levels across the board to set a better foundational floor.

In what turned out to be the most volatile week of trading in quite some time, U.S. equities sold off hard into Friday's close with the major market indices closing down by an average of 3.66%, week over week, led this time by the Mid Caps and NASDAQ Composite Index of issues. Overseas markets could not escape the strong whirlpool action of sellers either with the DAX Index closing the week down 4.42%, and over the last 3 weeks, the DAX is now down a whopping 10.20%! Even England's FTSE Index is now down 7.3% in this same 3 week period, while Australia's Old Ordinaries Index has given back just over 8.8% during its 7th consecutive week of lower closes.

Looking around at the breadth charts array this week and we can see that we're continuing to see a great deal of pattern weakness in money flow with the exception of the NYSE Bond CEF and NYSE Preferred Stock advance/decline lines both of which moved to new all time highs on Wednesday. As has been talked about before, when we see the interest rate sensitive A/D lines like the NYSE Bond CEF and Preferred Stock issues moving to higher highs, this tends to "promise" us higher equity prices in the not too distant future. But this time around, we're still dealing with a great deal of weakness in the NYSE REIT advance/decline line, and especially in the NYSE Specialty CEF advance /decline line, to where much of this same short term strength is probably due more to defensive allocation as it would be in furthering a continued accommodative stance by the Federal Reserve. Because of this, and though we still have a downside target of 2.15% in the yield of the 10 year note still yet to be met, we should remain cautious in taking any new long positions in this asset class until we see a bit more broader participation between all four of these interest rate sensitive derivatives.

Looking at the internationals, and we can see why the Aussie and FTSE indices have been as weak as they've been as their advance/decline lines continue their pattern of declining tops. The bigger news this week though is that the DAX and its advance/decline line broke their respected lines of support simultaneously and thereby technically throwing this marketplace into in a confirmed downtrend. As with the markets here in the U.S., until we begin to see constructive behavior between the A/D lines and their price patterns in the guise of divergence, the path of least resistance for all concerned will continue to be to the downside.

Although the price of gold (+2.70%) and silver (+3.21%) had a very good week highlighted by the release of the FED minutes on Wednesday, the Precious Metals and XAU advance/decline lines continued their relentless drive to the downside in spite of this well deserved technical bounce. Because of this, the price of gold and silver are now highly vulnerable to playing catch up to the direction in which money is leading, and where a break of the multi month pattern lows in the price of gold at $1180 is likely to take place in the process.

So with the lack of any bullish follow through after Wednesday's strong reflex rally, the market's stability has now been called into question on a near term basis. With the NDX, OEX and Dow breadth McClellan Summation Indexes now within 2-3 market days away from probably moving down and through their zero lines, we now have to be on guard for a "crash like" capitulation event taking place over the next 2 weeks that will probably meet all of our downside price targets that have been given previously. On the positive side, however, if we do see this kind of event, it should finally send all of the breadth and volume McClellan Oscillators to lower lows on a uniformed basis from where we can then begin the process of constructing a foundational internal base where prices will later have a chance to build on. For now, we'll continue to remain defensive toward stocks in general while monitoring the action for what should eventually be a multi month counter advance that should begin in either November or December.   

Have a great trading week!

US Equity Markets:

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US Interest Rates:

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US Real Estate:

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Precious Metals:

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Australia:

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England:

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Germany:

[breadthdax101014]

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