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If the monetary theory that we should begin to see QE3 stimulus to start entering the market in September, we should see all three of these NYSE breadth derivatives continue to rise over the next several of weeks.

Finally, the Precious Metals and XAU advance/decline lines continue to show lethargic behavior as the price of gold and silver have rallied around 20% to 25% respectively since their June lows. Until we see a better performance by traders in this asset class, it remains prudent to look to other areas for stock investment.

As was the forecast for many weeks now, the market did indeed have a very productive time of it this past week with many of the major market averages up 2-3%, while the NASDAQ Composite and NASDAQ 100 closed at their highest levels since September of 2000. Much of this same forecast was based largely on the theory of QE3 monetary stimulus entering the market around this time period. So, let's take a look around and see what we got to work with.

Starting with the interest rate sensitive A/D lines, and we see that the NYSE Bond CEF, NYSE REITS and the NYSE Preferred advance/decline lines continued to show a real lack of "stimulus" as all three continued to move net sideways over the last two weeks. However, what's most interesting is that the NYSE Specialty CEF advance/decline line (which includes issues that can not be classified such as warrants, LLP's and such) moved to new all time high levels with Friday's settlement. This "quadcotomy" between the four sub sets suggests that much of any stimulus we might get from this latest round of Quantitative Easing will probably not have the same larger effect as what we saw previously with QE1 and QE2, and that much of any continued price rally will probably be more earnings related than it would be that of direct monetary stimulus. In fact, what were likely to see in the NYSE Bond CEF advance/decline line is a pattern that would be similar to that of the gold price chart itself as it moved sideways for much of 2012 before finally racing lower (interest rates moving higher) during the first half of 2013.

The cautionary note that was given on the Precious Metals and XAU advance/decline lines over this same multi week time span referenced above came home to roost this past week as gold and silver were down substantially, with the gold stock indices down about 8% for the week. But there is good news that comes with this pullback as both precious metals A/D lines remained above their short term rising bottoms lines going back to their June and August low points. With the price of gold just finishing an obvious 5 wave Elliott structure on the daily chart, one could assume that last weeks pullback is that of a 2nd wave as long as the A/D lines remain in this positive configuration. This, of course, would be in preparation of a 3rd wave advance where we would also break above an inverted head and shoulders pattern on the gold chart, with the potential of such of break providing us with an upside price target of around the $1750 level and the expected challenge of the highs of 2012.

Finally, the internationals also had a good week with the Aussie advance/decline line breaking above horizontal resistance, while the FTSE advance/decline line moved back into all time high territory, and the DAX advance/decline line coming within 10 net advancing issues of doing the same. As long as the internationals continue to show this kind of positive performance, the U.S. markets should benefit as not to be left out of the excitement.

Have a great week of trading!

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