BROAD US MARKET and FAZ update...

originally published May 6th, 2009

The broad stockmarket broke out above the Dome pattern shown on the chart in the update of 1st May , rendering it invalid. The importance of this Dome pattern was illustrated by the magnitude of the break above it on Monday. While this move certainly has bullish implications for the longer-term, the market has not exceeded, thus far at least, our upper target at the return line of the uptrend channel shown, although it should be noted that we have had to adjust the position of this line somewhat. Therefore the chances of it reacting soon are considered to be high, especially as the further advance has brought it up close to the next important resistance level. Although it could creep a bit higher in coming days, a reaction could now set anytime soon. The possibility exists that the move on Monday was a final blowoff top.

The strong move on Monday inflicted heavy damage on our FAZ short position, which should continue to be held for the expected reversal. However, as mentioned above, the break above the Dome has longer-term bullish implications and suggests an easing of liquidity problems ushering in an period of high inflation that will be good for the Precious Metals sector and commodities generally.