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September 11, 2004

Rollercoaster Ride #4
by Don Delavan

The 2004 stock market has felt like three different rollercoaster rides so far, and we are on the 4^th one right now still going up to the top. The first 3 rides ended lower than they started, which means that we have seen 3 bearish multi-week cycles so far. However, the fourth ride might make the first three look like kiddie rides with the next decline coming in October.

S&P 500 completed it black wave 4 down right at its 50% retracement of its black wave 3 up on August 13, and it is now in its black wave 5 of C up to a lower high below its March high of 1163.23, which would complete green Wave B up that started on October 10, 2002. Then the downhill portion of the ride would be the start of green Wave C down into the fall of 2006, which will be the second half of the current 4-year cycle. Green Wave C down will be a stronger decline than green Wave A was in 2000-2002. Also notice that the 4-year moving average has crossed below the 8-year moving average, which is very bearish sign for the remainder of the 4-year cycle.

The DJ Industrials looks more like SPX, but the DJ Transports is unique in that it is completing an ascending ending diagonal as its black wave 5 of C up. DJT made a new high for 2004 today and will probably reach 3300+ while DJIA makes a lower high below its February high of 10753.63.

HUI and XAU started a new multi-week cycle on July 27. I originally thought inflation fears might cause gold stocks to skyrocket into late September like they did before the 1987 crash when NEM skyrocketed 122% in 12 weeks. But now it might be terrorist fears that might cause gold and gold stocks to rally after SPX starts its decline in October. For example, HUI rose 17.7% during the week after the 9/11/01 terrorist attack while SPX dropped -13.5%. However, HUI was oscillating between its 2-year and 4-year mas in 2001, and its 1-week rally did not continue because of its 4-year ma resistance. But now HUI is above its 2-year and 4-year mas, and gold and gold stocks may continue a strong rally after a possible terrorist attack. So the current multi-week HUI cycle may peak sometime in December around HUI 300-330 and XAU 140-150, maybe near the same time that gold reaches $500+.

Thus, the only stock indexes that will likely make new highs for 2004 are DJT, DJU, HUI, XAU, XOI, and XNG. DJT and DJU already have, and XOI and XNG are very close to making new highs this week. HUI and XAU will probably make new highs later this year. Obviously, new highs in gold, silver, crude oil, and natural gas will explain why. The lower highs by the other indexes will create a bearish divergence in tops.

Don Delavan
SBRB Management Corp.

Don Delavan is the editor of the Market Waves newsletter. For subscriptions, contact dondelavan@adelphia.net

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