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October 14, 2005

That Smell
by Gary Tanashian

"Ooh ooh that smell, can't you smell that smell?"*

Is it bull flesh or will it soon be a bear fry (as a friend recently wrote). Not being one of the gurus, I don't have the answer. I do have some charts however.

Our old friends the wedges return in some key charts. In the case of interest rates, the wedges are rising and potentially bearish (for rates). If the general stock market needs one thing to gain its footing, it may be lower rates and hence, inflation fears. But this rally in rates needs to terminate now, otherwise it will be a long way up to the 4.6% range and a long way down to whatever bottom the stock market decides to make.

Speaking of which, a couple charts of market indexes are in order for consideration, both sporting, you guessed it, wedges. The first is potentially bullish, the second, not so good.

The S&P 500 should really think about gaining traction around 1175. Unfortunately, yesterday's down day felt "heavy". A near term bullish case is certainly not a given, but is very possible.

This Nasdaq chart is open to interpretation. In my view, it shows a huge rising wedge, just waiting to be broken to the downside. In my bullish friend's view, it is a long bullish consolidation simply awaiting a sense that the Fed will back off on interest rate hikes before launch to the 2500 area.

On the decidedly bullish side, the perma-bears are out again, growling and talking about how short is the right trade. This may be so, and all along I have said that the bears are right when one looks at the macro fundamentals of markets and financial systems. But none of that matters much in short term "price" projections for stock indexes. Adding more fuel to the bullish case are some investor fear and volatility indicators, which show that pure, greedy bullishness has been wrung out of this market.

The 20 day moving average on the CBOE Put/Call Ratio is once again approaching 1.00 level.

Meanwhile, old friends VIX and VXN may be close to topping in the short term.

What does it all mean? Beats me. This is a casino where "price" is the only thing that matters. The stock market is my Las Vegas, if you will. I gave up long ago thinking in terms of seriously considering the stock market as a fundamental asset to my family's future. I have long since steered money I cannot afford to lose into the safest investments (including debt repayment, which is an investment in one's future) I could find and continue to suggest people think seriously about this course of action.

But as often stated in the past, in so far as you wish to play in this casino, do it intelligently.

I suppose this would not be Biiwii if a simple technical analysis report did not contain some cautionary information. Sorry, but it is what it is.

* From "That Smell" by Lynyrd Skynyrd. A solid rock song recorded not long before the band's tragic plane crash. Feel free to read any metaphor you like into this.

Gary Tanashian
http://www.biiwii.com/

Disclaimer: biiwii.com does not recommend that any trading or investment positions be taken based on views expressed on this site. If you speculate or invest it is suggested that you consult a financial advisor qualified in your area of interest.

Copyright © 2005-2008 Gary Tanashian

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