MIB Update July 4, 2010

In the course of last week’s trading most of the market

70
60
indices have broken below their Head-and-Shoulder
50 necklines (H&S). The measured downside target of H&S
RSI 14 40 top formation for the S&P 500 is in the 870-880 range. This
30 does not mean the market is about to go into a dive right
S&P500 H away and reach that level within a few days. What it does
1200
mean is that the rebound from March’09 low is over and the
LS
RS dominant trend is down.
1100
Among the market indices that have yet to break decisively
1000 the neckline of its complex H&S topping formation is the
TSX Composite. Over the last 10 weeks, supported by the
gold sector, the TSX has been outperforming the S&P 500.
900 However, the last weeks’ decline has not spared even the
strong gold sector. As the charts of gold ETF (GLD) and of
the TSX Gold Sector iShares show major market sell-off do
800 not spare even the sector of “last refuge”.

A M J J A S O N D 2010 M A M J J In the short term the price, breadth and volume indicators are
oversold enough for the market to bounce up back to the
neckline, or even marginally higher. One reason why I
currently do not expect more than a temporary bounce is the
60 relatively benign sentiment of option traders on the CBOE
50
40 and the ISE. Considering that the leading US indices lost
RSI 14 30 more than 16% in only two months, the option traders are
just not sufficiently bearish to expect more than a short-lived
LS
rebound of a deeply oversold market.
12000

11500

11000

10500
TSX Comp.

10000

9500

RS to S&P500 11.0
10.5

May Jul Aug Sep Oct Nov Dec 2010 Mar Apr May Jul

GLD - Gold ETF (Gold/10)

100

50

20

15
XGD - TSX Gold iShs 10

1.5

1.0

2006 2007 2008 2009 2010