A Summary

Just Call Me Tommy John. I had an operation to “transpose” a nerve in my pitching arm today and will be a non-dominant, one-handed typist for 1-2 weeks. Blogs will be shorter and monthly Insights may be late, but we’ll keep chugging along.

Stocks: Today’s decline was deep enough to reverse the rally from the October low. Given the deteriorating near- and medium-term momentum background, the excessively bullish sentiment background, and a peaking 22-week cycle, we need to respect the potential for a deeper – even full – retracement of October’s rally. While a 50%-61.8% retrace would allow for a test of 1061-1051, our focus will be on 1020. A break of that level would confirm a reversal the more important post-July uptrend.

All that said, this decline from the 1101 high appears corrective, there were a number of important bullish confirmations, and long term momentum has a bearish bias. Thus, despite the prospects for lower lows, we still think that this weakness is a correction within, but not a reversal of, the post-March uptrend.

Long Bond: We recently made the observation that the October 2-15 decline was impulsive and, therefore, the first leg of a larger decline. With that in mind, Monday’s weakness came with in a hair’s breadth of reversing the corrective rally from the August lows. Such a development (i.e., further weakness through 117:18) would, in turn, put the larger post-June rally at risk. Last week’s high at 121:02 is resistance.

In last Wednesday’s post we suggested that oil could experience a meaningful reversal at any time. That reversal (from important resistance at 79-81) is now evident given that near term momentum has turned down, joining an already deteriorating medium term background. A decline below 78 would imply a test of the 75 breakout area.

We have been suggesting that the dollar was in position for a significant upside reversal. Monday’s rally was a small step in that direction. Further strength through 77.47 would be a very large step.

Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website and/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.