Commodity leaders break down

The weekly chart of
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PowerRating), gold iShares, shows the open below the critical
60 level that marked a clear breakdown of its triangle, and the amazingly swift
follow-through that has entailed thus far. The 60 week ma may provide some
support along with GLD’s June lows around the 55 level. GLD could well reach
anywhere in the 45-55 range before basing and still keep long-term trends
intact. But until a new base is built and broken out of, the intermediate term
trend in gold and commodities is now clearly down.

The weekly charts of the
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PowerRating) (Goldman Sachs Index iShares) and of the oil
iShares USO follow, and show major technical breakdowns as we warned.
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PowerRating)
looks likely to ultimately test the 45-55 level before basing, with GSG likely
to test the 35-40 level.

The market is so far taking the best spin on the decline in oil in particular.
It is clear that inflationary pressures will drop off the primary concern if the
economy keeps slowing and oil and commodities continue their fall. However we
suspect at some point concern over the potential for the slowdown to wreak
earnings damage and even possible concern over recession potential will cause
uneasiness even in the big cap indexes, and even more so in the cyclical sectors
and reflation themes. When a growth fear materializes and when the Fed’s primary
concern shifts toward re-stimulating, THEN we believe a fantastic buying
opportunity in reflation themes will be at hand, as well as a better risk/reward
opportunity in most stocks. Until then we’re risk averse with only minor
positions.

Certainly we stand ready to go with the up move in big caps IF breadth and
internal strength picks up. But so far that is not happening with enough
plurality to force a suggestion of strong allocation. Internal breadth is
improving some, but is still below levels normally associated with a sustainable
bull market move. We continue to rate the macro environment as not highly
reliable (except perhaps for bonds and
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PowerRating), which are likely to beat cash
as the US slows down and have broken out of a base recently). Investors should
continue to skeptically let market action be the guide. Strong rallies in the
major averages accompanied by high volume to create a couple more follow-through
days would be the first sign of more upside ahead. The real excitement may not
come until the breadth of Top RS new highs starts to expand broadly and stocks
meeting our runaway up fuel criteria begin to break out with some plurality.
Until then, we still suggest keeping your powder mostly dry. We continue to
suspect that breaking above 1320-27 and making new highs will be difficult for
the market to do unless better volume and breadth materializes. We continue to
regard this as a TREACHEROUS ENVIRONMENT where CAPITAL PRESERVATION SHOULD BE
PARAMOUNT. Don’t allocate heavily to anything that doesn’t scream at you.

Lots of bonds and cash seem prudent here until the environment becomes clearer.
Long/short pairs can be sparingly participated in as well.

Our US selection methods, our Top RS/EPS New Highs list published on
TradingMarkets.com, had readings of 11, 14, 15, 35 and 41 with 16 breakouts of
4+ week ranges, 1 valid trades meeting criteria, and no close calls. This week,
our bottom RS/EPS New Lows recorded readings of 12, 11, 13, 7 and 5 with 6
breakdowns of 4+ week ranges, no valid trades and no close calls. The “model”
portfolio of trades meeting criteria has some time back exited all positions and
is 100% in cash.