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0920 EST Thursday January 19 2006

Good Morning: The situation is becoming clearer, following a fairly short sharp attention getting correction and a brutal pullback in Japan: During our midday commentary, we remarked now impressively the S&P rebounded off its lows initially and how it seemed to want to go higher. We also suggested that Japan felt like its was a bit overdone and that in all likelihood, we would see a stout rebound Thursday over there and sure enough it came in right on cue as the Nikkei regained 355.10 points to close at 15.698. We did mention last week in regards to Mexico that we might have seen a significant interim top in the IPC index at 19160.44 and since then the bolsa has taken a near Nikkei type thrashing down to 18,265.96, although that is likely to bounce some today along with the Nikkei and other's recovery.

What we have developing in the S&P 500 and other US Equity indices is a possible head and shoulders formation that could have a dual outcome. The mere fact that the S&P's pullback was relatively mild and its rebound impressive enough yesterday may give some support to the notion that a head and shoulders formation could be negated by further strong upside activity should it eventuate. But, in the event of any significant further downside, it would strengthen the case for a more protracted correction to set in. As coming days and weeks unfold we should be able to get a better handle on this and the potential resolution to the last few days early warning type bearish activity.

Gold and Silver are acting firm this morning, having rebounded sharply overnight on the back of a very strong Platinum price, up $20 or so and increasing its premium over Gold in the process, a potentially inordinately bullish sign. It now appears as if Gold is trying to base out and consolidate around the $550 level, much as it has done at lower important technical levels such as $400, $450 and $500. According to JP Morgan's technical analyst and John Bridges, their Gold Analyst, they expect Gold to run to at least $600 to $669 and are reporting very tight supplies as a consequence of increased fabrication demand out of China and India. Bridges also indicated that if the Central Bank selling dries up that is currently helping to alleviate the supply shortfall in Gold, then the demand versus supply could become very lopsided with perhaps accelerating price increases. In addition, Bridges noted as we have here on many occasions past, that the entire market capitalization of al the Gold companies is a relatively miniscule $200 Billion and should even a small part of the might of Wall Street's Trillions be redirected into Gold issues as we have suggested could happen in a runaway boom, one can only imagine what will happen to the Gold sector - In fact, following on from our re-printed article of August 04, when we began to turn dynamically bullish on Gold and suggested that many Gold issues could eventually top $100 per share type prices, in the event Gold soars upwards towards the $1,000 per oz area, the consequences would potentially render producing Gold companies and those with proven in-ground reserves to be 4 ~ 5 times as valuable as that of a year ago and with built in speculation and premiums and internet type P/E ratios, the ultimate size of the Gold sector's market capitalization could grow to $1Trillion. You heard it here first. Remember, Gold is emulating the Dow's early rise of 24 years ago, almost to the exact percentile off its similar double bottom lows and that portends a 19% increase this year to around $660 and 25% rise next year to a high of $924. In the early 1980's daily volumes for the NYSE were in the 100 ~ 200 Million share range, today volumes are over 10 times that in the well over $1 ~ 2 Billion range daily and similar amounts on the Nasdaq. Therefore as the Gold sector becomes more valuable and increases its presence, naturally activity and volumes could soar for that entire sector...

As further endorsement of what we're saying this morning and what we've been saying for months many mining issues upgraded today.

Trade Well
From the Desk of Savant

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