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0920 EST Thursday January 26 2006

Good Morning: Silver finally broke upwards through a resistance level around $9.30 that had been restraining it for the last several weeks and all year and it broke through decisively closing around 23 cents or so higher, joined by Copper and Platinum continuing to set new all time record highs. Although Gold closed higher and looks close to itself breaking out to new 25 year highs. However, Gold was subdued yesterday, compared to Silver, this is not necessarily a negative. Reason: Traders putting on a bull spread at the Gold exchanges often causes Silver to outperform Gold, as they buy Silver and sell Gold. What can happen later is Gold plays catch up as traders unwind the Gold part of the trade, especially if Silver starts going Limit Up. Should such a move unfold, it would likely cause Gold to follow and trade at its $25 maximum permitted daily limit also. So yesterday's developments were potentially very positive for Gold and Precious Metals.

Yesterday, we suggested that the Equity markets might follow through to the upside, but that did not really happen until towards the close, after a lot of constructive intraday base-building took place. Overnight, European markets built on Tuesday's gains continuing what is turning out to be an impressive up-week for many World markets. General Motors GM is our Stock of the Week today, following a stunning 20% gain in just 3 days for this issue. We are beginning to believe that GM could be a big surprise this year as it may have just made the head of what could become a massive reverse head and shoulders formation, that if it were to play out could see GM trading back at $40 plus intra-year. One of the reasons this might become possible, in addition to Billionaire Kirk Kirkorian's potential support, would be as result of a sharply weakening $US Dollar and stronger Japanese Yen and Euro Currencies also, that might turn the tables on Toyota, by pricing many of their models beyond consumers reach. Early days, but these trends can mean the difference between a considerable shift from a big loss towards profitability and since the $US Auto Industry a la Delphi's bankruptcy has gone through a near death experience, when these things happen, well managed companies can get very focused on climbing out of the abyss and turning themselves around, much as what happened with IBM back in the 1993. IBM fixed that problem by making employees think more like owners and less like employees by offering generous stock option incentives that was the beginning of a major high tech trend in the 90's and perhaps some more of this kind of thinking, could create the compromise that could reduce the healthcare burden that's hurting GM.

A few days ago our title 'Important Days Lie Ahead' was a forbearer of how the end of January might play out both for Equities as well as Precious Metals and other important markets such as the Energy Sector and also another important arena that's now coming well into play since we alerted readers to a tectonic shift in Interest Rate behavior around the 18th of January. Since then, Bonds have been on the skids and interest rates have risen sharply, but this has also helped to negate the fear of an inverted yield curve and once again is already indicating as we have suggested on several occasions recently that the economy may be much stronger than many investors are thinking and this may be one of the reasons that stocks are trying to climb back from the abyss of last week. The facts are, as we have alluded to over the past few days, that not unlike a number of 200 point Dow plunge headfakes that have occurred periodically over the past 20 or so years, that's what they ended up being: Fakeouts that fooled investors into thinking there was worse to come only to see markets soar in the months that followed. Such a scenario here cannot be ruled out. In a few days Greenspan will be gone and new CEO Ben Bernanke will take over the reins and begin to make his mark on the financial markets with the 1 aim to maintain robust growth for the economy.

Yesterday, in our intraday commentary, we laid out the scenario for the S&P to keep climbing and nominated two key levels of 1280 and 1285 as being critical to overcome and if that were to eventuate, it could result in a potential explosive move to the upside. The theory behind this being that we are tracing out a number of powerful 1 ~ 2 waves both since October 2005 and cumulatively, over the past few years since the earlier Century and Decade lows and went on the point out the significance of this vs January 1906 and 1956, when the markets were at the beginning of enormous multi-year upside moves exactly 50 and 100 years ago and we have many times expounded on the importance of taking the long term view in regards to the fact that the Dow Jones rose 50 fold from the early 1950's lows and that in all likelihood, could rise even more dramatically in the Century ahead, because of our exponentially increasing growth theory that says that higher rates of growth are more likely as productivity continues to increase and while the US Economy averaged 3% growth for much of the 20th Century, the new kids on the block, ie China, India and Russia, but in particular China have proved to the World that 9% growth 28 years straight is not only dooable, it's maintainable and we have already proven that if 19th Century stockmarket growth on a ratio scale was a 1 and that the 20th Century was a 3, that in other words the 20th Century's market growth was 3 times as great as the 19th Century, then by extrapolation, the 21st Century could be a 9, with the kind of mega-growth that is truly almost unimaginable today.

The most significant short term setup in the S&P 500 and related indices, is the potentially rare but very powerful double 1 ~ 2 emanating out of the October lows which in of itself was a breathtaking rise of sorts into the January 11 highs. What could be extremely significant would be a move up towards S&P 1290 plus that would put those highs within reach of being taken out and were that to occur, it would in all likelihood mean that the US Equity markets and indices could get launched into a 3rd wave that could even become a super-wave of truly enormously positive consequences for stocks and the economy at large, with attendant new all time record highs in many indices...

Trade Well
From the Desk of Savant

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