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0920 EST Wednesday December 28 2005



We are back from Holiday...



Good Morning: Markets got an unexpected jolt Tuesday as a Worldwide correction set in following what have been some spectacular rallies. Some blamed inversion of the yield curve wherein short term rates exceed long term rates that in times past has on occasion, signaled an impending recession. The other reason for the selloff was an overabundance of ebullience on the market over recent days.

On the positive side, even if Tuesday marked the start of some sort of correction or sideways action that could last well into January, or it could also be a one day phenomenon if the structure of a possible ABC correction should hold and the market rebound from here. The fact is that Dow 11,000 is a formidable multi-year barrier right now and has repelled numerous attempts to so far take it out. What we do believe is, that if or when it is taken out, it will in all likelihood foment a dramatic rally that could send the Dow to a new all time record high and possibly set it up for a move through 12,000 to as high as 15,000.

What could foment such a move? In our view the inversion of the yield curve could cause Fed Chairman Greenspan to actually leave interest rates unchanged in his final meeting - After all - What has he got to lose - Does he want to risk another 2000 type selloff - We don't think so, therefore leaving rates unchanged in his final meeting could pave the way for a spectacular rally in stocks towards the end of January that in turn could set the markets up for a strong year in anticipation of the Fed lowering rates sooner than expected.

Meantime Gold and Silver performed strongly post Christmas and in a curious way are emulating almost dollar for dollar the strong action in Gold 26 years ago, prior to Gold soaring to its all time record highs of $875. In December 1979, Gold opened at 500.0 exactly right after Christmas and closed at 506 that day. On the 27th it opened at 513 and closed at 515.5 on the 27th and overnight we hit $517.1 on Gold in so far very similar action and behavior. While the upside might appear to be getting stretched, should Gold soar any higher from here, then some kind of powerful upside move a la 1979 ~ 1980 might be imminent, but even if there is another pullback here, then Gold in all likelihood could come back to some level near recent pullback lows that ultimately could provide an energetic base from which to lift off from and that might be a strong enough base to send Gold to significantly higher levels. The Gold Genie appears to be out of the bottle and it will be hard to put back in given the compellingly bullish outlook that seems to now be unfolding for Gold and other metals.

The US Dollar following a valiant rally is once again under pressure and this time Gold is reacting more positively - A very bullish sign...

The Japanese Nikkei 225 soared to new highs overnight of 16,250. It now appears to have its sights set on 21,000 plus in due course.

Trade Well
From the Desk of Savant

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