This Investment Newsletter covers the major Indexes; Gold; Silver; and Crude Oil.  It is powered by CandleWave’s CANDELAABRA© Technical Analysis System for use with the Trade Navigator© platform, a product of Genesis Financial Technologies, Inc.  Japanese Candlesticks price charting analysis is an integral component of candelaabra.

CandleWave – Newsletter, Wednesday evening, July 23, 2008

STAND FAST.  HOLD ONTO YOUR SHORT POSITIONS.  DEFER MAKING ADDITIONAL DOWNSIDE COMMITMENTS UNTIL WE CAN ASSESS THE PROBABLE EXTENT OF THE RALLY OVER THE NEXT FEW DAYS.

LEAVE IN PLACE THE SAFETY BUY-STOPS WHICH WE RECOMMEND.

STAY CLEAR OF ALL BANK ACCOUNTS AND MONEY MARKET CD’S WHICH ARE NOT FULLY INSURED TO THEIR FULL EXTENT (USA subscribers).

BE, AND STAY, VERY LIQUID IN CASH OR EQUIVALENTS, IN THE SAFEST REPOSITORIES WHICH ARE AVAILABLE TO YOU.

A.  The Indexes

The markets were up only very modestly today.  The Dow Industrials closed about 30 points higher.  In Monday’s Newsletter, I observed that most of the Indexes appear to be topping and getting ready to roll over and move down.  After that, we should see an advance and then a meaningful decline.  Based on the Candlestick patterns and the Indicator readings as they are shown on the Daily charts, there is a great temptation to say that the topping process is nearly complete and that the rollover is imminent.  Well, it could happen anytime, or it could take a few days longer; but it does seem to be coming.

Conversely, the Candlestick patterns and the Indicator readings as shown on the Weekly charts still call for movement to the upside.  So my best analysis is that prices will likely continue for a bit longer in their topping and rolling-over-and-down process, which should be followed by an upswing and, later on, by a full-bore return to bear market action.

I had suggested that you “defer making additional downside commitments until we can assess the market’s moves over the next few days.”  So far, so good.  That suggestion still holds.  There are suggestions of indecision and of a possible reversal, such as a fairly decent “Shooting Star” in the Russell 2000 and a “Doji Star” in the S&P Midcap 400.  In the very short term, the market seems to be running out of steam.  Prices have advanced to retracement levels which often act as “stop signs” which militate against further increases.  The S&P SmallCaps 600 and the Russell have led the pack in this respect.

We should be looking for lower closes tomorrow and Friday as evidence of a topping and rollover.  If that should come about, you might choose to acquire an addition to your overall Short positions.  If lower closes do not occur, then you might just stay the course and defer purchasing additional downside positions until we see what the market shall have brought to us by closing time on Friday; and I’ll report back to you at that time.

B.  Gold

The “Island Top” formation in August Gold was completed today, leaving behind a fifty-cent gap, and declining 25.7 dollars on the way.  Support at the 946-950 level was brushed aside in the rush to sell, and the trend was still firmly down at or near the close of trading.  As we had said earlier, the “Island Top” formation is bearish.  There is plenty of downside potential in Gold.  It should soon come to a point at which it will bounce, after which I think it will resume its long-trend decline.  Gold is at support level right now, at about 920.  My suggestion is to wait to see whether a bounce develops; and if it does, try to acquire a long-term in-the-money Put option near the peak of the bounce.

C.  Silver

Silver moved downward in lockstep with Gold today.  On Monday evening, I said that “the long-term trend is Down; but before that trend takes hold again, we may see higher prices.”  (We did, for about 30 minutes yesterday).  And “It might be best to wait out the bounce and see how far it goes.”  Well, the decline yesterday was quick, and it would have taken great nimbleness to get aboard with a Put on a timely basis.  The rout continued today.  The speed of the decline over the last 6 trading days, as compared with the amount of time which was required to reach the July 15 top, is further argument for the proposition that Silver made a major top and reversal in March and that the operative underlying trend has been Down ever since.  That assessment flies in the face of the “fundamental” arguments that Silver must head for a new high; but I see it otherwise at the moment, regardless of the fundamentals.  One must be careful not to project the current state of the fundamentals linearly into the future; because the fundamentals can and do change – they are not static – and when they do change, old projections may no longer be valid.

It may be a little late to initiate a Short position in Silver now.  Perhaps a better course would be to wait for a bounce, which almost surely is coming, and try to pounce on it near its crest.  On the other hand, long-term Puts may work well.  Those Subscribers who do own Puts should be happy tonight.

D.  Crude Oil (September contract)

On a closing basis, prices did not quite close the gap yesterday. Calls should have been stopped out almost immediately upon opening, with small damage.  Prices gapped down on opening today, and closed a remarkable $22.87 below the July 11 high.  I still think that a bounce in an upward correction is due; pressure is building underneath prices, which should push them upward.  Longer-term, and very long-term, I would venture the guarded opinion that the overall trend in Crude Oil is Down.  I know the “fundamental” arguments to the contrary, and I understand the “Fibonacci” projections which call for significantly higher prices in order to complete a fifth “Elliott” wave; but I think there nevertheless is an argument that we may have seen a major top – the fifth Elliott wave - on July 11.  If indeed the major underlying trend is Down, then any upside reversals will be counter-trend and hot to the touch.  It seems to me that Caution should be the order of the day when laying bets in favor of upside moves. 

It seems reasonable to await the completion of a bounce before entering the market to the downside.

THESE RECOMMENDATIONS CONSTITUTE IMPERSONAL INVESTMENT ADVICE ONLY.  INVESTORS MAKE THEIR OWN DECISIONS AND ARE SOLELY RESPONSIBLE FOR THOSE DECISIONS.

PAST PERFORMANCE IS NO GUARANTY OF FUTURE RESULTS.

WHEN YOU PURCHASE OPTIONS, BUY THEM IN TWO’S OR IN MULTIPLES OF TWO.

ALWAYS USE PROTECTIVE STOPS.

CandleWave, LLC

By William Kurtz, President