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Weldon's Money Monitor



Big-cap, blue-chip, benchmark US stock-star ... General Electric ... made a new bear move low yesterday, intensifying its sharp and sudden trend reversal, as evidenced in the daily chart on display below.

Indeed, after failing to make a new high in 2005, GE has gone south, quickly, violating the reflation-defining uptrend line, the long-term 200-day moving average, and the 1Q 2005 lows.

Most recently the 200-day moving average has turned down, directionally, ending an uptrend in place since the 1Q of 2003.

A technical breakdown and reflation trend violation is NO small thing, and could presage a broader market sell-off.

With that thought in mind, we observe the long-term weekly chart on display at the top of the next page, revealing a MOST interesting technical structure as defined by the 'wave-count', and the Fibonacci dynamics.

In short, the entire rally in GE looks like it may have merely been a simple 38% Fibonacci retracement/correction relative to the first bear market leg, defined as such by the 5-wave nature of the decline.

Additionally, we note the downside violation of the long-term 52-week MA.

Perhaps more 'telling' ... is the breakdown in GE relative to the broader market, as defined by the S+P 500 Index, as evidenced in the long-term weekly ratio plot exhibited below. Here, the mega-macro long-term 2-year moving average has been violated.

Overlaying the 2-year moving average shown in the previous chart, against the 2-year moving average applied to just the S+P 500 stock index ... we create the long-term comparison on display in the chart shown below.

Indeed, the close-up reveals that the moving average applied to the ratio spread is turning to the downside, directionally, this week ... exacerbating the divergence already developing, implying an increased risk of a similar technical breakdown within the broader market.

Taking GE as a benchmark paper-equity-wealth indicator ... we go deeper to compare the action in GE, to that in the fixed-income arena. First we observe the long-term weekly chart on display below, revealing a 'yield-adjusted' plot for GE (GE price multiplied by yield on US 10-Year Note) ...

... and ... another long-term macro-technical breakdown and trend reversal.

Further, note the historically tight relationship between our yield-adjusted plot for GE (dark blue line) when overlaid against the S+P 500 Index (light blue bars) ... which has been smashed as a result of the wide divergence.

Indeed, the more angles we take, the more we believe that an extension to the current breakdown in GE ... will bode ILL for the broader market.

Yet, at the same time ... an extension to the breakdown developing in GE ... could provide a BULLISH influence on the shorter-end of the US fixed-income market, specifically the 2-Year Note.

Observe our derivative-of-a-derivative overlay on display below, in which we compare the 52-week MA of the 6-Month ROC of the US 2-Year Yield, against that of the GE/S+P 500 Ratio Spread ... implying that we should EXPECT a potentially significant decline in the Note yield.

Indeed, stripping GE out of the mix ... and focusing on the 2-Year Note yield, we observe the long-term chart on display below, in which we plot the 6-month rate-of-change of the 2-Year Note yield itself ...

... which ... is breaking DOWN ... and violating the reflation-defining uptrend line in place since mid-2002 ... while causing the 52-week moving average to turn down directionally.

Also ... less-notable, more subtle, and VERY important ... we point out that while the yield on the 2-Year Note has made consecutive higher new highs in both 2004 and 2005 ... the ROC did NOT, implying negative-yield divergence.

Moreover, today's charts were all constructed prior to this morning's terrorist attacks on London, which, from the macro-economic sense, only serve to exacerbate the deepening NEGATIVE consumer and business sentiment enveloping the UK ... and all of Europe.

Most of all, we are surprised that the EUR rallied so sharply this morning, even outperforming gold.

We would view Europe as even MORE vulnerable than the US, with direct threats reportedly having been made against both the Dutch and Italians, in line with pre-attack threats against the UK, apparently, from a new European-based wing of Al-Qaeda.

At the bottom line ...

... we have become increasingly interested in the Stock-Bond ratio in the US, being bearish on stocks, relative to fixed-income, from a macro-standpoint amid intensifying weakness in Asian and European economies ...

... and, we remain bullish the USD, and to a lesser extent, Gold, believing that both will appreciate against the majority of global currencies.

No positions in stocks mentioned.
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