MIB Update July 4, 2010

70 60 50 40 30 H RS 1100 1000 1200

RSI 14 S&P500 LS

In the course of last week’s trading most of the market indices have broken below their Head-and-Shoulder necklines (H&S). The measured downside target of H&S top formation for the S&P 500 is in the 870-880 range. This does not mean the market is about to go into a dive right away and reach that level within a few days. What it does mean is that the rebound from March’09 low is over and the dominant trend is down. Among the market indices that have yet to break decisively the neckline of its complex H&S topping formation is the TSX Composite. Over the last 10 weeks, supported by the gold sector, the TSX has been outperforming the S&P 500. However, the last weeks’ decline has not spared even the strong gold sector. As the charts of gold ETF (GLD) and of the TSX Gold Sector iShares show major market sell-off do not spare even the sector of “last refuge”. In the short term the price, breadth and volume indicators are oversold enough for the market to bounce up back to the neckline, or even marginally higher. One reason why I currently do not expect more than a temporary bounce is the relatively benign sentiment of option traders on the CBOE and the ISE. Considering that the leading US indices lost more than 16% in only two months, the option traders are just not sufficiently bearish to expect more than a short-lived rebound of a deeply oversold market.

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800 A M J J A S O N D 2010 M A M J J

RSI 14 LS

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12000 11500 11000 TSX Comp. 10500 10000 9500 RS to S&P500 11.0 10.5 Mar Apr May Jul

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GLD - Gold ETF (Gold/10)

100

50 20 15 XGD - TSX Gold iShs 10 1.5 1.0 2006 2007 2008 2009 2010