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To: Les H who wrote (1235)	1/2/2002 4:00:05 PM
From: Les H	Read Replies (1) of 29597

What to expect now. December 31, 2001 marketweb.com So far the volume has been light on this rally from the December 20 low and light volume rallies don't last. A potential "Three Gap Play" may have formed off the December 6 high, where the third gap (exhaustion gap) formed at the December 13 low. "Three Gap Plays" predict the market will reverse back up and rally back to where the first gap appeared. The first gap appears near the 1170 area. Also, if today's decline manages to reverse near term and rallies to test the December 6 high and the volume is 10% lighter than the December 6 volume, than a bearish signal will be triggered. The VIX is at levels where intermediate term tops form. We are bearish here and looking for the next sell signal to be generated. A test of the December 6 high is the most the S&P can muster on this rally. We don't know if yesterday's high was the top for this move. However, we had bad experiences in shorting a market with an ARMS index close over "1.50". Today's ARMS index closed at 1.89. This puts the "5 day ARMS" at 5.73 and near a bullish reading. If the market could test Friday's high on lighter volume and draw a bearish candlestick pattern, a good set up for a short would materialize. Flat for the moment. The "5 day ARMS" on the Nasdaq closed Friday at 3.31 and is in bearish territory. The VIXN is in an area where intermediate term tops form. A bearish candlestick pattern called a "Shooting Star" appeared on Friday. Most "Shooting Stars" high are re-tested. If the test is on lighter volume and coincides with a bearish candlestick pattern, than we may get a signal for a short position near last Friday's high. The ARMS on the Nasdaq closed at 2.21. A lot of the time, closing ARMS index on the Nasdaq over 2.00 produce a bounce in a day or two. We see how this potential bounce materializes. Flat for the moment. The XAU bigger trend is up and much higher prices will be seen. We expect this rally on the bigger time frame to last for months. We like AEM, Drooy and HL. HM got bought out by ABX. ABX (Barrick Gold) has been building a base for over a year but the graph does not say when the next up-leg will begin. ASA appears to be drawing a bullish "Fry Pan Bottom". We like ASA better than ABX. Our upside target on the XAU is still 95 minimum.

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