Last Signal: 12/22/00, BUY
Dow: 10,35.56 OTC: 2517.02
The ratio pushed nominally high enough to trigger a SHORT Term trading buy signal, indicating the rally would continue, but not from an oversold enough level to be sustained for the longer term. We think that if this is the continuation of the seasonally bullish period, it will be much better for the many beaten down small issues that will have better recovery prospects as the last of the year end tax selling gives way to re-positioning in the new year. The Ratio is so neutral it can literally go either way, but with our short term indicators bullish, the odds are for moderately higher prices.
Tuesday, January 2, 2001: Welcome to the new Millennium! No more excuses, the "real" New Millennium has begun!, and with it, many new challenges for the markets. We think the most important will be related to our whopping trade deficit and declining US Dollar, but these are issues for discussion at another time. This is our first update in a while, and it will likely take a few more updates to get back in the groove, as we’ve been doing as little as possible to keep our charts updated while on break! So, please bare with us.
The markets ended with the same rush to unload the apparent losers as it has for months now, with the selling continuing even after the averages have seen their lows. On the positive side, some of our trading indicators have turned and remain bullish. These include our 10 Day A/D Line and our Short Interest Indicators, which are both on P&F buy signals. Another strong indicator worth mentioning is the NYSE High/Lows, which showed a very healthy 383 versus just 53 new lows last Thursday. Of course, this is generally against a very easy comparison from a year ago. Some of our other trading indicators are very extended and warn that a downside reversal is due, and that a consolidation of recent gains is the least that should be expected. If we see relief of the extended ones while the others remain constructive, we would then be able to look for higher prices.
The Elliott Wave pattern seems to have at least completed a minimum upside expectation, again reaching into resistance at Friday’s 10918 high before reversing to end the year at 10,788.75. From the low last Thursday, the rise was in 5 minor waves, which can be labeled larger degree wave "C/2", still within larger degree wave "(3)" down. If this is correct, prices should ultimately push BELOW the 9654 low, still within the primary "(3rd)" wave. Support begins at 10,600, with key Dow support at 10,330 - 10,292. A close below this would confirm that the next leg of decline was accelerating. Resistance above 10,920 is layered at 11000, 11,100, 11,250 and 11,400. A close above 11,450 would indicate a more complex rally was developing, and if it came with a close in the Dow Transports, above 3000, a new Dow Theory BUY signal would also be confirmed.
As for the NASDAQ, we’re sure you’ve already heard more than enough about its 40% decline for the year, and close to 50% decline from its 2000 high, so we’ll briefly mention that even with the Dow’s recovery, the OTC Composite remains within two bad days (or less) of another new low. This does little to increase our confidence that prices have reached their lows. Many think that the market’s will do better this year, solely due to its poor performance in 2000. We think this is in itself a lame reason for being bullish. If this were how logic worked, these same people should not have been bullish after each of the grand performances in recent years, when they remained equally as optimistic year in and year out! Many also think that the Fed is their secret weapon, and that once they CUT, all will be well again. We think just the opposite, that when the Fed thinks things have deteriorated so much that they need to stimulate the already over-stimulated consumer lead economy, it will more likely be a sign that they are very worried.
TREASURIES
Treasury yields pushed slightly beyond our long standing 5.48-50% objective and have seemed to stall near the 5.40% level. Here too, our indicators are very mixed between bullish and very, very extended. We think the Treasury market is way to extended to chase, while the corporate bond market may be more reasonably priced, held down by the recent stream of quality downgrades combined with junk bond concerns. This is our explanation for why Treasuries appear vulnerable, even as our long term, Dow 20 Bond Indicator turned bullish again recently.
As stated above, and throughout December, we think the markets are taking for granted the assumption that a slowing economy will allow the Fed to ease and drive long term rates lower and lower. We are not as confident for this, believing that while the economy is slowing rapidly, inflation pressures remain, and even if they don’t, the markets already reflect the bullish expectations. This is seen in the very bullish sentiment for bonds, whether in our analysis of the Traders Commitments, our in the various surveys of trader’s opinions.
Regardless of the short term potential, we don’t think there is enough compensation for the risk with the long bond yield below 5.50%. Next resistance is near 5.375%, 5.25%, and then 5.00%. Initial support is 5.65%, 5.725%, 5.85%, and 5.925%. Because of this, we think the risks in the bond market far exceed the potential for greater gains, making us neutral. We report more specifically on these in the Reality Check Newsletter each month.
GOLD
Gold & the XAU have managed to remain constructive during our absence, continuing to benefit against the recent weakening of the US Dollar. We hope that this will offer what appears to investors as a better and better alternative as a haven for shifting assets, as the Bond market is already exploited and as policies of the new administration may change worldwide perceptions for their investments within the US. Typically, precious metals bottom in the fourth quarter, and even if their is another selloff, we see compelling signs that the end of its bearish phase may be close at hand.
Initial support was raised slightly to 47 from 45, with the 41.64 low now key, and between 40 - 37, should the low fail to hold. A push to 54 on our(2 X 3) P&F chart has come close, but is still needed for a longer term "Low Pole" (LP) buy alert. A rally above the 55-6 level of resistance would confirm that the short term trend has turned bullish. Higher resistance is at 59, then at 64, and 69.
PORTFOLIO CHANGES
Friday, December 15, 2000: 12/18/00: ESV hit the 31 stop & was removed with a small (+14.78%) gain; 12/20/00: QQQ short reached our downside target and was removed at 55 � (+30%). -- [Part of our offensive is to have a good defense! That means limiting losses and protecting gains]!
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
The Reality Check Newsletter, and reprinted here with permission.
Market Trend Realities (MTR) is a Registered Investment Advisory which manages personal, corporate, Trust, and retirement accounts on a fee only basis. Several low cost, flexible management fee arrangements are available. Investment Advisor, Mitch Harris has studied the Point & Figure Charting Method under the direct supervision of Michael Burke, Editor of the prestigious Investors Intelligence research organization. Management is based on a unique combination of technical analysis methods and tools which include, The Point & Figure charting method, Elliott Wave Analysis & techniques, industry group analysis, cycle analysis, Relative Strength Analysis, Stochastics, and investor sentiment studies. MTR offers a very uniquely structured managed mutual fund program using the RYDEX family of mutual funds, which offer outperformance potential whether equity markets are rising OR falling! Inquiries are welcome by calling us at
(513) 421-8737,
Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
MTR also publishes a monthly investment newsletter called "Reality Check", which offers technical commentary on the stock & bond markets, the Dollar Index, gold & gold stocks (XAU), Treasury yields, utilities, investor sentiment, and Federal Reserve policy. It also offers stock trading recommendations each month with price targets, stop loss points and insider activity. There are 4 trading portfolios, including a short selling account (we are very proud that our short sale recommendations have averaged 12.5% "compounded" during the roaring bull market of the last 5 years). Short term market commentaries are updated on Tuesday and Friday mornings, along with portfolio changes on this web page. They are also emailed for free to anyone who provides us with their email address. The regular subscription rate is $200 (US) per year. Samples are available upon request. MTR will be happy to send information on any of the above mentioned services. Please email us your home or business address along with your daytime phone number and specify your interest(s).
Copyright � 1998-2002 Tulips and Bears LLC.
All Rights Reserved. Republication of this material,
including posting to message boards or news groups,
without the prior written consent of Tulips and Bears LLC
is strictly prohibited. 'Tulips and Bears' is a registered trademark of
Tulips and Bears LLC
Last modified: April 01, 2001
Published By Tulips and Bears
LLC
