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REALITY CHECK UPDATE
Published Every Tuesday and Friday

ARCHIVE:    APRIL 2000-APRIL 2001  

Contributed by Mitch Harris
President: Market Trend Realities,
Editor: The Reality Check Newsletter

April 27, 2001

STOCKS
REALITY RATIO: +0.387
Last Signal: 04/20/01, TRADING SELL
Dow: 10,579.85 OTC: 2163.18 

The Reality Ratio came very close to pushing above the .40 overbought level that would signal a sell alert trading signal, or worse. Using our best judgment, we assigned this a preliminary trading SELL, mainly because we think that within the bear market, it is much less likely that prices will A) become as overbought as they did during the bull market, and B) that prices will be much less likely to remain overbought if and when they get there, also relative to how indicators acted during the bull market. We are back to a point where we believe caution is the better part of valor, at least for the near term. 
FRIDAY, April 27, 2001: The markets have remained firm this week, in light of higher jobless claims, rising employment costs and Bush s very aggressive rhetoric toward China in support of Taiwan, AGAINST years of US policy. Some like his "direct" approach, but others worry that his tough talk is taking us further down the road toward trouble. To us, its like a dangerous game of chicken, where they may soon be drawing lines in the sand and daring each other to step over! So much for China s dreams of screwing us further by gaining entry as a most favored nation. We had always opposed their entry anyhow. To me, their acceptance would be seen as the US ignoring the "VALUES" that 90% of Washington has run their collective campaigns on since the phrase was coined during the Reagan years. HYPICRITICAL&That s what we think of those who would use terms like "family values" to gain votes, while even expressing interest in doing business with a regime of such gangsters, who have NO regard for human life, women or civil rights of any kind. So should we even worry about losing the possibility of doing business in their markets? We shouldn t even be considering giving them the "privilege" of doing business with us. Doing so is equal to accepting their principles, which are diabolically opposite of what we in the US CLAIM as are our own. We say, banish the thought! 
We may have been a week early on our overall sell last week, but we still think the odds of a downturn are growing. One reason for this is that our trading indicators are becoming mixed, with a good deal of our short term momentum indicators building negative divergences by not confirming yesterday s higher Dow. On the bullish side, our 10 Day A/D Line Indicator remains bullish, as do our other "trending" indicators for the near term. These define the trend as remaining bullish for now, so we continue to look for signs that the rally is ending. This may take a few down days in a row. Something that surprises us a bit is that the OTC markets are lagging the blue chips. Our opinion has been that because we think the NAZ had already completed its 5 wave decline at the last low, that it would remain "relatively" stronger than the Dow. This has not happened in recent days, but perhaps it will if the Dow turns down. 

Overall, the NY averages haven t really done much this week, when it had already reached 10,700 a week ago and has been backing and filling since. Prices have not been able to overcome the current level (10,7000-40) which is building price resistance on top of the Fibonnacci resistance barrier we had identified last week to be at 10,740. The Dow reached a high of 10,767 yesterday, further legitimizing this as a significant level, as 10,740 is 61.8% of the entire decline from the 1/14/00, 11,750 high [11,750 - 9106 = 2644 X .618 + 9106 = 10,740]. Stated on Tuesday, we still think that further gains should be limited at best. The Dow closed slightly above its 200 day moving average near 10,600 for the second (non-concurrent) day yesterday, but the S&P and OTC averages remain far beneath theirs. The breakout above major resistance at 10,300 makes this a strong line of defense. An hourly close below 10,290 (now key support) will confirm for us that this next leg down is unfolding. A decline below 10,400 would now be a sell signal on our long term, 50 X 150 P&F chart. Next resistance is at 10,800, then 11,000, 11,250 and 11,400. 

TREASURIES

Treasury yields continue to attempt a bounce after completing their first intermediate wave of rise. We have little to add to our recent analysis, as a technical retracement is developing. This allows for the entire 1st wave to be retraced, but more likely, it will be contained by its original break down point, near 5.40%. We continue to advise that anyone wanting to sell, or position ahead of what we are confident will be much higher rates in the months ahead, should do so into this retracement rally, provided it plays out accordingly. 

We remain confident that it will. The bond rally from the 1/00 6.75% high has likely ended, and should ultimately lead to much higher rates. Our analysis labels the 3/22, 5.217% low as cycle degree wave "(3)" within the longer term bear that we think bonds have been in since the yield reached a 4.69% in 10/98. This may partially explain how the yield is rising against the Fed s aggressive short term rate cuts, as the yield curve reverts proportionately steeper, from its inversion of last year. We noted at that time that this was one of the best indicators of an economic slowdown, and perhaps a recession. A recession will likely not be declared until we are well into it, when it has become undeniable even to the most blindly optimistic.
Resistance begins at 5.70% which was reached at the close yesterday, and then 5.55-50%, 5.40%, 5.37-30%, and the 5.24-.217% low(s). Higher support is near 5.85%, 5.925%.& 6.00-6.05%. Our long term analysis suggests that the long end will ultimately push above the 1/00, 6.75% high. 

GOLD

Gold & the XAU have been acting suspiciously firm this week, with buyers coming in to support the market on any attempt to sell off. The XAU reached 55 yesterday, pushing closer to the resistance from its 3/9, 57.42 high. A push above this would turn the chart bullish, resolving its bearish P&F High Pole chart pattern. Our analysis still continues to suggest that a last downturn is the most likely outcome, but this would be called into question with a push to 58. REGARDLESS of this short term disparity, we would only be buyers into weakness, and holders into strength. Perhaps this makes the other analysis less critical, as the market can do nothing either to surprise us or to change our overall game plan. 

Technically, the XAU remains on a bearish HP formation, BUT, our shorter term HSBC cash gold chart turned bullish Monday and shows a potential double bottom. On "this" particular chart, a move to $273 per ounce is needed to confirm this and signal the potential for the major upturn we have written about. Until, or unless this happens, there is equal potential for the upturn to remain within the fifth wave of decline from the 2/00 $315 high. Also, our "early warning indicator", the XAU/gold ratio gave a buy signal with Wednesday s close. We remain bearish the XAU against resistance from the last high at 57.42. Regardless of whether prices fulfill our more immediately bearish stance, we think that great opportunity lies ahead! XAU resistance begins at 53-4, with more at the recent 57.42 high, 59, 63-4, & 69-73. Next support is at the 2/14, 45.64 low, the 7/14, 41.61 low, and then at 37-40. In contrast to the poor risk/reward we see for bonds, we see the exact opposite here, at least if we go out beyond the immediate future!
 

PORTFOLIO CHANGES

Friday, April 27, 2001: 4/24/01: Mattel hit its 15 stop and was removed at 15.31 protecting a +22,48% gain. 
[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). 

 
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Last modified: April 27, 2001

Published By Tulips and Bears LLC