Last Signal: 3/24/00, SELL Dow: 11,112.72 OTC: 4963.68
The ratio continued lower last week after making a lower high. The moving averages are following lower after last week’s bearish crossover as the shorter term one dropped below the longer term. Rallies should remain narrow, short lived and should be used for selling. With our indicators overall bearish and mostly NOT oversold, we see room for further price declines.
FRIDAY, April 28, 2000: With all the volatility continuing with this week’s schizophrenia, the Dow is essentially where it was a week ago, but the OTC is up about 130 points, a seemingly small amount these days. Yesterday’s gyrations began with the government reporting Q1 GDP gained another "above trend" 5.4% against an expected 5.9%. The BAD news was in literally all of the additional inflation numbers that came with that growth. The Employment Cost Index was +1.4%, consumer consumption gained 8.3%, the fastest in 17 years, the GDP Price Deflator surged by 2.7% and wages & benefits gained 4.3% year over year. These numbers showed that the Fed remains behind the curve and will likely be more aggressive at their May 16 FOMC meeting. The markets seemed to recognize this once the numbers were released, sending the Dow 228 points and the OTC Comp 116 points lower on the opening before recovering, with the OTC reversing by 260 for a 144 point gain by the close. The market’s memory is now so short term that by the close it didn’t even remember that there was any news at all, let alone the HORRIBLY bad inflation news that was released just a few short hours earlier!! We call this "selective memory", meaning the market only remembers the parts that it wants, processing away bad news as insignificant. We think it is the discarded news that will cumulatively slap the market with reality eventually, as it overwhelms any and all regurgitated bullish rationalizations. Today’s most popular being that "tech" stocks are immune from higher interest rates, inflation and an ultimate slowdown in the economy. We say that no sector is an island. "New economy" companies will only do as well as the companies and consumers that are their customers, and when business slows, it will slow ACROSS THE BOARD, not selectively among the "old economy" alone.
Our short term indicators are mixed, with the McClellan Oscillator turned down to a neutral reading and our more important 10 day A/D Line indicator modestly bearish. These tell us that whatever buying is left as the seasonally bullish period is now in our rearview mirror, is selective and limited by the diminishing liquidity that we see. While this doesn’t preclude rallies, it does imply to us that rallies will be used for continued selling.
Support and resistance on the Dow is currently "banded", with initial levels tightly wound. Resistance 11,140, 11,420 and then at the Jan, 11750 high. A close above 11420 would turn the short term trend bullish and imply a test of the high was developing. Support begins at yesterday’s 10747 low, with a bit more at 10620 and 10300. A close below this would turn the short term trend bearish and indicate that the 9732 March low would be tested.
TREASURIES
Treasury yields have sold off sharply, showing no selective memory loss here as traders KNOW what the above trend growth with rising inflation means, that short term rates HAVE TO GO UP! This will keep longer term rates from making further downward progress until the economy shows clear signs of slowing. To date, those signs are slim to none, at least outside parts of the housing market. In fact, IBD reported just this week that California median home prices gained 12.5% in March alone. Home prices are a part of the CPI and help to stoke the flames of inflation. This is very reminiscent of the good old pre-crash 80’s, when no price was too much because money was so available, whatever you wanted was made available to you. If equities rally for a while, the lack of support for Treasuries from safe haven buying will be an additional source of selling pressure.
Rates tested support at 6.00% after yesterday’s atrocious inflation numbers. The fear of the Fed has returned, turning one of our more sensitive timing indicators to "bear confirmed" status, confirming our Elliott Wave analysis that allowed us to anticipate this bearish reversal on the exact day of the bond rally’s price high (and yield low). As stated on Tuesday, we hope the yield will at least back up to support at the 6.20% level. More support is at 6.32% and 6.40%. Resistance is at 5.85%, 5.72% and near 5.65%.
GOLD
The XAU & Gold have done little but hold their own above the lows that lead to last week’s major selling climaxes. There is little to add to this. Sentiment is very bearish and the recent Commitment of Traders Report is building positions that show a renewed bearish conviction by the large speculators that rarely profit when there is such a consensus. These are reasons that I expect the next move of significance to be UP, even in the presence of Bank of England (BOE) and now Swiss National Bank (SNB) planned sales, as much of this should be discounted by the markets and little if any will likely hit the actual market. Support is at last weeks 54.24 low and then at the 48.73 all time low reached on 8/31/98. Resistance remains at 57 - 59, 64, 69 and 72 -3. A break above 60 would offer encouragement for the bulls.
PORTFOLIO CHANGES
Friday, April
28,2000: We added a 2nd position in Autozone (AZO) yesterday at 23 and will likely remove our higher priced shares after the 31 day wash sale period ends.
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
The Reality Check Newsletter, and reprinted here with permission.
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