Last Signal: 3/24/00, SELL Dow: 11,112.72 OTC: 4963.68
The ratio slipped back ever so slightly again last week but not enough to go below the low of two weeks ago, making the rest of this week (5/8 - 5/12) a potential pivotal one. A move lower will imply continued weakness, while a move up would confirm a continued "short term" bounce. You’ll know a week from today, but that will also be on the day of the next FOMC meeting.
FRIDAY, May 12, 2000: The markets bounced back some yesterday on a weaker than expected April retail sales report, keeping hope alive that perhaps the Fed would not tighten as aggressively as thought, and that the 5 rate hikes made already could finally be slowing down the free spending consumer. We wouldn’t bet on it. The Fed will remain vigilant based on the BIG picture, which still suggests the economy remains overheated.
We are not yet confident that the market has found a sustainable low for the intermediate future. The Elliott Wave patterns we see in many equity funds and indexes that we chart by hand every day seem incomplete. The short term wave structure appears to me to be bouncing within minor wave 4 up, leaving the potential for one more move below Wednesday’s lows to complete the decline that began from the 4/12, 11420 high. For the Dow, an alternate wave count that I am considering is that this decline has been part of a corrective "flat" that can retrace back toward 11,420 before the next decline takes prices lower. For the OTC Composite, Tuesday’s update stated that it was "VERY near the completion of a 3 wave rally to our sighted initial resistance at 3980, the exact .618 Fibonnacci resistance of the minor wave "3" decline, indicating that the larger trend remains DOWN." Support at 3695 gave way to selling that tested and held the more critical 3350 sighted level. A rise back above resistance just above 3600 would remove the potential for one last low to complete the expected 5 wave decline. This is also close to a minor downtrend line drawn from 3815 on the 5 X 15 Point & Figure Chart, forming even more resistance near 3600, providing more confidence that this is a relatively key level.
Another indication that prices may still have one last drop ahead is that several of my short term trading oscillators had turned bearish but did not yet become oversold. An example of this is the McClellan Oscillator, which reached -68 on Wednesday but bounced back to -4 yesterday. Once this turns bearish it usually declines to below -100 before getting oversold and bottoming. The 5 day Up Volume indicator is also bearish but has yet to become oversold, and our 10 Day A/D Line indicator turned bearish on Tuesday and would need at least 2 or 3 strong breadth days in a row before it may turn bullish again. Initial resistance is near 10,700, but a push above 11,100 is needed to confirm a short term bullish reversal. Above this, resistance is at 11,420 and then at the January high of 11,750. Support begins at Wednesday’s 10,300 low, but as stated on Tuesday, a decline below 10,200 should usher in selling to next support near 9730 - 50.
TREASURIES
Treasury yields recovered some of their recent losses with the yield backing down to 6.126% yesterday after reaching 6.25% on Monday when they became very oversold. Here too, we are not yet confident that a sustainable (yield) high has been reached. Our longer term P&F chart remains on a high pole at the bearish resistance line (HPBr), indicating that a bounce here would only be setting up for the next sell off that takes the yield even higher. Many believe that the market has already discounted the Fed’s next move, a "50" basis point hike in the Fed Funds rate. The bearish P& F chart pattern calls this into question.
Perhaps they will maintain their quarter point move next Tuesday, keeping the markets worried about what they’ll do next time. This is not a prediction, just a supposition. I think they need to become more aggressive to get ahead of the curve if they are to seize control of the rising price trend and stronger than desired economy. Yield support is at this week’s high, between 6.20 - .25%, and then 6.32%. Resistance is at 6.10 - .075%, 6.00%, 5.85%, 5.72%, and at the recent 5.65% low.
GOLD
The XAU & Gold continue to mark time ahead of the Fed and on the stretched rally in the US Dollar. We remain patient, loyal and optimistic that the next move of consequence is going to be up. Insider buying has again picked up, sentiment among gold futures traders inched up to 25% from a very extreme low of 20% last week, and very heavy number of bearish short open interest has re-emerged and is building, indicating that a very strong short covering rally lies somewhere ahead in the not too distant future. With the percentage of dollar bulls reaching an extraordinary extreme of 96% last week, a break here is expected as is gold’s bullish reaction to it, as has been the case for gold in the vast majority of the many foreign currencies that have been severely beaten versus the dollar. Prices reached a high of 63.26 last Thursday before consolidating. We are bullish against the 4/13, 54.24 low, with initial resistance remaining at 63 - 64. Resistance above this is at 69, 72 -3 and 81. A move above 64 will turn the short term trend bullish, also breaking out above the downtrend line that had defined the bearish trend since last September’s 92.72 high. We are bullish the XAU against support at the April 13, 54.24 low, with initial support at 57.
PORTFOLIO CHANGES
FRIDAY, May 12, 2000: 5/10:
XLNX
was covered at 55 � (+28.84%). Our downside price target was 50, but this is a VERY volatile stock and wanted to take advantage of a big chip sector downgrade that lead Wednesday’s sharp selloff. 5/11: We added to our income portfolio Wallace Computers
(WCS) at 10 �. It recently had a selling climax at 10, a bullish "bear trap" reversal, lots of insider buying, a very low P/E of just 6 times earnings, and a 6.14% yield! Now that’s a VALUE STOCK!!
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
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Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
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