Last Signal: 12/22/00, BUY
Dow: 10,35.56 OTC: 2517.02
The ratio pushed higher and remains on its 12/22 trading buy, but we think this is a market of treachery and deceit. The problem with the Reality Ratio and many other indicators is that they are less reliable in a bear market, as the volatility creates many whipsaws and false buy signals, with sellers re-emerging on every rally. Our explanation for this is that there is less buying compression during a bear market, and the buying energy is more quickly expended, quickly leaving more sellers than buyers just as prices are beginning to rise. We therefore are suspicious on the "buy signals", as in a bear market they often fail to follow through, marking the end of the rally. This is just one more of the many bits of logic that can only be found on Wall Street. It is what keeps "HOPE" alive and investors from selling sooner and from higher levels.
TUESDAY, January 9, 2001: Contrary to the hopes of the bullish "spinmeisters", not even the powerful wand of the Fed could help boost the first trading week of the year to a net gain. According to the January barometer, as the first week goes, so goes the month (of January), and as January goes, so goes the market for the year!!" Perhaps it was no coincidence that the Fed took this shockingly rare, pre-emptive action when they did, to get the maximum mileage out of it. Unfortunately, if this was their intention, it FAILED! Just yesterday, I heard some mutual fund manager on CNBC say that he didn’t believe in this (Jan. Barometer) for one minute. He failed to point out that last year was the first lower close for the first week and month in many years, and the market did in fact end the year lower! (It was also another bearish year for the Super Bowl Indicator).
After last week’s Fed surprise and the volatility that followed, the markets seem to be back to the business of finding sellers on every short lived rally. We warned of this on Friday but had no idea the markets were such good listeners, giving back the entire record gains and then some by the end of the day/week!! This is exactly how we envisioned an all out bear market to behave as the process of "cleansing" or purging all the excesses of the 26 year bull market (from the 1974 bear market bottom) do not end so quickly. By the time Wall Street and investors in general finally admit to this, the process may be much closer to ending than it is now. This is why we are so intent on watching our sentiment indicators as the key, and these do not appear close to showing that investors have awakened to the reality of a bear market.
Our observation on Friday that the market showed the classic definition of "churning" on Thursday was quickly proven as correct by giving back all of Wednesday’s record gains and more by the close of the week. This bares out our thinking that the Fed’s surprise was an act of panic, the markets are not yet ready to move beyond the worrisome cuts in earnings estimates, that there is tremendous concern growing about our new and future political leadership, and that the BEAR remains in control.
Our Elliott Wave interpretation suggests that the selling has resumed, and that last Wednesday’s 11,019 high completed the wave (2) corrective rally that began from the 10/19, 9654 low. A solid decline below initial support near 10,600 would lend confidence to this analysis, while a solid rise above Wednesday’s high is needed to suggest that minor wave "C" within (2) is not yet over. We think this is unlikely. A move below critical support at 10,270 - 10,300 would confirm that primary degree wave (3) is underway, and that a test of the October low was forthcoming. Again, initial support is at 10,600, with key Dow support at 10,330 - 10,292. Resistance now begins at 10,750, 11,120, 11,250 and 11,400-25. A close above 11,450 would indicate a more complex rally was developing, and with the now higher Transports, a new Dow Theory BUY signal.
TREASURIES
Treasury yields have stalled since the Fed’s shocker last week as their move was largely discounted in anticipation that they’d act when act at their 1/31 FOMC meeting. Another rate cut is already reflected in the Fed Funds futures, so we conclude that even if they quickly act again that the market has already discounted the news. A second round of rate cuts is almost unheard of within one month’s time and would be another clear sign that the Fed is alarmed about something!
Our work strongly suggests that the next big move for bond yields is going to be higher as the recent 5.35% low may well have been the end of the countertrend, wave (2) bear market rally that began from last January’s 6.75% high. If correct, we anticipate that what would be considered by many to be a modest "correction" will develop into much higher yields than thought. Sentiment among futures traders is up near 85%, already reflecting what we consider as universal optimism. When this occurs, it implies that whoever wanted bonds already has them, leaving few bullish investors/traders left to drive the market further. The last time Market Vane’s (www.marketvane.net) was back in August/Sept of 1998, when it was above 90%, and the yield reached its standing low at 4.69%. The currently similar reading is quite euphoric for a secondary yield low (price high). As we’ve been stating, the Fed seems more concerned with the economy than with the potential for igniting higher inflation, a lower dollar, and the withdrawal of foreign funds from our markets. It very well could be a repatriation of foreign capital that becomes an overwhelming issue that potentially drives the yield much higher. As stated last Friday, we still regard the risk as too great to justify the potential returns that bonds currently offer, especially as we see some disturbing bearish divergences that indicate a sudden loss of momentum. Next resistance is near 5.375-.35%, 5.25%, and then 5.00%. Initial support is at 5.50%, 5.65%, 5.725%, 5.85%, and 5.925%. We remain neutral until we see more immediately compelling signs to become bearish.
GOLD
Gold & the XAU have done almost nothing since Friday’s update, so I’m leaving those comments up…If our forecast for the US Dollar, bonds and stocks come anywhere close this year, the desire to own gold and gold stocks will materialize. It has been close to two years since the last significant rally began, and while another push lower may occur, we think this area remains very appealing, under owned, and that their contempt is so great that their potential cannot be ignored. This least exploited of any asset class is just as likely to become exploited as was the case before prices soared from depressed levels in energy, utilities, and lately the Transports. In recent years, investors have latched on to a theme, driving it to great extremes before giving up on it. We see no reason why gold should not have its turn as the crowd searches for the next investment theme.
We think that one last decline may still emerge to complete the entire decline AT LEAST from the 9/99, 92.72 high. If so, it should be relatively short lived and lead to the best gold rally in years. Initial support was raised slightly to 47 from 45, with the 41.64 low now key, lower support 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. Should this occur, it would indicate that more immediate upside potential exists. 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
Tuesday, January 9, 2001: - None Today - [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
