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.
FRIDAY, January 12, 2001: OH BOY!! Three days in a row for the OTC Composite for the first time since September first!! The market must surely have bottomed! This was yesterday evening’s parade of analysis on CNBC. I don’t know what type of analysis they subscribe to, but in all of my studies of almost 20 years, I’ve never read or heard anything about a Three day rule that somehow defines a bear market bottom. Perhaps its the "new" analysis to go along with the "New Era" that many still believe in. More likely, it is NOT!
The markets just seem to us to be way too eager to call for a new bull market as its collective long term memories seem better than its short term. The rally has indeed picked up momentum, at least for the Nasdaq and "general" NYSE stock, and this can certainly continue to carry prices higher in the short term. The problems still remain the same. Corporate earnings shortfalls continue, as does the contraction in credit worthiness on a grand scale, an economy that is no longer well enough to be easily re-stimulated, and investor sentiment that has never yet soured on the market’s prospects.
Our Short Interest Indicator has resumed its decline, indicating that this rally is being enhanced by heavy short covering. If this reverses higher again, it would indicate that they are rebuilding new short sales. This can only be done by SELLING! Many of our indicators remain mixed, but some of the shorter term ones are beginning to reverse from their overbought condition. These include the 5 Day up volume, and the McClellan Oscillator, which has been above a reading of 100 for the better part of the last 11 trading days. Other trading indicators are moving toward, but not quite overbought yet, still allowing for further short term gains. Remember that in a bear market, these indicators should generally NOT get nearly as overbought as they do in a bull market, before they roll over. If this is the case now, a downturn can materialize from seemingly out of nowhere.
Our Elliott Wave interpretation suggests that last Wednesday’s 11,019 high completed the wave (2) corrective rally that began from the 10/19, 9654 low. Prices have been fighting to remain above our sighted initial support near 10,600, dropping to an intraday low of 10472 on Wednesday before bouncing back to 10,600 at the close. A break of that low would continue to keep our suspicions high that the next downturn is trying to accelerate. A solid rise above last Wednesday’s high ((11,019) is needed to suggest that minor wave "C" within (2) is not yet over. We still think this is unlikely, but a little more follow through that holds on the OTC Composite would certainly be good for that average. Back to the Dow, a move below critical support at 10,270 - 10,300 is needed to 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, and stretched a bit lower to the recent 10,472 low. Key Dow support remains at 10,330 - 10,292. Next resistance is down to 10,700, with more found near 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 started to decelerate on the stronger optimism for stocks, as much of the flight to safety money is finding its way back into equities. This may be somewhat of a surprise to some in light of the Fed’s recent policy shift, but it is what we’ve been expecting after the yield dropped through our long standing 5.50% objective. We also think that some of the heavy foreign investment is beginning to be removed from US Treasuries, as the dollar has fallen sharply from grace in recent weeks. Further signs that foreigners are removing more of their assets would be a very bad omen, especially if they reverse their support of recent years for our growing record monthly trade imbalance. At some point, the repatriation of these foreign assets is a sure thing, and we think the risks have grown with a new, unproven administration about to take over in Washington.
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 remains very high, near 85% last week, reflecting what we consider to be universal optimism. This implies that whoever wanted bonds already has them, making the bulls dependent on "others" if prices are to continue to rise (and yields are to continue to fall). 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). The Fed’s concern for the economy risks igniting higher inflation, a lower dollar, and again, the withdrawal of foreign funds from our markets. A repatriation of foreign capital has the potential to become an overwhelming challenge for the Bush Administration and our markets this year. 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 at 5.50% gave way yesterday, making 5.65% the next upside challenge, then 5.725%, 5.85%, and 5.925%. As stated in the past few updates we had remained neutral until seeing more immediately compelling signs to become bearish. We are seeing those signs emerge now.
GOLD
Gold & the XAU have found new sellers to drive prices lower again, with gold leading the stocks on the downside. We think that if we remain correct on the US Dollar, that eventually, gold and gold stocks will reap great benefits that will reverse the pressure that was endured by the dollar’s strength of recent years. It has been better than two years since the last significant rally began, and while another push lower may have begun, we remain confident that better times lie ahead in 2001. This area remains very under owned, and the 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 and creates the next investment boom.
We think that one last decline may be emerging 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: 1/10/01: We added network provider, Three Com Systems (COMS) to our low priced portfolio, primarily because they have almost $8.00 per share in cash and it is attractively priced. It moved up enough yesterday for a low pole (LP) buy alert on its P&F Chart, a good sign. [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
