Last Signal: 01/12/01, TRADING SELL
Dow: 10,525.38 OTC: 2626.50
The ratio turned down to the neutral line, which was enough for a minimally lower low, confirming our sell signal from 1/12, while the markets have been mixed. We continue to expect another more convincing market decline that will leave little doubt that we are still deeply entrenched by the bear.
FRIDAY, February 16, 2001: Yesterday s strong gains were triggered by emotionally charged buying after brokerage upgrades of the semi-conductor equipment companies the day before, and "Ciena s" better than expected earnings drove the follow through rally yesterday. We see reports isolated events, and don t know why the chip analysts were so keen on calling a bottom for their sector. The news came after Applied Materials WARNED that orders fell 33% and that they would fall again in Q2. So how does the market respond? It bid up AMAT 8 3/16 in two trading sessions, along with many of its peers. This accounted for much of the gains of the last two days, but with one of our portfolio companies, Nortel pre-announcing an operating loss instead of a gain, the techs are off their highs into this morning s pre-opening option expiration day.
Volume picked up slightly but was still unimpressive, given that much of the two day gains were related to today s option and futures expiration. Also unimpressive was yesterday s breadth, which was a very narrow 1669 advancing issues against 1396 that declined on the NYSE. With the Dow up 95 points this was seen as a warning about the quality of the rally. There was also another closing "tick" sell signal given with 755 upticks, indicating a high degree of confidence as buyers came rushing in to buy the close.
The 11,028 key resistance level remains the great barrier that the bulls have not been able to overcome. This has built up as much price resistance from the failed attempts to push through as from the Fibonnacci resistance level [11,402 high - 9654 low = 1748 X .786 = 1374 + 9654 low = 11,028] that we had forecast in our December Reality Check. Bears must be quite happy to have had such a well defined perch from which they can keep selling from! The Dow has held just above lower 10,700 support, bouncing back from a 10,755 intraday low last Friday, a 10,771 low on Monday, and a 10,780 low on Wednesday. A close below last Friday s low would provide initial confirmation of at least a short term top, with lower support at 10,600 and 10,470-500. A break of this level would confirm that the elusive wave 3 of (3) decline has started. Next lower support remains near 10340-280, and then its down to the 9654, October low! In the event that the Dow pushes appreciably through the 11,019 - 35 barrier, higher resistance remains near 11,120, 11,250 and 11,400-25. A close above 11,450 would indicate a more complex bear market rally had developed. If you haven t received a sample of our work, we will be publishing our February issue this weekend. This is a good time to request a sample, by emailing us at mtr@fuse.net
TREASURIES
Treasury yields have backed up appreciably in the last two days, as the equity markets have rallied, and more influentially, after Greenspan testified before Congress that while the "downside risks predominate", that the economy was not in recession and should recover by year end. This confused traders and combined with record levels of recent corporate supplies rushed to the market, they swapped back out of the long end in favor of the less volatile short term maturities. Yields at the long end have become increasingly volatile as the bulls and bears play tug-o-war, as is often the case preceding a trend reversal as each side grapple s with news. The expectation that the Fed would soon cut rates by another 50 basis points was diminished by Greenspan s comments. This had already been built into prices, and the disappointment is now being taken back out.
The market has been range-bound, between the 5.35% January low and the 1/31, 5.69% high. To us, the volatility and reversal from last Friday s 5.369% low appears to be setting up a move higher, as it is a "higher low", as our "reciprocal" trading indicators such as Stochastics and RSI are turning bearish from overbought levels. A move above 5.70% would confirm that the trend is turning bearish (higher yields), while it will still take a push below resistance at 5.35% to prolong the bullish trend for lower yields. Our parameters remain set. Higher support is at 5.725%, 5.85%, 5.925%.& 6.00-6.05%. A move below 5.35% would make lower resistance at 5.25%, 5.175% and then 5.00% the next barriers. Even if this were to happen, we believe that contrary to popular opinion, bonds offer a poor overall risk/reward. This is why we remain BEARISH, even against lower yields!
GOLD
Gold & the XAU resumed their selling pressure, bringing gold below $260 per ounce for the first time since June of 1999, just ahead of the 8/98, low near $252 per ounce, when the XAU reached what at the time was an all time low of 48.67. The plunge was short lived then and we think it will be now too, as it appears to be in a final liquidation phase for its entire decline. While prices keep falling under the guise of forward selling manipulations, conditions that call for a strong bullish reversal continue to grow to levels that have always lead to very powerful bullish reversals in the past. Sentiment remains very low and short selling activity is pushing back towards old extremes of "wrong way" speculation, both should lead to powerful short covering to begin the rally. We have also received information in recent weeks that there have been three major trading firms that have been taking delivery as they close out some of their very heavy short interest. This indicates that they not only think the downside has been fully exploited, but that they think a very powerful rally will begin. We have had confirmation that Goldman Sachs is one of these firms, but have not yet heard about the other two. When we know, you ll know!
XAU resistance remains at the elusive 53-4 level and 55-6 level of resistance above that. Higher resistance is at 59, 64, and 69. Support is at 44, the 41.64 low and then 37-40. We still believe that any lower prices will be relatively short lived.
PORTFOLIO CHANGES
Friday, February 16, 2001: We still suggest buying Pennzoil (PZL) for our Income Portfolio, for its total return potential, on a dip BELOW 11.75. 2/15: America Online/Time Warner (AOL) moved slightly above our 50 level and we added this to our short sales at 50 1/8 yesterday. For the time being we are giving it plenty of room, with an initial stop/loss point at 59.25. [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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