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.
TUESDAY, February 20, 2001: [This is a short update due to the holiday shortened trading]. Thursday s strong gains were not repeated during Friday s option expiration trading, as the markets took new body shots from the unexpected rise of +1.1% in the Producer Price Index (PPI), the biggest one month gain in over 10 years! Also hurting equities, housing starts were up +5.3%, building permits gained 12.6% and the University of Michigan s Sentiment was 87.8, the worst since 1993, and declining future expectations seems to be feeding on itself. Also negatively surprising the markets, George W must have already become bored with his new job, because he decided to knock out some Iraqi radar sights, sending up over twenty aircraft.
First Call estimated that earnings would decline by -18% in Q1, -15% in Q2, -3% in Q3, and +21% in Q4. CNBC reported that their had already been 294 OTC warnings this year, versus just 37 a year ago. We perceive this to indicate that at the peak of expectations, they were so high that earnings disappointments are not through being adjusted downward! The other self-perpetuating market and economic weaknesses are quite likely to remain like the black plague for our markets! The Dow closed right at 10,800 after touching an intraday low of 10,722. This now becomes next initial support, with lower support near 10,600, and then 10,500-470. A close below this would confirm the increased likelihood that prices were on their way to a new low below the 10/19, 9654 level. The Nasdaq also closed just above support near 2380, reaching an intraday low of 2397. Here, a close below 2300 would point to a test of the low, where a push above initial resistance near 2600 would be a (temporary?) reprieve. We still see at least one more push lower is needed before we can even see the achievement of Nasdaq s "minimum" downside potential. Lower support is at 2100, and then 2000.
TREASURIES
Treasury yields appear to us to be completed the secondary low of primary degree wave (2), which should ultimately lead to much higher yields, regardless of current Fed policy. A push below the January, 5.35% low is needed to postpone this as what we believe to be its inevitability. A rise above 5.65% would break the downtrend line that has defined the entire rally from the 1/00, 6.75% high (on the inverted yield chart). This would confirm the end of the 12 month plus Treasury rally. Our "Reciprocal" Daily trading indicators are turning higher, which does not bode well for the bulls in the near term.
A move above 5.70% would also confirm that the trend is turning bearish (higher yields) on our short term P&F chart, so as we ve been stating for a while already, our reading on the market dictates caution. Our parameters remain set. Higher support is at 5.65%, 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 managed to bounce on Friday, but not hardly enough to suggest that the trend is ready to reverse higher. We do think that if a trading rally is about to take place, it needs to begin almost right away. Major support is just beneath Thursday s low at the 8/99, $252 per ounce low, and a bit lower, to the 10/00, 41.64 low. 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
Tuesday, February 20, 2001: We still suggest buying Pennzoil (PZL) for our Income Portfolio, for its total return potential, on a dip BELOW 11.75, but we may grow impatient and do it soon. [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 .
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