Last Signal: 01/12/01, TRADING SELL
Dow: 10,525.38 OTC: 2626.50
Last week's sharp downswing bro8ught the ratio down with it, reaching toward the oversold side of neutral. While the bulls are fighting it every step of the way, the market, and our indictors appear to have rolled over to end the seasonally bullish rally. Time will tell, but the Reality Ratio was not able to push beyond the neutral +.20 level on the upside, and it may soon be ready to challenge moving out of the neutral range, on the downside.
FRIDAY, MARCH 2, 2001: The markets have been almost all downhill after Monday's 200 point, Wayne Angell induced surge, as Greenspan provided his speculation with no confirming evidence that they (the Fed) were about to cut rates again between FOMC meetings. Perhaps Angell s careless talking up of the markets did more harm than good, as it placed even more attention on the Fed s LACK of action that it otherwise might have. While Mr Greenspan did testify that the economy remains very weak, and that another rate cut is likely, he stated that the weakness seen late last year has not been that bad this year, and that consumer confidence "seemed to be holding up reasonably well".
The market's were doomed again until late yesterday when bullish rumors started swirling that IBM was about to come out with some sort of good news, driving it 6 points higher, and bringing the markets into the black along with it. This was an outstanding illustration of how desperate the markets are for any excuse to believe "the worst is over", as IBM had just been downgraded by Smith Barney last Friday. We doubt this will be the case until this willingness to jump in ceases. IBM waited until after the market closed before they denied that ANY announcements were pending.
The Dow reached a low of 10,302, holding just 10 points above the well publicized key 10,292 support from the 11/30 low. before the IBM rumors brought the market back. The OTC Composite touched a low of 10,071 before bouncing back to close at 2182.81 for the day. We had started looking for an upside reversal yesterday, covering our Nasdaq 100 related short sale (QQQ) at 3:58 pm on Wednesday, taking a long position yesterday morning, after the market s lower opening, as even in this bear market prices do get ahead of themselves. Our Elliott Wave analysis of the Nasdaq 100 (NDX) called for this reversal, as we think it ended intermediate wave 5, within the larger primary wave (3) decline. If this is correct, we anticipate a bounce to take the NDX back up to AT LEAST between 2100 and 2200, with the potential to push even higher, toward 2800 within primary degree wave (4). A strong rally ahead would still leave one last 5 wave decline ahead to complete the entire"(5)" wave primary degree decline. If prices resume their decline, it may prove to be an extended 5th of the decline that is already in progress, so we may decide to cover more shorts into additional weakness!! Technically, we began to notice some developing bullish divergences in some of our NDX and QQQ trading indicators, such as "higher lows" on daily Stochastics and Rate of Change (ROC) indicators, plus Daily RSI dropped below the 30% oversold level that generally warns of an upside reversal. We also see within the new NDX Option Volatility Index (VXN) that it was pushing very close to a reading of 80, where from the data we have, a move above 70 already indicates excessive Nasdaq put buying. This tells us that even with a bit more weakness, that a bigger bounce is now becoming due.
While we are not sure how much upside to expect for now, we do not see ANY reason for the Dow to revisit resistance at 11,028 again. Lower Dow resistance is found at 10,680 to 10,740, with stronger resistance a bit higher, near 10,800. A bounce toward this level may ultimately prove to be within minor wave "C" of a larger corrective flat that began from the 2/23, 10,294 low. We must warn that any break of this level has great potential to usher in PANIC selling, as we surmise this to be where many stop/loss orders have been placed. Lower support is near 10,050, and then down to the 10/18, 9654 low.
TREASURIES
Treasury yields followed through to reach a low of 5.268% yesterday, on money flows away from equities. This confirmed our alternative wave count that allowed for one last thrust lower to complete 5 waves down, within the larger, intermediate wave "C", of the primary degree wave (2) low. As we ve been saying, "the more bullish alternative would simply buy the markets a bit more time before yields head higher& (this) would take the yield below 5.35% at a minimum. While this too would clear up the current wave uncertainty, we would be back on the same alert for a bearish upside reversal." We continue to warn that long term bonds offer a poor risk/reward at this time, and it is why we have remained BEARISH even against lower yields.." An upside reversal to 5.425% would now provide a "sell alert" warning on our short term P&F yield chart, with a move above 5.55% would confirm that a more substantially bearish trend reversal.
We see a few other, less immediate signs of caution for bonds, within the clear distribution pattern among the Dow Utilities, as sellers now emerge into their strength to lower highs, and a new development, our long term bond timing indicator, the Dow Jones, 20 Bond Average moved to a long term "High Pole at the Bearish Resistance Line" (HPBr) yesterday. This occurred on our long term Point & Figure (P&F) chart, after it had first reached where the long term broken bullish resistance line (uptrend line drawn from the 10/87 panic low) intersected with the long term bearish resistance line (drawn from its 11/98 top), and then turned down. It is very common for a retracement rally to come back to test the underbelly of a broken uptrend line before turning lower again, especially when it intersects with the bearish downtrend line. The 20 Bond Average also retraced almost an exact Fibonnacci .618 level at its recent 2/16, 101.43 high [101.88 = 61.8% retracement]. While this indicator had remained bullish since 5/00, catching a good portion of the bond rally of the past year or so, it is now telling us to become cautious, which we have!
While a short term push above 5.55% would now turn our short term P&F chart bearish, a move above 5.70% is needed to confirm a bearish reversal for our longer term P&F chart, with higher support is at 5.65%, 5.725%, 5.85%, 5.925%.& 6.00-6.05%. Next lower resistance remains at 5.25%, 5.175% and then 5.00%.
GOLD
Gold & the XAU have been consolidating their recent gains, giving back some of their recent gains, but not enough to draw any conclusions from. Investors Intelligence reported on Wednesday that their precious metals bullish percentage indicator moved up to 40%, remaining in "bull confirmed" status, and still far from an overbought reading above 70%. Individually, ASA Ltd. And Homestake Mines turned bullish, within our own universe of gold stocks, and several others are getting close to buy signals. This tells us that more upside can be expected. Conditions for this remain excellent.
While we remain encouraged, the XAU has yet to overcome resistance between 54 and 56. 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 the 2/15, 45.64 low, the 7/14, 41.61 low and then 37-40. In contrast to the poor risk/reward we see for bonds, we see the exact opposite here!
PORTFOLIO CHANGES
Tuesday, February 27, 2001: We are temporarily lifting our effort to buy Pennzoil (PZL) on a dip. We may come back to it shortly, but for now, it moved away from us. If you already have it, hold it. 2/27: removed Triton Energy (OIL) 22 7/8, after it broke support; 2/28: bought to cover QQQ, 47 � (+30.15%); [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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