Last Signal: 01/12/01, TRADING SELL
Dow: 10,525.38 OTC: 2626.50
The ratio proceeded to move lower last week to break DOWN out of its trading range between - and + .20, toward, but not yet reaching the minimum -.40 oversold level. It is however, low enough to signal a trading rally in the event that it turns higher this week. It would still be unlikely to be more than that, with the ratio line and in particular, the moving average lines still coming down from overbought levels. These remain in position to fall further, even if a rally temporarily interrupts the selling. We think buying will simply offer traders an opportunity to re-energize their selling activities.
TUESDAY, March 6, 2001: The markets have been attempting a technical bounce since Friday, but the Nasdaq has still been having its trouble keeping up, as the warnings continue. As a matter of fact, this week marks the beginning of Q2 s "pre-warning season", with Oracle, Gap Stores, Novellus, Xilinx and HJ Heinz leading off with their disappointments. Even with that, The semi-conductor group was strong yesterday, indicating that the bad news has been somewhat priced in.
The Dow has so far bounced over 100 points after failing again to break down below key support from the 11/30, 10,292 low (for at least the 5th time now). The Nasdaq has yet to show a net gain for the last few days, but as stated on Friday, we think it too is due for a trading rally. Our Elliott Wave analysis of the Nasdaq 100 (NDX) called for a reversal, as we think intermediate wave 5, within the larger primary wave (3) decline is ending. 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 would still leave one last 5 wave decline ahead to complete the entire primary wave "(5)" decline. We are considering further OTC weakness as an extension of the 5th wave of decline. Technically, the bullish divergences that we mentioned on Friday in some of our NDX and QQQ trading indicators, continue to act well, indicating that an upturn is likely to last for a while, and we are taking heed, not wanting to either get caught short in an updraft, or appearing to be inflexibly bearish. While a bounce may not last too long, we look for lower risk trading opportunities and we think (hope) one is upon us. If this pans out, its quality may determine how long it may last, and how soon we will switch back to our bearish expectations.
Also stated on Friday, we see no reason for the Dow to revisit resistance at 11,028 again, but under NO circumstances should it move above this important barrier of resistance if our longer term bearish analysis remains unchallenged. A push above 10,700 would confirm the rally, but this doesn t leave much room before challenging the key, 11,028 resistance level again. Stronger resistance is 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. Any break of this support 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. One way or the other, this trading range is going to be resolved. We see no reason why it should be on the upside.
TREASURIES
Treasury yields reversed sharply higher on Friday after Thursday s new low of 5.268% was reached, fulfilling the minimum requirement on our yield chart and within our analysis 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." We think this simply bought the markets a bit more time ahead of our expectation for the trend to reverse higher. We remain on high alert for a bearish upside reversal, which may have started with Friday s sharp 1 point + "price" decline. The long term bond offers a poor risk/reward at this time in our opinion, and we remain BEARISH even against lower yields.." An upside reversal to 5.425% would now provide a High Pole "sell alert" warning on our short term P&F yield chart, with a move above 5.55% confirm a more substantially bearish trend reversal. A move above 5.70% would confirm a longer term bearish reversal, with higher support 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 pushed ahead after a brief consolidation of their recent gains, closing just beneath resistance at 54 on the XAU chart. Simply put, even if their overall bear market remains in force, the shorter term rally is poised for further gains. Our indicators, such as the Investors Intelligence, Precious Metals Bullish percentage remains in bull confirmed status, sentiment remains near levels that suggest the end of a bear market, and our flash indicator, the XAU/Gold ratio is bullish and recently broke ABOVE its bearish downtrend line that was drawn from its 9/99 high. While bullish, the XAU has yet to overcome resistance between 54 and 56. Higher resistance is at 59, 64, and 69. We are raising support to 59, where it would be a bearish High Pole (HP) on our shorter term, (1X3) P&F Chart, with lower support still 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, March 6, 2001: 3/2: We added to our longs, the QQQ s at 46 �, to attempt to catch the quick trading rally we are looking for. Initially, we are looking for an initial trading move to resistance near 52, or so, with higher resistance at 55 and then 60. With the low at 45 �, we are limiting our risk to 45. We also covered our short on Novellus (NVLS) on Friday at 39 7/8, for a modest but quick (+11%) gain, after a Goldman Sachs downgrade failed to usher in the sellers. [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
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