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.
FRIDAY, March 9, 2001: We are seeing a protracted dichotomy between the tech heavy Nasdaq, which has quickly found sellers again after a feeble, three day rally effort, and the cyclically heavy Dow Industrials, which have surged almost 400 points this week alone, remaining well within its established trading range. It s not enough to buy into the tech stock decline, just because they are down so much, as even when buying into their dispair, they can still decline dramatically from these depressed levels. This is the lesson that many are learning now, as selling emerges on ever attempted recovery.
Once again, the OTC rally is poring short lived, with its failure to even challenge its initial level of resistance before turning lower again yesterday. Admittedly, we did think it would at least reach that minimal barrier before turning lower again, but so far, it looks as if even that was too much to expect, with yesterday s disappointing announcement by Yahoo, and then after the close, the BIG news that Intel was issuing its "third consecutive sales warning, saying that first-quarter sales would fall as much as 25 percent from the previous quarter." On top of that, Cisco Systems announced this morning that they would cut 5% off their payrolls! Attempting to second guess a market bottom has not been a very wise diversion away from the reality that the NAZ has had no problem finding new sellers on this and every other recent attempt to recover. In contrast, money has plowed into the heavier weighted cyclical components within the Dow Industrials, driving it almost 400 points higher this week alone. It didn t get hurt any by Wednesday s "upgrade" by perma-bull Abby Joseph Cohen, of Goldman Sachs, talking the market higher by increasing their equity weighting from 65 to 70%, bringing their cash holdings to near zero! So far, the markets haven t sustained their gains by this "talking up" strategy, as it has repelled all bullish talk. We think that before conditions become optimal for a more sustained rebound, one or more of these perennial bulls will have capitulated by turning bearish, and there is no sign of this happening yet.
The OTC reached a high of 2243 yesterday before turning lower, with the initial resistance we spoke of above at 2300. The Dow has pushed to a closing high yesterday at 10,858, the lower end of resistance ahead of the 11,028 key level. For the Dow, the rally appears to have been tracing out a simple "corrective" flat that should in NO WAY manage to break out above the upper barrier. The bounce has certainly relieved the much talked about "oversold" condition that was evident last week. A downturn here will have strong potential to test the key support that has lasted on at least five occasions since last November 30, at the 10,292. A break of this level will very likely usher in a cascade of new selling, as many, many institutions has their stop losses set just beneath that level. Support for the Nasdaq is at the 3/1, 2071 intraday low (from last Thursday). The potential
While we were right on top of calling the last upturn, especially on the Nasdaq, there is little if any way to determine its strength or longevity in a bear market, because they generally fall short of even less optimistic expectations. This is the exact opposite of during bull market s, when the gains remain extended and the corrections are disappointing and shallow. The bear keeps people hoping for "just a little more" before selling, where the bull keeps "buyers" hoping for "just a little less" before buying. By their nature, both keep the majority from taking action, locking them into lower lows and added disappointment, and locking them out for the higher highs, and disappointment.
From last Friday, our Elliott Wave analysis of the Nasdaq 100 (NDX) remains in tact, which 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 23-400 within primary degree wave (4) (we mistakenly wrote "2800" on Tuesday). A strong rally would still leave one last 5 wave decline ahead to complete the entire primary wave "(5)" decline.
TREASURIES
Treasury yields continue to be a big beneficiary of the fickle trading money that can t decide on whether to stay in or out of equities. The yield declined again yesterday, toward last Thursday s new low of 5.268%. Still, we remain very cautious on bonds, as we think they are already pricing in quite a bit of the economy s weakness and the Fed s resolve to re-ignite the economy s "growth through easy credit terms", for already over-indulged consumers who are not keeping up with their minimum payments, regardless of the level of interest rates! We think that further lower long bond rates would simply be an extension of the 5th wave within the larger, intermediate wave "C", of the primary degree wave (2) low." If we are correct on this, it is also the most likely point for volatility to increase between those who want to take advantage of their paper gains, and those who are convinced (at the top of the market) that the rally will continue. The long term bond offers a poor risk/reward at this time in our opinion, and we remain BEARISH even against lower yields.." With yesterday s bullish reversal, a rise above 5.40% would confirm a new sell signal on our shorter term P&F chart. 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 was ignited yesterday, strong short covering in the futures, which gained close to $6.00 in the past two sessions! Some of the trading rumors we ve heard in recent days is that several large central bank gold loans have come due and they are not being renewed. This is creating a liquidity squeeze and a scramble to find the needed gold that forward sellers must buy back in order to close out their short sales, in order to pay back the central bank lenders. This has forced dramatically higher one month lease rates (paid by the short sellers who borrow gold from the central bankers so they can in turn sell it into the market). This rate, normally as low as .25-.5% has recently been as high as 4-5%, and perhaps even higher after yesterdays big price surge!
The XAU also climbed sharply higher yesterday, closing at 56.75, its highest level since last July 3rd (7/3/00), when it was in its steep downtrend. Yesterdays high was what we consider to be a significant short to intermediate term breakout above the top of the range of resistance we ve been siting, seemingly forever. This was also a break out above the neckline of a very impressive "Head & Shoulders Bottom", which measures a move to just under 70. Our gold P&F charts also turned bullish and we can project a move to $292 on our HSBC cash gold charts. As stated on Tuesday, "Simply put, even if their overall bear market remains in force, the shorter term rally is poised for further gains." Regardless of whether or not this is the beginning of the new, long term "secular" bull market that we have discussed on many occasions, what is important is that for now, the trend has turned bullish!
Higher resistance is at 59, 63-4, & 69-73. We are raising support to 50, 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: While we are long the Nasdaq 100 Tracking stock (QQQ) at 47, we want to reiterate that we are using a tight 45 stop, and by the look of it, this may be reached this morning on the bad news on INTC. [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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