Last Signal: 01/12/01, TRADING SELL
Dow: 10,525.38 OTC: 2626.50
Last week s blood bath on Wall Street finally broke our Reality Ratio line out of its neutral range of the past few months, dropping VERY close to a minimum oversold reading of -.40. This remained well in line with our expectations when we stated last week, "Our analysis still allowed for another drop toward oversold before we are willing to call for some sort of meaningful bounce." From the -.387 reached, we cannot rule this out. An overall upturn this week may confirm a new buy signal, so "heads up!"
FRIDAY, MARCH 23, 2001: Another week of Dow melting was reversed after what appeared to be another historical day yesterday, as the market recovered about three quarters of its 380 point intraday loss to close down ONLY 97.52 points. They were all over the air waves telling us this was the bottom of the bear market. While there s an excellent chance that this ended the short term capitulation, there is NO evidence that a long term bear market has ended. We were on alert for a short term bullish reversal on Tuesday, and yesterday s action was just what we were looking for.
Lead by the Nasdaq and in particular, chip and chip equipment makers, the markets followed by the end of the day, again reversing another day of devastating losses with a 280 point reversal from the low on the Dow, and at the highs of the day for many other averages. Near record volume clearly indicated capitulation as buyers came to the rescue, with 1.74 million shares trading on the NYSE. The Daily A/D Line indicated the same with close to 1:4, decline s over advancers. Many of our trading indicators reached levels that should finally be capable of producing a lasting, tradable rally. For instance, while the Long term McClellan Summation Index came down enough as of yesterday to signal a "sell alert", high pole, its shorter term trading component, the McClellan Oscillator was deeply oversold at -230. Both, our 10 and 30 day Trin charts also recorded the highest levels in my memory, telling us that selling has already used up a great deal of energy to reach these levels. The Option Volatility Index (VIX) reached a high of 41.99 intraday, finally spiking to an extreme enough level that would indicate extreme put buying among OEX option traders. While these DO NOT tell us anything for the long term, they do provide strong evidence that even within a bear market, a tradable rally opportunity has finally become probable.
Our Wave analysis has remained unchanged and highly effective, allowing us to capitalize on much of the market s movements. At yesterday s low, the Dow came within just 44 points, or less than 1/2% from our next lower Fibonnacci projection at 9062, published in our March issue of The Reality Check Newsletter that was out last week. We interpret the OTC Composite to have completed intermediate wave 5, within the larger primary wave (3) decline. If this remains correct, we should be within the primary wave (4) rally, with a final 5 wave decline still ahead to complete the larger 5th wave decline [(5)]. We also think the NYSE averages have "caught up" to the Nasdaq, as we correctly anticipated that it would begin to outperform in relative terms. They may now all be back in synch, to move more in line with each other for the time being. If we are correct that we are in wave (4) and not something more bullish, the Dow should NOT overlap the bottom of the minor wave 1 low, which was at 10,294. For the Dow, we are using this as the must hold resistance, at least to keep our preferred analysis from needing revision. For the OTC Composite, this level is near 3042, leaving loads of upside potential for a bounce in this most battered index. As stated on Tuesday, we think the OTC Composite has the potential to retrace at least back up to the 2500 level, with further potential toward 2800, still within primary wave (4) up. If this is correct, it allows for the best rally effort since the initial decline from the 5000.
With the Dow breaking sharply below its October 18, 9654 low, the Dow s BEAR MARKET WAS RE-CONFIRMED. In spite of the mindless dribble put out by the media that "the Dow is flirting with a bear market" simply because it is down 20%! This is nothing but a simplistic, misleading and incorrect definition of what a bear market is. Imagine how many have already been devastated already, while these "amateurs" keep spinning that we are still in the bull market of over a year ago! A bull market is a "process", in which the excess liquidity of a healthy, growing economy finds its way into the rising market until the process loses steam and finally ends. A bear market is the opposite, a cleansing, or reversal of the excesses created by the past expansion of liquidity. The key to the definition is that both are part of the "process". To define them based on a meager percentage is simple minded at the very least and it boils my blood that the media so vastly misleads their viewers.
Initial resistance is now near the broken support near 9654, with a range of between 9550 and 9710. Above this is minor resistance at 9,800, 10,000, 10,100 and 10,300. We think the markets should find sellers near the key levels (9700, 10,000 and in particular, 10,300). Support begins at yesterday s 9106 low, with more near 9062, 8850, and 8618.
TREASURIES
Treasury yields carved out a nominal new low at 5.217% with yesterday s desperation selling of equities, but it didn t hold into the close, as equities rebounded. We continue to see this as the end of the entire rally from the 1/00, 6.75% high. Supporting this view further, the yield chart is stretching itself far within the apex of a terminal, ending diagonal triangle. This strongly suggests that a bearish reversal is due at any time now. Tuesday s 50 basis point rate cut was what we had expected, a non-event for the long end of the bond spectrum, and old news by time the deed was done. We do NOT see the Fed as in control of the long end of the market, and foresee higher yields regardless of further cuts.
We see the intermediate wave "5" or "C" decline, within the primary degree wave (2) low as likely ending. Long term bonds offer a poor risk/reward at this time in our opinion, and we remain BEARISH even against lower yields.. A move above 5.40% would turn our short term P&F chart bearish, with a move above 5.70% needed to confirm a longer term bearish reversal, and that Primary Wave (3) of the long term BEAR market was underway, with higher support at 5.725%, 5.85%, 5.925%.& 6.00-6.05%. Next lower resistance remains at 5.24%, 5.175% and then 5.00%.
GOLD
Gold & the XAU have done little during this week s selling. At some point, money will rediscover this under-owned market sector as it is isolated as the one and only completely unexploited, under-owned, and under-valued investment category that is uniquely and available in ALL investment markets throughout the world. Gold "lease rates" that have been the topic of much conversation lately, remained firm near 3% yesterday, still much higher than the average of near .75%. This indicates that even with the light selling, underlying demand is still visible.
Technically, the XAU remains on a bearish HP formation, and gold itself has turned bearish again. While gold itself falls back, we would consider it a very bullish sign IF the XAU managed to hold above its previous low(s), as typically the XAU begins to firm up ahead of the metal and would be taken as a very bullish sign. This remains our conjecture for now, and so far we do not see this. In any event, great opportunity lies ahead, regardless of whether or not it makes a new low (below 41.61) or not.
XAU resistance now begins at the recent 57.42 high, with more at 59, 63-4, & 69-73. Initial support was raised to 50 on Friday, but should have actually been at 51 where it would be a bearish High Pole (HP) on our shorter term, (1X3) P&F Chart. Lower support remains 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 still see the exact opposite here!
PORTFOLIO CHANGES
Friday, March 23, 2001: 3/21: American Express (AXP) reached our 35 downside objective and was removed from the shorts for a +34.27% gain; We replaced this with a new short sale on Rowan Co s. (RDC) at 29 � with a 35 stop. This oil service company has bearish Relative Strength overall, and is on a bearish High Pole at the Bearish Resistance (HPBr); 3/22: Fluor Corp. (FLR) was stopped out at 40 yesterday for an outstanding gain of +78.77% during the overall market carnage! We also added a second position on Nortel (NT) yesterday at 17.345. We ll probably close the expensive position out after the 31 day Wash Sale Rule expires. Last, we re-added to our longs, the Nasdaq 100 Tracking Stock (QQQ) yesterday at 41, for a short term trade, with a stop at 39. In this way, we can participate in a trading rally without having to pick the right stocks or groups.
[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).
Copyright � 1998-2002 Tulips and Bears LLC.
All Rights Reserved. Republication of this material,
including posting to message boards or news groups,
without the prior written consent of Tulips and Bears LLC
is strictly prohibited. 'Tulips and Bears' is a registered trademark of
Tulips and Bears LLC
Last modified: April 01, 2001
Published By Tulips and Bears
LLC
