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REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL-JANUARY
2001 |
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Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
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April 3, 2001 |
| STOCKS |
| REALITY RATIO: -0.065
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Last Signal: 03/23/01, TRADING BUY
Dow: 9,504.78 OTC: 2626.50
The Reality Ratio came back strong from last week s plunge deep into an oversold reading of better than -.48, and a trading buy signal. The volatility should not be a surprise as we strongly suspect the buy is well within the confinement of a bear market rally, choppy and lacking of any real bullish conviction. Buy signals in a primary bear market should be treated as opportunities to reposition ahead of the next decline.
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TUESDAY, April 3, 2001: Yesterday s price decline may still be well within the quarterly period of window dressing, as portfolio managers continue to re-align their holdings to reflect their hopes for the coming weeks and months. The additional uncertainty over the US spy plane that was forced to land in China is not helping the markets any, either in the political sense or economically, as the US hold high hopes for free and open trade there in the future. Of course, we care a lot more about this than they do. Some analysts are beginning to talk about a "summer rally" to begin from near current levels, which would be some REAL forward thinking, as we are only about one week into spring! The markets are reacting negatively to yesterday s unexpected rise in the NAPM, showing relative strength among the nation s purchasing managers. It s funny that we thought the market was in decline because of the economic plunge, yet, signs of strength are greeted with equal contempt.
The volatility certainly has made market analysis difficult, but we maintain our recent opinion that overall, the risk for the near term is in remaining too bearish. Even in the event that the decline has not yet reached the end of its current capitulation phase, we think we will see "modestly" higher prices before we should see much lower prices. Lots of the currently horrible news has already been reflected in the market, at least for the time being. With the beginning of the earnings pre-warning season at hand, we wonder HOW additional lower earnings adjustments can come as a surprise to anyone who cares. The economic slowdown has already set back corporate profits for the first time in two years, by -4.3% and only the second time in the past seven or eight years, since the economy recovered after the Gulf War, that corporate profits were lower than they were three months earlier.
Our Wave analysis has become a bit clouded with yesterday s sharp reversal that came very close to a bearish outside day, as the Dow rallied early to a new recovery high, turned down to fall below Friday s low, before bouncing just enough to close above Friday s low. A close below Friday s low would have done it, but it was saved by the bell. The second part of the minor 4th wave up (minor wave C of 4) was very shallow and contained, so far failing to penetrate resistance near 10,000. While it still may, it has minimally fulfilled our expectations within the fourth wave bounce. Another new low would likely complete the end of primary wave (3) of the overall decline. If another minor 5 wave decline takes the averages to new lows, we may then see the best rally since the rebound from the 10/19, 9654 low that lasted well into January. Perhaps in hindsight, this will be just ahead of an early summer rally.
The Dow s bounce stretched to a high at 9992.53 yesterday before turning down. So far, the selling has been somewhat measured, and we still see the potential for further upside retracement, against support at the 9540 level. Next resistance is near 10,000, 10,100, and then essentially at 10,300 barrier that should not be penetrated. Support is rising, and now begins near yesterday s 9687 low, then 9540, 9340 and at last Thursday s 9106 low. Longer term lower support is found near 9062, 8850, and 8618.
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TREASURIES
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Treasury yields have remained under selling pressure after last week s major Buying Climax (BC) and have reversed higher to confirm the initial sell signal we had been cautioning about, by breaking back above support at 5.40%. Here, the market is not confused by the release of the latest economic reports, selling off on news the economy is not plunging as fast as thought. Bond yields carved out their highest close yesterday since reaching 5.50% on 2/26, again, after the release of the stronger than expected NAPM report. The weakness seen in this economic report in recent months has remained a main culprit for the market s strength until recently, and a rebound in manufacturing would certainly work against bonds. Perhaps this has been the message of the markets that we saw coming.
There should still be strong support just above current levels, with the downtrend line drawn from the 1/00, 6.75% high near 5.53%. A close above this important line will provide additional confirmation that the overall trend for interest rates has turned HIGHER, even as the Fed continues to lower short term rates.
Our wave analysis suggests that the intermediate wave "5" or "C" decline, within the primary degree wave (2) low has likely ended, and are now very early within primary wave (3) of the larger bear market. This is how we have determined that long term bonds offer a poor risk/reward in our opinion, and we remain BEARISH. A move above 5.40% turned our short term P&F chart bearish. A move above 5.70% would confirm a longer term bearish reversal, and that Primary Wave (3) of the long term BEAR market was underway. This may certainly take its time. Higher support is near 5.725%, 5.85%, 5.925%.& 6.00-6.05%. Resistance now begins at 5.37 - 30% (gap resistance), the 5.217% low reached last week, 5.175% and then 5.00%. |
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GOLD
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Gold & the XAU continued their decline in recent days, even as tensions are quickly heating up between the US and China, over a sophisticated US spy plane was forced to land after colliding with a Chinese fighter jet. The Chinese are playing their typical resistance to international law and cooperation, more concerned over who s to blame than being "politically correct". They are holding 24 US crew members and have NOT indicated they would respect the US property by not ransacking the sophisticated, top secret contents. Any violation of this US property could be viewed as an act of war, even if it doesn t come to it. We have warned on many occasions that we do NOT see the Chinese as emerging as our buddies, and should not treat them that way when crafting our trade policies. This is evidence that they couldn t care less about western laws and will continue to take complete advantage of our own warped sense of "morality", when it comes to our own interests. Because we have this warped sense of "playing fair", I don t think we can beat them, because they have NEVER played by our rules, and may never do so.
In a sense, it is surprising that gold prices are falling into this potentially explosive situation, but as we ve been saying, we think gold is accelerating its decline to complete the entire bear market of the past 20 or so years. If this event is not resolved quickly, the potential for a bullish reversal will increase as lower prices are carved out. We still see further downside within the minor wave structures for both the gold and the stocks, but we are watching closely and waiting for better signs of a bottom.
Technically, the XAU remains on a bearish HP formation, and gold itself is bearish again. While it 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). XAU resistance begins at 53-4, with more at the recent 57.42 high, 59, 63-4, & 69-73. Next support is at the 2/14, 45.64 low, the 7/14, 41.61 low, and then at 37-40. In contrast to the poor risk/reward we see for bonds, we still see the exact opposite here!
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PORTFOLIO CHANGES |
| Friday, March 30, 2001: 3/29: QQQ s hit the 39 stop for a 2 point/-4.88% loss. [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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