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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 6, 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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FRIDAY APRIL 6, 2001: Like the return of the once famed "Blue Light Special," the markets roared yesterday for one of the best single day performances in history, as bargain hunting turned into a mad dash to spend cash! The gains were quite impressive, the market breadth was equally impressive and the spark was very arguably in itself far from impressive enough to be responsible for the majority of the 400 point Dow, or 146 point OTC gains. More likely, positive comments by Dell Computer, better than expected earnings for cyclical Dow component, Alicia, and a Lehman Brothers upgrade of Yahoo were the catalysts for investors who were desperate for ANY news that would show light at the end of the tunnel. Even if the light was a "Blue One"!
Tuesday s bullish comment, "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," was clearly an understatement! While the media is still debating whether or not the market s even "reached bear market proportions", investors stopped anguishing over the semantics and made a mad dash for the order desk. Yesterday s near record one day gains were solidified by very impressive breadth and volume figures. The NYSE showed 23 stocks rising for every 7 that were down, and up volume outpaced down volume be a margin of 7 to 1. While this type of strength is not untypical during bear market rallies, the deep oversold entrenchment of prices combined with at least some sense of despair indicates to us that even within the bear market, higher prices likely remain ahead in the near term.
The bullish reversal clarified our Wave analysis be reconfirming to us where we thought it was in the first place, that we remain within intermediate wave 4 up, and that the early week selling was within a minor wave "B" decline. This still left a minor "C" wave rally to complete wave 4 [of cycle degree (3)]. This is likely where the market is at this time, leaving room on the upside ahead of another leg down to complete the intermediate wave 5 decline [still within larger, cycle degree wave (3)]. If our assessment remains on track, this would still allow for a larger degree wave (4) rally and then the final downside blowoff, within cycle degree wave (5), from the 11,750 Dow high. Perhaps under this forecast it would lead to a traditional summer rally.
A Dow push above 10,300 on a closing basis would alter this a bit, making it more likely that larger, cycle degree wave (4) was already well underway. This would still make one last minor 5 wave decline to a lower low likely ahead of the prospects for a summer rally. Major resistance above that is at the 50 and 200 day moving averages, at 10,400 and 10,600 respectively. We don t think we will get through these higher levels, and we will leave it at that for the moment. Support begins near 9840, which would be a high pole, sell alert on our 20X60, P&F chart. More critical short term support is on the larger, 50X150 P&F chart, which would reverse to a "high pole at the bearish line by dropping back to 9600 on the hourly chart. We will use this level as an overall stop/loss point for the current rally, as a drop back to this level would strongly raise the odds that the rally was over. Lower support is found near 9500, 9380 and at the 3/22, 9106 low. Longer term, lower support remains near 9062, 8850, and 8618. A break of this level would confirm that the 5th wave of decline was in progress (of which degree is yet to be determined). Next minor resistance is near 10,000 and 10,100-40.
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TREASURIES
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| Treasury yields continued higher to reach their highest level yet, yesterday, perhaps as less of a safety premium was desired by investors who were anxious to join the race to buy stocks again. The yield reached 5.53% just ahead of the close, and remain on a short term sell signal and near next support, near 5.55%. A bounce is not out of the question, but we don t think it s likely that the rally will resume in any great way, and we do NOT see the yield making any new downward progress, beyond the 5.24% low. Resistance begins near the original break down point, at 5.40%, and then at the 5.24% low. Support at 5.70-.725% is now the critical level. A break of this level would confirm 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 have been consolidating their recent losses in the past few days, but we still expect lower prices in the coming weeks. The futures appear to have broken support near $260 per ounce, which was the neckline of the right shoulder of a head and shoulders pattern that can be measured to a projection near $240. We don t see this as the end of the world that glitters, and indeed we think the light at the end of the tunnel is that once this current decline ends, that a very significant, long lasting bear market bottom will be at hand.
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. We hope and think that great opportunity lies ahead! 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, April 6, 2001: 4/3: Compaq (CPQ) hit the 17 3/8 stop (-23.63%); AOL reached our 35 downside price objective (PO) and was removed at 34 (+32.17%); as did Smith International (SII) at 65 (+16.79%); 4/4: Outback Steak House (OSI) was added to our large cap portfolio at 24.40, after it had a "Bear Trap" (BRTrp) upside reversal and has been basing well since 10/99; Also (re-) added to our longs were the Nasdaq 100 tracking shares (QQQ) at 35. 4/5: Perhaps we re getting too hoggish, but we ve liked the action of the chip makers and added KLA Instruments (KLAC) in particular, adding it yesterday near the open at 36 �; and Adobe Systems (ADBE) at 32.80. While this brings our long invested position WAY up, we may sell equally as fast if the rally shows unimpressive follow-through. Our indicators turned bullish, the markets have shown an extended period of capitulated selling, and we concluded it that perhaps it was time to get AGGRESSIVE, especially in the mid-cap area of the market!
[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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