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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 10, 2001 |
| STOCKS |
| REALITY RATIO: -0.129
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Last Signal: 03/23/01, TRADING BUY
Dow: 9,504.78 OTC: 2626.50
The Reality Ratio dipped very slightly from -.065 last week, in itself telling us nothing. More significantly for the week, both the shorter and longer term moving averages turned up, with the short term average moving slightly above the slower, long term average. This technically is a buy confirmation. While we think the greater risk is in remaining too bearish, our Elliott Wave Analysis still suggests that one more low lies ahead in the very near future.
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TUESDAY, April 10, 2001: The markets took advantage of yesterday s slow, post Passover holiday trading to go higher on the relatively light volume, barely making it over a 1 billion shares for the day. We had expected the rally to continue a bit further and we think that further gains will attract a new round of sellers in the very near future.
Markets found some modest inspiration from Dallas Fed President Robert McTeer, who said on CNBC that an inter-meeting rate cut has not been ruled out and that the Fed prefers to "front load" policy in order to calm economic swings (in contrast to Fed Chairman Greenspan s recent testimony that he prefers to make changes at FOMC meetings). We think it more likely that they act again after their next meeting on May 15. We need to STRONGLY point out that the Fed has already made three very aggressive, condensed half point cuts this year that have been completely ineffectual in helping the stock markets. We think another rate cut will have about the same impact, little to nothing after the initial news reaction.
Between the Passover and Easter Holidays this week, with the markets closed for Good Friday, we think trading will remain modest for the entire week. This may be an opportunity for the bulls to bring prices up closer to our upside expectations, of above 10,200, but below 10,300, before the sellers re-emerge. This would continue within the minor "C" wave rally to complete wave 4 [of cycle degree (3)], as outlined on Friday. As stated, this still "leaves 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.
Next significant short term resistance is near 10,000. A push above 10,300 on a closing basis would alter our expectations a bit, making it more likely that a larger, more complex cycle degree wave (4) was continuing, still ahead of the 5th wave decline. 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. Short term, support at 9840 was violated yesterday, placing our 20X60 P&F chart on a high pole, sell alert. Next support is at 9700, with more critical support on our larger, 50X150 P&F chart now moved up to 9650, which would be a sell signal. More critical support is at 9400, which would now be a sell on this longer term chart, and will serve as our stop loss point until it changes again. Lower support is found near 9500, 9380 and at the 3/22, 9106 low.
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TREASURIES
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Treasury yields continue to appear to have bottomed, ending the rally that began from last January s (1/00) 6.75% high. Believe it or not, if this assumption is correct, it will ultimately lead to an even higher rate in the coming months, within cycle degree wave "(3)" of the longer term bear market that we think bonds have been in since the yield reached a 4.69% in 10/98. This may partially explain how the yield is rising against the Fed s aggressive short term rate cuts, as the yield curve reverts proportionately steeper, from its inversion last year. You may recall that at that time, we were noting it as one of the best indicators of an economic slowdown, and perhaps a recession.
Treasuries remain on their short term sell signal by rising above the support at 5.40%. The market is getting a bit oversold, but ultimately, a push above longer term support near 5.70% would confirm that the better than one year rally was over. Next support is 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. Again, next significant support is at the now critical, 5.70-.725% level. A push above this 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 has also remained flat, with no sign of a pickup in demand, and no one wanting to sell into what "may" be a successful test of support, just beneath the $260 level. We continue to think that while further decline probably lie ahead, they may be relatively short lived, and offer the best buying opportunity yet, as there are growing signs emerging that the gold markets our entering the twilight hours of its 20 year bear market. Both, the decline and then reversal may be seeking catalysts to get the ball moving. The futures haven t done much after recently breaking 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, as we ve been pointing out what we see as the light at the end of the tunnel that once this current decline ends, 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 |
| Tuesday, April 10, 2001: --
None Today! -- [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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