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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 17, 2001 |
| STOCKS |
| REALITY RATIO: +0.161
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Last Signal: 03/23/01, TRADING BUY
Dow: 9,504.78 OTC: 1928.98
The Reality Ratio moved ahead with last week s market strength, pushing toward the upper end of neutral. The short term moving average has pushed well above the slower one, and remains bullish. A renewed market downturn may bring it back down, but we suspect that our main timing indicator is in position to hold above its recent low, creating a bullish divergence against any price lows that may still lie ahead in coming weeks.
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TUESDAY, April 17, 2001: Lower earnings and diminishing hopes for another rate cut at the 5/15 FOMC meeting has brought the sellers back in, for both stocks AND bonds! We have suspected that a reversal was due for the equities markets and we see more evidence that it is here. We still firmly believe that new lows lie directly ahead, at least for the S&P and DJIA. We are not as sure about that for the OTC markets, as we think they have already completed their 5th wave of decline, and a downturn here may hold above its 4/4,1619.58 low, in a wave "B" decline that still would allow for another rally within wave "C" ahead, that should take the NAZ above its pre-Easter weekend, 1961.57 high, perhaps toward higher resistance near 10,200 - 40.
The Dow appears to have completed a 3 wave, counter-trend rally that has failed for the second time to punch through 10,200. Our analysis had allowed for a .618, Fibonnacci retracement to 10,298 [11,035 wave 2 high - 9106 wave 3 low = 1928 X .618 = 1192 + 9106 = 10,298], but this was what we thought was the MAXIMUM level the Dow could have retraced within our current wave analysis. We are labeling yesterday s 10,184.65 high minor wave "4", that still allows for a 5th wave of decline to another new low, to complete the larger, wave (3) of the cycle degree bear market. This would still allow for a larger (4th) wave rally and then a final decline to complete the (5th) wave of cycle degree. We expect this to ultimately take the Dow "well below" the 9000 level. Perhaps within this forecast it will bottom to set the stage for a traditional summer rally.
We are BEARISH against major resistance near 10,294, which was at the minor wave "1" low. Because Elliott s rules do not allow a wave 4 rally to overlap its wave 1 low, ANY push above this would force us to re-examine our current wave count. Prices also remain firmly below the Dow s 50 and 200 day moving averages, now at 10,300 and below 10,600 respectively. We don t think prices will even challenge these higher levels, and we are keeping it at that. Short term, support is down to 9700. A close below this would increase the odds that the expected decline was underway.
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TREASURIES
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Treasury yields soared yesterday `` hoping for some sort of guidance in terms of Fed policy. They've been reducing expectations that the Fed might cut (rates) inter-meeting. So they'll look to today's numbers to see if that might revive any of those expectations,'' said Kim Rupert, a market analyst at Standard & Poor's MMS. Various Fed Governors from around the country s 12 Federal Reserve Banks remain confident that the economy will do much better during the second half of the year. This may be taken as their telegraphing that the markets should not expect the continued aggressive rate cutting that we had in the first quarter. We continue to expect one more rate cut out of the next FOMC meeting on May 15, but this may also be a less aggressive .25% cut, instead of the foregone conclusion that it will be the 4th .50% cut for the year.
Yesterday s selloff brought the yield to a closing high of 5.70%, just enough for a sell signal on our longer term P&F Chart, which we have been warning about. We see this as confirmation that the bond rally that has lasted since the 1/00 6.75% high has ended, and should ultimately lead to much higher rates in coming months. Our analysis labels the 3/22, 5.217% low as cycle degree wave "(3)" of the longer term bear 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 of last year. We noted at that time that this was one of the best indicators of an economic slowdown, and perhaps a recession. A recession will likely not be declared until we are well into it, when it has become undeniable even to the most blindly optimistic.
The market continues to look a bit oversold, making a bounce increasingly likely. Resistance begins near 5.55-50%, then 5.40%, 5.37-30%, and the 5.24-.217% low(s). Support remains at the upper part of current support, at the 5.725% level. While primary wave (3) of the long term BEAR market has been confirmed, higher support is near 5.85%, 5.925%.& 6.00-6.05%. |
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GOLD
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Gold & the XAU has surprisingly remained firm, pushing $4.30 per ounce higher yesterday, after the release of last week s very heavy net short open interest in the futures market of 180.8 tonnes, a gain of 21 tonnes over the previous week. It appears that traders are not ignoring this important data as they had for most of the past 2-3 years, at least as it may be related to short covering ahead of this week s expiration of April options and May futures, which settled yesterday at $263.50.
Perhaps with the futures now settled and roll-outs to the June contract underway, prices will soften again, as we remain under the assumption that we are still within the 5th wave of decline, AT LEAST from the 10/99, $328 high. This still allows for prices to break below significant support near $252.50, from the 9/99 low. It remains quite possible that if and when this breaks, it will force a cascade of stop/loss selling that will likely create the capitulated selling that is common within a final 5th wave of decline. This is ESPECIALLY true if it is within the final 5th wave decline of the largest magnitude of the decline, that we see theoretically as the end of the 20+ year bear market.
Technically, the XAU remains on a bearish HP formation, and gold itself is bearish again. We are bearish the XAU against resistance from the last high at 57.42. Our shorter term, 1X3 chart of HSBC cash gold gave a buy signal yesterday. Unless prices push back above their March high, to at least $273, we assume gold itself is bouncing within minor wave 2, still within the 5th wave of decline. Regardless of whether prices fulfill our more immediately bearish stance, we 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, at least if we go out beyond the immediate future!
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PORTFOLIO CHANGES |
| Tuesday, April 17, 2001: 4/10: PG reached our downside price objective (PO) and was removed at 58 (+20.82%)[Part of our offensive is to have a good defense! That means limiting losses and protecting |
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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