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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 20, 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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FRIDAY, April 20, 2001: TORA, TORA, TORA!!!! The Fed s sneak attack successfully took both, Wall and Main Street buy complete surprise on Wednesday, by cutting both, the Fed Funds and Discount Rates by another 50 basis points. This came after better than expected economic reports, Fed watchers such as Wayne Angell JUST announcing that the Fed would not cut rates again until their May 15 FOMC policy meeting, and not too long after Greenspan himself, in testimony before Congress said that he OPPOSED using inter-meeting policy directives because they indicate that they saw something so dramatic that they couldn t wait for their normal, post meeting time to implement changes. This is the 4th rate cut YTD (and this is only April) and we have yet to see any measurable results from the first 150 basis points of rate cuts. The Fed has now lopped their overnight lending rate by 30.77% in just 3 � months, making this one of their most aggressive easing policies in history. While the markets have celebrated, we must point out that something must be MUCH more wrong with the economy than even the most skeptical can see to date (unless of course, you are the Fed!). We did not see the cost of money as the problem for the economy in the first place, as money was plenty cheap enough for the public to get more over-indebted than ever before, AHEAD of their first rate cut of 1/3. If we were correct then, we should be correct now!
Their rate cut certainly took US by surprise, easily pushing the Dow well beyond our MAXIMUM resistance barrier at 10,300, to close near 10,700 yesterday. We were preparing for what we confidently had thought was going to be a downside reversal to begin the 5th wave of decline, as we moved through this option expiration week. Instead, the Fed took full advantage of this to once again spike the punch bowl. The news took the already strong Dow rally of about 130 points Wednesday morning up by another 276 points in just 11 minutes that followed their announcement, as short sellers and program trading combined to throw in the towel and buy! Our Short Interest Ratio Indicator gave a sell signal by falling, a sign that this is becoming less of a source for buying pressure as shorts have progressively less pressure to buy back more. The process also took our 10 Day A/D Line Indicator bullish, which tells us that the short term uptrend had resumed. After many months of precision like accuracy, our current Elliott Wave count was blown out of the water, leaving us uncertain about what the waves are telling us. We will present a new interpretation of this as soon as it emerges.
We continue to believe that we remain in a long term bear market, and that neither sentiment nor valuations have come close to levels that would suggest a long lasting bottom, or new bull market. While Wall Street s perverted definition of a bull or bear market is based on such a simple, flawed explanation of a 20% move would mean that the OTC Composite is in a doozy of a new bull market, climbing by 30% in just 10 days. Many tech stocks are up even more, in just the past 3 or 4 days. To put this flawed, simple-minded explanation in perspective, the NAZ dropped by about 65% from top to bottom. Giving it a top value of 100, it would have dropped to a value of 35 at the recent low. A 30% rally brings this value back up by 10.5 [35 X .30 = 10.5 + 35 =45.5]. This means the NAZ is still down by a proportional 54.5%, and this is after one of the most powerful short term rallies ever, yet, we have a hard time seeing this as anything more than an oversold rally, still within a long term bear market.
The Dow closed slightly above its 200 day moving average, near 10,600 yesterday. With the markets EXTREMELY overbought in the short term, into an option expiration, we see sustainable gains from yesterday s close (10,693) as very unlikely. This close has also reached a higher cluster of Fibonnacci resistance, between 10,688 to 10,740. Higher price resistance is found near 10,800, and then at 11,000, 11,200-250, and 11,425. Unless we are to remain on the wrong side of this freight train, we see the current level as a very likely area for a top, and subsequent reversal. If we get this much right, we will take it from there. Support begins at 10,500, with the next lower level near 10,300. While we are most probably our own worst critic, we must point out that we have been on an officially bullish "Ratio" buy signal since 3/23, when the Dow was at 9504 and the OTC Composite closed at 1928.98.
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TREASURIES
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Treasury yields continued to soar higher yesterday, even after getting their earlier week wish for some sort of guidance in terms of Fed policy. They too were taken completely by surprise by the Fed s inter-meeting cut, and the money that s been driving equity prices lower has at least to some degree been pouring out of the long end of the Treasury market.
We WERE NOT caught by surprise here, recognizing that our long term sell signal parameters for the bond market have been reached and exceeded this week, by pushing above the 5.70% level. We have been warning of this critical level for a few months already, and it strongly suggests confirmation that the bond rally from the 1/00 6.75% high has ended, and should ultimately lead to much higher rates. 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 is up to 5.70%, and then 5.55-50%, 5.40%, 5.37-30%, and the 5.24-.217% low(s). Higher support is near 5.85%, 5.925%.& 6.00-6.05%. Our long term analysis suggests that the long end will ultimately push above the 1/00, 6.75% high. |
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GOLD
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Gold & the XAU has remained stronger than we thought in recent trading, while our XAU charts continue overall, to suggest that lower prices remain ahead. Cash gold firmed further with a strong day yesterday, pushing higher by another $3.90 per ounce, to $264.90. Unless proven otherwise, we continue to look for a last gasp of selling to emerge. If & when we think this has changed, we will report it.
Technically, the XAU remains on a bearish HP formation, BUT, our shorter term HSBC cash gold chart turned bullish yesterday and shows a potential double bottom. On "this" particular chart, a move to $273 per ounce is needed to confirm this and signal the potential for the major upturn we have written about. Until, or unless this happens, there is equal potential for the upturn to remain within the fifth wave of decline from the 2/00 $315 high. We remain bearish the XAU against resistance from the last high at 57.42. 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 see the exact opposite here, at least if we go out beyond the immediate future!
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PORTFOLIO CHANGES |
Friday, April 20,
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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