|
Co-brand
Partnerships
| |
|
|
|
REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL-JANUARY
2001 |
|
Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
|
April 24, 2001 |
| STOCKS |
| REALITY RATIO: +0.387
|
Last Signal: 04/20/01, TRADING SELL
Dow: 10,579.85 OTC: 2163.18
The Reality Ratio came very close to pushing above the .40 overbought level that would signal a sell alert trading signal, or worse. Using our best judgment, we assigned this a preliminary trading SELL, mainly because we think that within the bear market, it is much less likely that prices will A) become as overbought as they did during the bull market, and B) that prices will be much less likely to remain overbought if and when they get there, also relative to how indicators acted during the bull market. We are back to a point where we believe caution is the better part of valor, at least for the near term.
|
TUESDAY, APRIL 24, 2001: The market s lost some of their short lived ebullience yesterday, after the close of option expiration and Fed Manipulation week. While the rally pushed well beyond the 10,300 level from which we thought the advance would be contained, we continue to look for a renewed leg of decline, STILL WITHIN THE OVERALL BEAR MARKET that so many have become confident has ended. We are equally as confident that it remains alive, well and taking its time to do what bear markets do best, keep people in, fully invested, and thinking (hoping) that the worst is over. Until they give up on this, the worst is not likely NOT over.
We think the market is betting way too heavily on the Fed, as their limited ability to goose the economy may find much greater difficulty stimulating demand. Now that there are miles of wreckage and a trail of debris on the technology superhighway, combined with record mounds of consumer debt that has piled up as Americans mistakenly thought they could spend infinitely more than they make, it remains apparent to us that lower interest rates cannot re-stimulate this flawed concept of economic expansion or prosperity. Wall Street seems to believe there is no limit to how long this game can continue. Making it worse is that they continue to come back for more of the same, simply because no one has the where-with-all to figure out that a different solution is necessary, namely increased "savings" and reduced personal US debt. These two solutions to America s newest structural problems have yet to be conceived yet, and are NOT immediate solutions anyhow. Of course, this is why no one wants to publicize them, as there is no immediate gratification to be gained, and Americans have not yet recognized that not all of our problems can be fixed with the application for another credit card, or without undoing the damage and dead weight that we collectively drag behind us do to our own irresponsibility. It took years for these problems to become so pronounced. It may take more years before even recognizing how serious they have become as problems, and even more years to reverse their damage. This is not the underlying fundamental strength from which the next bull market can be launched, contrary to what we may "hope" for, or have been lead to believe is "just beyond the next corner".
While the markets pushed much beyond what we had thought would contain the rally, at 10,300, it is obvious from the above comments that we are not bullish. At Friday s 10,706 high, the Dow has retraced almost exactly 61.8% of the entire decline from the 1/14/00, 11,750 high [11,750 - 9106 = 2644 X .618 + 9106 = 10,740]. The push above 10,294 forced a modest change to our Elliott Wave interpretation, but this may actually be interpreted as "worse" than our previous thinking. My reason for suggesting this is because it changed the count from well within the cycle degree 3rd wave of decline, it now suggests that cycle wave 3 of larger degree wave (3) may just be ready to begin. This makes the overall pattern larger, and that means greater downside prospects may unfold. We think that further gains should be limited at best, and the markets will quickly unwind last week s gains. The Dow closed slightly above its 200 day moving average near 10,600 for all of one day, Thursday, before it was turned back down. The breakout above major resistance at 10,300 makes this a strong line of defense. An hourly close below 10,290 (now key support) will confirm for us that this next leg down is unfolding. This would also potentially be a bearish "High Pole" on our long term, 50 X 150 P&F chart. Next resistance is at 10,800, then 11,000, 11,250 and 11,400.
|
|
TREASURIES
|
Treasury yields appears to us to have completed its first intermediate wave of rise with a well defined 5 minor waves up on our (reciprocal) short term yield chart, which reached a high of 5.818% on Friday before attempting a bounce. A technical rally may bring the yield back down, but this should not likely be able to push below the original sell signal that was given when the yield crossed above 5.40%. We can therefore say that for anyone wanting to sell, or position ahead of what we are confident will be much higher rates in the months ahead, they should do so into this retracement rally, provided it plays out accordingly.
We remain confident that overall, 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)" within 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.
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. |
|
GOLD
|
Gold & the XAU remains in position to begin minor wave iii within its final 5th wave of decline (we think) for both, its short AND long term bear market. While we are confident that this decline should continue, beginning VERY soon, we strongly recommend holding all metals positions as we (think) can see to the other side of just one more "next" valley! Once this is completed, we would advise taking a dramatic portion of your trading money and committing it here. We think that it would be very irresponsible after waiting patiently for so much longer than we ever thought, to urge selling now and risk what we ve counseled so many times in the past, that prices are so cheap and sentiment is so bearish, that we just want to be there once the bottom does arrive! Many think they can get out and back in to circumvent this potential last decline, and perhaps many can. We have seen too many times that this thinking at such a potentially important juncture serves as a tremendous trap, as once the upturn begins, those who have sold then decide to wait for the "first pullback". At the beginning of a new bull market, those that are "waiting" end up not getting this opportunity, as prices never look back. We do not want to be put in this position, and think it is much wiser to use any new lows on the XAU (below 41.61) to add aggressively to positions.
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!
| | |
|
PORTFOLIO CHANGES |
| Tuesday, April 24, 2001: 4/20/01: We re-entered shorts on the Nasdaq 100 Tracking shares (QQQ) at 48 � near the close. [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). |
|
|
|
