Last Signal: 3/24/00, SELL Dow: 11,112.72 OTC: 4963.68
The ratio managed to bounce slightly last week after declining to the neutral reading of the weeks before that. We do not think that a rally phase should gain much strength before attracting new selling, but we have set parameters in the event that we are wrong. While this is always possible, with the seasonally bullish period ending after retirement plan contribution season has ended, a tight Fed, percolating inflation pressures, record margin levels being set back by record margin calls, loads of IPOs in the pipeline, record insider selling of recent IPOs as their "lock up" periods end, and dangerously low mutual fund cash levels, we have a difficult time figuring out how a rally can be sustained for long. With this said, a "short term trading rally/upturn" has been confirmed. It may lead to a good "selling" opportunity.
TUESDAY, May 2, 2000: HAPPY MAY DAY MARKET COMRADES!! More of the same in the past week. Schizophrenic volatility with buyers managing to overlook poor market & monetary fundamentals and other signs that the gravy train has essentially run dry. A second large hedge fund announced essentially, that they were closing down. The first, Julian Robertsons Tiger Management was liquidated entirely after tremendous losses. Mr. Robertson claimed to be retiring, after saying he saw no end in sight to the bear market. After all, he was getting down to his last $billion or so in personal money and had to be concerned for his own future. Last week, Stanley Druckenmiller, manager of the worlds largest hedge fund, The Soros Quantum Fund announced his resignation, as did Quota Fund manager, Nick Roditi. George Soros said he plans to "retool" the Quantum Fund into a less risky one, and that the "days of our large macro bets are over." This came after Druckenmiller, who has averaged 30%+/year since 1989, was down 21.69% YTD and assets declined to near $8 billion from more than $10 billion at year end, and Quota was down 32% YTD after averaging gains of 39% since 1992. Why is this worthy of our discussion? Because these are known to be among the BEST traders and investors in the entire world, and they are openly conceding that they see the risks elevated and can no longer produce good returns. Perhaps this is much more noble than to continue losing money and clients due to their mounting losses.
Our Elliott Wave outlook hasnt changed since Friday. Support and resistance on the Dow is currently "banded", with initial levels tightly wound. Resistance 11,140, 11,420 and then at the Jan, 11750 high. A close above 11420 would turn the short term trend bullish and imply a test of the high was coming. Support begins at 10747 - 10,700, with a bit more at 10620 and 10300. A close below this would turn the short term trend bearish and indicate that the 9732 March low would be tested. The OTC Composite appears to be VERY near the completion of a 3 wave rally, indicating that the larger trend remains DOWN. Next "price" resistance is at 4000 and then 4180. With Fibonnacci resistance at the 50% retracement level at 4150, I am bearish against a close above 4180. Higher resistance is just beneath 4400, 4600 and then at the March high near 5120.
TREASURIES
Treasury yields remain under moderate pressure on growing fears that the Fed will hike rates by a more aggressive 50 basis points at their next FOMC meeting on May 16. We think they will and should if they really want to gain control over the robust economy and consumer spending. We cant help but to think that bonds are still ahead of themselves at this point because the first 5 rate hikes have NOT slowed the economy by much at all. On the shorter bullish side, trading indicators are now oversold and do allow for a rally attempt to develop. Until this would take place, it is mere speculation as to whether the overall rally will resume to bring the yield to a new recovery low, below 5.65%, or whether it is a retracement to set up the next wave of selling that takes the yield above 6.00%. Support above this is found at 6.20%, 6.32% and 6.40%. Resistance is at 5.85%, 5.72% and at 5.65%.
Another indication that inflation is rising is yesterdays Point & Figure (P&F) buy signal on the CRB Index (Commodity Research Bureau). This powered higher by 4.81 to 215.84 yesterday, and has reached 216 in this mornings early trading. Crossing 215 gave a new buy confirmation after it had been consolidating since February. A push above resistance at the 217 March high will clear the way for the next major challenge at resistance between 225 and 231. While their was "no inflation", the CRB Index has climbed from a 183 low last July to 217 so far. This represents a general commodity price rise of 18.57% in less than 1 year!!
GOLD
The XAU & Gold have been challenging their recent price support, with cash gold breaking support by a nominal amount while the XAU has so far held on above the 54.24 low by just 2 cents yesterday. We think most of the damage is already done and low bullish sentiment and a high level of speculative short interest, along with many of our other indicators oversold, the next move of consequence should be to the upside. Support below current levels is at the 48.73, 8/31/98 low. Resistance remains at 57 - 59, 64, 69 and 72 -3. A break above 60 would offer encouragement for the bulls.
Perhaps the most bearish pressure for gold has been the Dollar Index, which continued surge in the last week or so in what I suspect is a further capitulation phase that further extended prices. We think this will come abruptly to an end at any time now and mark a high of great significance as foreign support for our stocks and bonds comes to an end. This should remove a great burden on gold that is priced in US Dollars, as gold has actually gone UP in virtually all of the foreign currencies, especially in the yen and euro. Perhaps a declining dollar and rising euro and yen will stop the European central banks from being so motivated to dump their gold reserves.
One of my predictions for Y2K called for a strong reversal in the USD and its further strength has remained frustrating and illusive, but the year is also far from over. The strength has continued with strong consumer spending and the monthly record trade deficit. As long as our bond and equity markets can keep rebounding after ANY price decline for ANY reason, foreign money will keep pouring into our country. The question is how long this lunacy will last. Sentiment for US Dollars among futures traders is up to 97%, according to the weekly Market Vane Survey. This unanimous optimism CANNOT lead to much further strength as the world is choking on dollars. Our standard procedure when ANY investment category reaches such a lopsided opinion is to take the other side of the argument.
PORTFOLIO CHANGES
Tuesday,
May 2,2000: NONE
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
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