Last Signal: 3/24/00, SELL Dow: 11,112.72 OTC: 4963.68
The ratio slipped further last week, just enough to make a lower low. While it remains on the sell signal, a move above the high of a few weeks ago (5/5) would produce a "short term" trading buy confirmation. This may happen this week, but with today’s (Tuesday) FOMC meeting, and Friday’s option expiration, we won’t try to front run them or the markets reaction!!
TUESDAY, May 16, 2000: Equity markets took today’s FOMC meeting in stride yesterday, returning from the weekend with their buying shoes on. Investors remain caviler with their money regardless of the news. Yesterday for instance, industrial production rose by .9%, remaining stronger than expected and the market rebounded sharply after a brief reaction on the opening. As usual, investors started to front run this morning’s CPI report and this afternoon’s FOMC interest rate policy decision. One of my trading rules is to resist the temptation to run with the crowd ahead of the release of important news, as happened yesterday. While it is no secret that they are expected to raise the Fed Funds rate by a more aggressive 50 basis points, no one can be sure how the markets will react, especially with so much BULLISH anticipation built into the market. The important news this afternoon will not be their action on rates, but their statement that will accompany their decision. We expect them to issue more concern and make no promise that this will be the last of their tightening.
We continue to see relatively light volume on both, up and down days. It is the light volume on DOWN days that remains a concern because their has been no evidence of selling capitulation that normally would indicate a trading bottom. Yesterday for instance was the OTC’s lightest volume day of the year and the NYSE couldn’t even break 900 million shares. Some attribute the light volume to last month’s forced margin selling. It was reported yesterday that NYSE margin interest declined by 10% over last month, and the lighter volume since is due to less margin related day trading. April’s margin debt was quoted at $251.7 billion, down $27 billion over March. Breadth also remains thoroughly unimpressive on up days versus much more definitive during down days. For instance, yesterday’s breadth showed 1742 advancing issues and 1155 that declined, with the Dow up 198 points. The last down day, last Wednesday had 869 issues advancing against 2119 that declined. This is why our 10 day A/D Line indicator remains bearish in spite of the markets most recent strength.
For now, we would prefer to see what the reaction to the Fed and this week’s option related activity will mean to our indicators. We should know more at the close of the week, not because Friday is option expiration, but because it is the next time the Reality Ratio will be calculated. Resistance is at 10,900, 11,140, and at the recent 11,410 high. A close above this would force us to reconsider the immediate bearish case. Support is at last Wednesday’s 10,300 low to 10,250. A lower close would confirm a new leg of selling, with 9750 the next major support.
TREASURIES
Treasury yields have been trading between last Thursday’s 6.126% low and last Monday’s 6.25% high ahead of today’s FOMC meeting. This is being established as a trading range, at least for the very short term while traders try to figure out the ramifications of today’s decision. As stated above, we think the Fed’s policy "statement" will continue to lean toward concern and perhaps one more rate hike at their next meeting in June. The markets will have acted pre-maturely and may be vulnerable on this basis.
As stated on Friday, our longer term P&F chart remains on a high pole at the bearish resistance line (HPBr - sell alert), indicating that a bounce here would only be setting up for the next sell off that takes the yield even higher. For this reason we are not yet confident that the yield is ready to resume its earlier rally. If correct, it may continue its technical bounce, perhaps to test resistance near 6.00%, but this is within minor wave "B", with at least the "C" wave ahead that would push the yield above 6.25% support. Any break of this level would indicate that it has already begun. Above that, support is at 6.32%, 6.40%, 6.65% and 6.75%. Resistance is near 6.15%, 6.00%, 5.85%, 5.72% and 5.65%.
GOLD
The XAU & Gold continue to mark time ahead of the Fed and on the stretched rally in the US Dollar, which may have seen its upward momentum broken with a very sharp break on Friday (of -1.75). We think that "one" of the keys to a bullish reversal for gold remains with the potential for a bearish reversal for the dollar. The most sunned currency, the euro, seems to be noticeably undervalued against it and this offers much greater potential for just about any trader who doesn’t simply ride momentum. In other words, while it may continue indefinitely higher as it already has, the US Dollar remains the most vulnerable currency in the world. If this comes to pass, the ramifications of assets that have thrived on dollar strength will remain vulnerable and those that had been held back in "dollars" would benefit smartly. This should mean bonds down and gold up.
Heavy bearish open interest among gold bears remains bullish, as does the low number of futures traders who are optimistic. Again, this is particularly true with almost a virtually bullish consensus for greenbacks. As long as this remains the case, the potential is for reversals in each. Initial resistance remains at 63 - 64. A break above this would confirm a short term bullish reversal with next resistance above this is at 69, 72 -3 and 81. A move above 64 will also break out above the downtrend line that had defined the bearish trend since last September’s 92.72 high. We are bullish the XAU against support at the April 13, 54.24 low, with initial support at 57.
PORTFOLIO CHANGES
TUESDAY, May 16, 2000: 5/12: Charles Schwab (SCH) short sale was covered at 41 (+33.87%)
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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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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