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REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL
2000-MAY
2001 |
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Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
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May 29, 2001 |
| STOCKS |
| REALITY RATIO: +0.355
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Last Signal: 04/20/01, TRADING SELL
Dow: 10,579.85 OTC: 2163.18
The Reality Ratio turned down again after moving to a higher high the week before. It still remains at a very extended level and vulnerable to a setback at least, over the next few weeks or more. In fact, the downturn is from the most extended level since briefly spiked above the +.60 level last July, just prior to its steep slide that lasted into early November. While we are not predicted a similar outcome at this time, the setback that we foresee can be serious enough to merit caution at this time.
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TUESDAY, May 29, 2001: (Holiday Abbreviated Update): As stated above, we see further weakness ahead. The markets may need time to assess and get beyond the abrupt change in our political landscape. When viewing the behavior of the bond market, we must remain open to the idea that the economy may soon show signs of at least a temporary rebound.
In becoming extended again, the equity markets may have already started discounting this. The downturn we expect may be due to premature expectations, as we are likely to still see further weakness before signs of strength. Even the more resilient sector of the economy, new and existing home sales are beginning to follow the economy lower, with existing home sales declining 4.2% in April, and New Home Sales plunged by 9.5%, for the biggest monthly decline since 4/97 s 10% drop. This had been the economy s brightest standout of resilience, until prospective home buyers began to fear their job security with the rush of recent layoffs.
The market averages all declined enough on a print basis to signal warnings that further weakness lies ahead. Our Dow 50X150 chart declined enough from Tuesday s 11,350 high for a High Pole Top (HPT), "Sell Alert" formation, as did the Transportation Average on its 10X30 chart, and the OTC Composite 10X30 chart. To bullishly resolve these, the Dow needs to move up to 10,400 (where there is older significant resistance), the Transports would need to rise to 3010 (the middle of its resistance zone between 2970-3030), and the OTC Composite needs to push above 2330. We would NOT claim that this would be too difficult to accomplish, but the markets remain very overbought and momentum appears to have turned down, forcing the market to "prove it" with bullish resolution(s). The path of least resistance has shifted to the downside.
Again, next Dow resistance is at the 9/6/00, 11,401 high, which was the 2nd of a double top with the 4/00 high (11,425). Further gains above this would greatly increase the odds that the 11,750 high will be tested. Support begins right at Friday s close near the 11,000 breakout point, with 10,800 below that. We do not think the Dow should move below the 5/4, 10673.22 low.
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TREASURIES
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Treasury yields remain very weak relative to the Fed s lower short term rate policy. The yield is playing out in a very foreseeable way, appearing to continue correcting its recent oversold condition. As discussed on Friday, the yield needs to hold below its recent 5.90% high to keep the potential valid for another push LOWER. A push above this would be taken as a strong implication that the market is even weaker than we thought, and that minor wave 3 within larger degree wave (3) is already beginning. On the bullish side, the yield should still be within its minor corrective wave 2 rally, where the rise is wave "b" of either a simple zig zag or a corrective flat. This allows for another rally to 5.74% or "lower" (yields are reciprocal to prices), within minor wave "c" of "2", BUT, with resistance at 5.74%, 5.70% and then 5.62%, it is clearly possible that even within this more bullish potential, it will likely provide a "selling" opportunity for the bears, as opposed to a "buying" opportunity for bulls.
Strong resistance is near the 50% retracement, at 5.562%. We do not think the yield should drop back below the 5.40% breakout point (between the Fibonnacci .618 and .786 retracement levels). A push above 5.90% would make support at the 5.975-6.025% the next upside target. Contrary to the belief of the majority, we think it likely that the yield is ultimately headed ABOVE the 6.75%, 1/00 high. |
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GOLD
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Gold & the XAU posted key downside reversals in the last few days with Thursday s sharp follow-through selling on the rumor that Russia s President Vladimir Putin was considering the sale of Russian gold to help victims of floods in Siberia's Yakutiya region. While a "clarification" , was made on Friday, the market remained confused and untrusting of his rhetoric. Gold futures are testing the original breakout point near $276-7, and have so far not broken down below that level.
The XAU suffered both, a key reversal and a Buying Climax (BC) by making a new "52 week closing high" on Monday before ending lower for the week. Our leading indicator, the XAU/Gold Ratio also gave warning of a short term downturn, and also had a BC and "High Pole Top" (HPT) sell alert for the week. These bearish signs are taken as a clear warning for the immediate future.
The XAU closed the week in the middle of support between 63 - 59. A further drop straight back to 56 would be a very bearish "High Pole at the Bearish Resistance Line" (HPBr) on our longer term 2X6 P&F Chart, and significantly raise the odds for our more immediately bearish potential, rekindling the prospects that a final 5th minor wave of decline still lies ahead. Lower support is at the 2/14, 45.64 low and then at the even more critical 7/14/00, 41.61 low.
In contrast to the poor longer term risk/reward we see for bonds, we see the exact opposite here!
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PORTFOLIO CHANGES |
| Tuesday, May 29, 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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