|
Co-brand
Partnerships
| |
|
|
|
REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL
2000-MAY
2001 |
|
Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
|
June 8, 2001 |
| STOCKS |
| REALITY RATIO: +0.226
|
Last Signal: 04/20/01, TRADING SELL
Dow: 10,579.85 OTC: 2163.18
The Reality Ratio turned down again from last week s "higher high" and remains relatively overbought and bearish for the immediate future. We are viewing the current bounce of the last few days as just that, with lower prices anticipated as we move toward the middle of June.
|
FRIDAY, June 8, 2001: Equity markets continued to rebound, almost entirely on the back of the STILL flailing semi-conductor sector, as we are seeing about three announcements of continued lacking visibility of any future rebound to every one announcement that things should get better in the second half of the year, and even that seems to only be on supposition that things have been so bad that they have to recover! While we do not disagree with this, we do NOT see it as enough of a reason for the Semi Conductor Index (SOX) to have rebounded 43% from its early March low. This is especially true as virtually NO other market sector, with the exception of the less influential Biotech Index (BTK) doing anything to keep up with there brisk pace. Before we can gain confidence in this as a leading indicator, as some on Wall Street suggest, we need to see at least SOME evidence that the rally is broadening out to include at least SOME non-technology based market sectors. As recently as early this week we heard from First Call s Chuck Hill, that "earnings warnings are accelerating instead of decelerating". Again, this lacks the supporting evidence that we would like to see before we can get more optimistic that a full recovery is underway.
n with the OTC markets bouncing strongly from their short term lows, many market averages that we follow remain on a bearish "High Pole" sell alert of one sort or another, offering "odds of better than 50% that the recent highs in these averages will stand for a while", according to our friends at Investors Intelligence. According to I.I., their indicators are " starting to come down from Overbought levels." We have been pointing out this vulnerability for a while now, and so far, we do not see this overbought condition relieved or resolved yet with the strong tech bounce.
Stated last week, "while the market may continue to bounce for a few days, it remains likely that it will fall short of renewing the rally that ended at 11,350 on 5/22, ahead of another leg of decline before a better low would be in place." The rally since may appear to be more than a bounce, but so far while challenging what we d like to think is our objectivity, our reasons for this original statement remain in place and valid, and basically will remain so until or unless prices exceed their recent highs.
Stiff longer term Dow resistance remains at the 5/22, 11,350 high to the 4/00, 11,425 top. Further gains above this would greatly increase the odds that the 11,750 high will be tested. Our 10,800 initial downside objective was essentially reached last Friday morning at 10,835, before the bounce started. Next resistance is near 11,140. Initial support is at the 11,000 breakout point with our downside target remaining between support at 10,800 and the 5/4, 10673.22 low. Any decline below 10,835 would satisfy the minimum "c" wave requirement for the correction to end. A CLOSE below 10,673 would indicate that an even weaker market was developing, with next support near the 4/24, 10,448 low. It will currently take a close above the 11,350 high to renew the rally. For the OTC Composite, the bearish "High Pole" would be resolved with a push above 2340, where the sell alert it offers would be confirmed with any drop below support at 2060. This is clearly pushing closer toward the "bullish" resolution.
|
|
TREASURIES
|
Treasury yields reversed sharply higher from yesterday s 5.627% low, and the lowest level reached during its recent technical rebound over the last week or so. It appears that the weaker the economic data is, the worse the long end of the bond market is behaving. To us this is clear evidence the market is worried that the Fed s aggressive rate cutting orgy is irresponsible, because it will lead to rising price pressures that will lead to higher inflation. Even some of the Fed s most optimistic mouthpieces seem confused by their own statements. For instance, San Francisco Fed Pres., Robert Parry stated, "the lethargic US economy would likely speed up by year s end, but faced risks of further weakness in consumer and business spending, also cautioning that "it may take until 2002 before the economy feels the full force of expansive policies." This doesn t sound like a high degree of conviction to us, and "jawboning" to the media is not going to stimulate the consumer, or without them, business investment and spending that is needed to help the economy climb out of its slump. Indeed, it is this type of hallowed rhetoric that we are just beginning to see come to an end in Japan as after 11 years of "no rebound", they are finally just beginning to face the reality of their continued challenge. In the US, it doesn t seem that our leaders are even close to this reality so shortly after our own economic boom has become a bust.
Again, the yield reached a recovery low of 5.627% yesterday before reversing for a sharp loss into the close. Perhaps this is a sign that the bullish potential is quickly running out, within minor wave "c of 2", of the larger primary bear market. This was enough to qualify as an initial test of our next cited resistance near the 5.62% level. If the rally pushes beyond this, next lower resistance is near 5.56% (the Fibonnacci 50% retracement level), 5.50 - .45% and then at the original 5.40% breakout point. We think that this counter trend rally may now be providing the "selling" opportunity for the bears that we had been expecting. We may be a bit early with this assessment as we often are based on our perception of the risk/reward, but we do not think we ll be wrong.
We remain confident that the yield is ultimately heading (much) higher, within larger degree wave (3) that began from the 4/22, 5.217% low. We do not think the yield should drop back below the 5.40% breakout point. A push above 5.90% would confirm that the bear market has resumed, making higher support at the 5.975-6.025% the next upside target. Short term support is down to 5.74% and near 5.85%. Contrary to the belief of the majority, we think it likely that the yield is ultimately headed ABOVE the 6.75%, 1/00 high. |
|
GOLD
|
Gold & the XAU continues to act poorly, as the action has turned back to the chip sector, and certainly the upbeat market in general. The XAU is becoming very oversold in the near term, and should be capable of an attempt to gain back some of its recent losses, but we continue to see a very high probability that further downside remains likely.
The minor wave "ii" bounce that we ve been expecting toward resistance near 63-4 remains possible, and perhaps even getting late. Next strong support is near the 56 level that we warned would be a very bearish "High Pole at the Bearish Resistance Line" (HPBr) on our longer term 2X6 P&F Chart. The XAU closed at 56.52 yesterday, just above this key level. A drop to this level or lower would significantly raise the odds for our more bearish potential, and to us has already rekindled the prospects that a final 5th minor wave of decline has now started. Lower support is at the 2/14, 45.64 low and then at the even more critical 7/14/00, 41.61 low. Short term resistance is again near 59, then 63-4. The silver lining here is that if our longer term analysis is correct, we will ultimately clear the way for smooth sailing to higher (and potentially much higher) prices!
In contrast to the poor longer term risk/reward we see for bonds, we see the exact opposite here! Not even a new low will change this!
| | |
|
PORTFOLIO CHANGES |
Friday, June 8, 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). |
|
|
|
