|
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 15, 2001 |
| STOCKS |
| REALITY RATIO: +0.096
|
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 15, 2001: The markets plunged, taking out technical support levels into yesterday s close, settling just above what we ve been using as key support at 10,673. The downturn has come on the combined earnings warnings, ongoing economic weakness, and for yesterday, the failed GE/Honeywell deal. Strangely, while the markets seemed disappointed over the EU s unreasonable demands before granting approval, GE itself was actually UP against the falling market tide. Many fear this as the spark that could ignite an all-out trade war between the US and the EU. After all, they don t ever seem fair when it comes to dealing with the US, but they are quick to cry FOUL when we aren t above board with them. I have always been for free trade, but not free for them and costly for us, and that seems to be how they always want it. A trade war will be bad for everyone, and it would likely have a very bad impact on the supply of goods in the US, which in turn will put an added pressure on our inflation rate as it has been cheap foreign goods that have kept US prices down as they have made up for the demand shortfall while Americans spend (& spend, & spend).
The Dow s 181 point haircut was perhaps more than a LITTLE influenced by today s triple expiration of options, index options and futures that occurs at the end of each quarter, as emotions almost always run higher than normal. Many of our shorter term indicators are becoming very oversold, and do allow for a technical bounce at a minimum. We would not rule this out, especially if the markets can stabilize in the next few trading days, as an upturn is becoming more likely. Today s trading may also be influenced by the 8:30 am release of the May CPI report. A .3% rise with a +.2% gain in the "core" rate is expected. Anything higher would clearly pull the markets lower.
We noticed in yesterday s closing statistics that volume has accelerated into the selling and the number of new highs have dropped off as the new lows picked up. This was the first time in quite a while where we ve seen this, whether the markets were rising or falling. Another potential negative for the near term may be in the US Dollar. The Dollar Index shot up to a new high this week, but just as quickly has reversed those gains and then some. A close below last Friday s 119.31 close would be a major buying climax for the greenback. This be a major sign of exhaustion for the greenback, and indicate the potential for foreigners to want some of their vast sums of money back that they ve so graciously been lending to the US while our spending habits have gone unchecked over the past 7-8 years.
As previously stated, continued selling may be setting the stage for the seasonal summer rally, as hope continues to spring eternal for the perennial bulls. This view would be put in jeopardy in the event that selling volume picks up as the Dow breaks much below our lower key support near the 10,448, 4/24 low. We don t expect this in the current downturn, but it is why we place trading parameters on our work. Stiff longer term Dow resistance remains at the 5/22, 11,350 high to the 4/00, 11,425 top. A push above this would confirm the beginning of the next leg of advance and greatly increase the odds that the 11,750 high will be tested. Our 10,800 initial downside objective was cut through yesterday morning. Our downside target of "between support at 10,800 and the 5/4, 10673.22 low" was also reached yesterday, satisfying the minimum "c" wave requirement for the correction to end, IF this is a simple correction to unwind the market s recent overbought condition. A CLOSE below 10,673 would indicate that an even weaker market was developing, with lower, more critical short term support near the 4/24, 10,448 low. Initial resistance is now at 10,835 and then at the stiffer 11,000 level, 11,140, and at the key 11,350 high. For the OTC Composite, next support is quickly approaching at 2000. Lower prices would be indicated if this level fails to hold. A rally to 2120 would be the first sign of at least a trading bottom on the 10X30 P&F Chart, but this is likely to change in the event the market opens weaker today. Resistance is near 2180, then 2260 and 2320. A close above this would confirm that the next wave of advance was underway, likely within the larger degree corrective wave "C", or third wave of the corrective rally from the 4/4, 1619 low.
|
|
TREASURIES
|
Treasury yields have remained firm on the weak economic news, testing Monday s 5.627% low and our next cited resistance, after the lower than expected PPI report yesterday. Neither of our two trading indicators, RSI or Stochastics are confirming the move lower, setting up bearish divergences, as we think the rally is quickly running its course. If correct, a reversal is becoming more likely and would be confirmed with a push back above 5.75%. We are using this level as a pivot point for the short to intermediate trend. With what s developing between the US and its European trading partners, on top of the other growing risks of higher inflation, the bond market may soon begin to show its concern over this. Also, the Congressional Budget Office reduced their projected government surplus figures due to the weak economy, to only $200 billion from 2000 s $236 billion, citing the weaker than expected corporate profits combined with Bush s proposed $300 tax rebate that is estimated to cost $74 billion. To us it looks like the bloom is coming off the rose!!
We remain confident that the rally is still within minor wave "c of 2", of the larger primary bear market. Next lower resistance is near 5.56% (the Fibonnacci 50% retracement level), 5.50 - .45% and then at the original 5.40% breakout point. This counter trend rally may be providing the "selling" opportunity for the bears that we had been expecting. We may still 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 bounced back strongly since Tuesday s update, with gold gaining $7.00 to $275.20, and the XAU gaining $2.55 to reach an intraday high of 60.39. It appears that the stocks are lagging the gains in the bullion, a sign that the rally is not a sustainable move, but a technical bounce, perhaps also related in a lesser degree to this week s options and futures expiration, although the options on futures expired last week. In any event, our 1X3 P&F Chart gave a buy signal yesterday, allowing for further gains. Based on our longer term, 2X3 P&F Chart, these gains should remain limited to the recent high of $287 per ounce. A push to $288 would resolve this bearish dichotomy and renew the longer term bullish trend.
As close as it came to a bearish high pole warning on our short term XAU chart, it impressively managed to hold above the key 56 level that would have locked it in as a sell alert formation. This potential was negated with yesterday s upturn to 60, but a decline to 56 would now be a full sell signal on the same chart, that would project to a test of the 7/14/00, 41.61 low. We will make no assumptions on this and think that in the very near term, the odds of the market moving far in either direction are about even, at least until the recent trading range finds greater resolution. A move to 67 on the XAU would renew the uptrend, with a push to 56 would be significant since it has held above that level so well.
This week s upturn was the result of how oversold the market had become, and as we stated on Tuesday, "should be capable of an attempt to gain back some of their recent losses." For the XAU, resistance remains near 60, 63-4, and then at the 5/18, 66.54 high. A push above this would renew the bullish trend, and also increase the odds that the bottom is in after all. In this event I would begin to lean toward the more bullish wave interpretation, where the higher high would be counted as the minor fifth wave within a larger degree wave (1) rally.
Again, next strong support is just above the 56 level. Lower support is at the 2/14, 45.64 low and then at the even more critical 7/14/00, 41.61 low. The silver lining to any further weakness in the near term 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 15, 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). |
|
|
|
