Last Signal: 6/2/00, BUY Dow: 10,794.76 OTC: 3813.33
TUESDAY June 20, 2000: Last week’s weak Dow close and relatively stronger broad market action turned traders even more optimistic that the "correction" is over and that new highs are just around the corner, especially after yesterday’s recovery. While the rally may well last longer, we just don’t see any signs that would lead us to the same overly optimistic conclusion. With the exception of Friday’s triple expiration related volume that was only back to the YTD average, it has remained suspiciously low. There is really no time constraint on how long this low volume rally may continue, but it does imply that whatever gains it carves out, the next round of losses will take them back very quickly.
Many key issues have been pre-reporting lower earnings, forcing analysts to cut their overly-optimistic expectations. It is difficult to know which ones might be next, and when it will have an impact on the market in general, but it may be only "one" key announcement away from the day when bullish expectations change to confusion, and that day will be too much for investors to bare.
Our bearish Elliott Wave assessment was confirmed with the extreme weakness into Friday’s close below 10,500. As stated on Friday morning, "a break of this level would be a bad sign." Yesterday’s recovery did little to change that assessment, although it does cloud the issue some. For clarity, we will remain bearish against the resistance established at the most recent high, at 10,860, with next higher resistance at 10,960, 11,100 and 11,425. If prices move beyond "ANY" of these levels, it will be critical to see it on expanding volume. Support is established at 10,450 - 500, and then the even more critical 10,200 -250 level.
Another VERY bearish sign for the future occurred with Friday’s weakness. The Dow Transportation Average broke down to close below key support at 2680. For now, this reinforces the bearish non-confirmation that has been in place all year. A close below key support at 10,200 on the Industrials would reconfirm the overall Dow Theory SELL signal, an undeniably objective signal for ALL to heed. A break below this level will confirm that the trend has turned bearish, where we would expect a much deeper selloff to at least test the 9732 low.
TREASURIES
Treasury yields remain bullish but extended for the near term. We continue to see them continuing to consolidate their recent gains, at best. At worst, we think the yield may back up again toward support at either 6.08% or perhaps to re-test the high at 6.25%. We currently do not see the yield moving beyond that. The market will continue to receive support from the Treasury Department’s "reverse auction" purchases of longer dated paper, with approximately $19 billion more in authorized re-purchases to be made before September. On top of this, the perception is that after six rate hikes by the Fed (and perhaps a few more), the economy will show greater signs that it is cooling. We are already seeing initial ones, including their impact on corporate earnings.
Once the current consolidation runs its course, we think the yield has a good chance of re-testing its April, 6.65% low and perhaps extending itself to our next objective at 5.50%, before completing what we consider a entire bear market rally. This would be a 61.8% Fibonnacci retracement of the entire rise from 4.69% (10/98) to the 6.75% high of this past January. If the yield drops to this level it will be time to pay close attention to the sentiment figures, which we would expect to have become very optimistic. Resistance is at 5.85%, 5.72% and at the 5.65% April low. Support is at 6.00 - .05%, 6.20 - .25%, 6.32% and 6.40%.
GOLD
The XAU & Gold’s rally appears to remain intact, but we are puzzled once again by its lack of follow-through as it finds sellers on every attempt to recover. All we can say is that conditions remain "right" for a sharp recovery that should at least test resistance at $300 per ounce. The XAU reversed down on its shorter term P&F chart yesterday, but still remains bullish as long as long as it holds above key support from the 4/13, 54.24 low. A break of this level would suggest a test of the 8/31/98, 48.73 all time low. A move above 64 is necessary to resolve the current "high pole at the bearish resistance" (HPBr) short term chart formation, as well as to break out above the downtrend line drawn from the 92.72, 9/99 high. This would be significantly bullish. We think it will happen eventually. Higher resistance is at 69, 72 -3, and then 82. We plan to watch the market walk before it can run. Have a great weekend!
PORTFOLIO CHANGES
TUESDAY, June
20, 2000: NONE today
NOTICE: I will be out of the office early this week and will not be doing the Friday morning update. I’ll be back next Tuesday!!
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
The Reality Check Newsletter, and reprinted here with permission.
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