|
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 26, 2001 |
| STOCKS |
| REALITY RATIO: -0.161
|
Last Signal: 04/20/01, TRADING SELL
Dow: 10,579.85 OTC: 2163.18
The Reality Ratio bounced a hair last week as the markets were relatively flat. While this is still near the oversold side of neutral, it has yet to trigger an oversold buy signal, making it likely that bounces will continue to attract more sellers, at least for a while longer. As the summer solstice was just four days ago, we think the markets are getting oversold and setting up for a great summer rally.
|
TUESDAY, June 26, 2001: The markets haven t been able to find any traction on the back of the pre-warning season, as investors await the Fed s decision, likely not out until 2:15 tomorrow, after the FOMC meeting concludes. They are expected by the majority to cut rates by another 50 basis points. We won t argue the point, but we wouldn t be surprised with a 25 basis point cut either. Once the news is out, we think the markets will have to find something new to discount, because their rate cutting binge is nearing its conclusion, as they have already risked rising pricing pressures, even if their head is in the sand in denying the reality of these already evident inflation pressures. Wouldn t it be interesting to see rising inflation even as energy prices have fallen??? If the economy rebounds as is so widely expected, this will be a growing risk, again, with or without the added pressure of rising oil prices.
Last week s two day rally was short lived, giving us a head fake that turned out to only be a bounce, as the decline of Friday and yesterday was the first two day, 100 point back to back loss since early April. It is difficult to conclude if this is the tail end of the correction that began with the 5/22, 11,350 high, or the acceleration of the resumption of the longer term bear market. Our assumption is that regardless of the longer term risks, it is too soon to expect that investors are giving up on their "long term" optimism, or the Fed.
At yesterday s close, the losses have amounted to an exact Fibonnacci 38.2% retracement of the 2200+ point rally from the 3/22, 9106 low to the 5/22, 11,350 high [11,350 - 9106 = 2244 X .382 = 857 - 11,350 = 10,492. Yesterday s 10,504 close was about as precise as it gets, and should serve as a natural level of support. As the market s have so far, been weathering the negative "pre-announcement" season relatively well, the resumption of the rally seems more likely than the resumption of the overall bear market, at least in the short run.
Against the bullish view, we are using the lower level of key support near the 10,448, 4/24 low as a "must hold" level. We don t expect a close below this in the event of continued selling, but it is where we have placed our trading parameters on the downside. Lower support is at the Fibonnacci 50% retracement level, near 10,229, allowing another 200 points of "rope" to give if needed for the buyers to regain their exposure. With the past two days of sharp selling, initial resistance was lowered to 10,640 - 10,750 s cluster of consolidation. Above this, resistance is near 10,835, 11,000 and 11,180. 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, but even a push above 11,000 would be a very encouraging sign. Our minimum downside targets have already been satisfied and allow for the upturn to begin at any time.
|
|
TREASURIES
|
Treasury yields followed through before closing higher yesterday, ahead of today s two day Fed policy meeting. We think the market has gotten back ahead of itself, retracing an exact Fibonnacci 50% from the 5.217%, 4/22 low to the 5/15, 5.90% high, at yesterday s 5.567% low. This is a typical bear market retracement. Next lower resistance is at 5.50 - .45% and then at the original 5.40% breakout point ( with the Fib. .786 resistance at 5.363%). An upturn here would provide greater evidence that minor wave "2" within the larger, wave (3) bear market was beginning. Initial confirmation that the bear market toward higher yields was resuming would be with a rise to 5.75%, with a push above the 5.90% high needed to give even greater assurance of it. Some of our trading/momentum indicators (RSI & Stochastics) have yet to confirm the rally to the current yield lows, developing into bearish divergences. This indicates that the rally is ending.
The counter trend rally may be providing the "selling" opportunity for the bears that we had been expecting. 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. Again, 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 resistance is near 5.56% and 5.50%. 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: The XAU couldn't even find enough support for more than to hold its flat line yesterday, on the HUGE announcement that Barrick Gold was buying Homestake Mining. The combination brings ABX to the world s second largest gold producer from the fourth largest, adding 2 million ounces per year to their production. We discussed the likely industry consolidation many, many months ago, due to the depressed prices, and this is clearly a HUGE one. The market s didn t do much to celebrate on the news, keeping the sunshine from breaking through the overcast sky over the gold markets. Some think it is actually a slight negative for the bullion markets because of Barrick s ongoing aggressive hedging program that will be provided with more inventory that can be sold ahead of its future production.
The market s stood still yesterday, doing nothing to change our levels of support and resistance. Our short term XAU chart remains on a sell signal on our shorter term P&F chart, and our longer term chart also remains on its bearish "High Pole at the Bearish Resistance" formation. The stocks have been acting much worse than the metal itself, and this still warns of lower prices as the stocks typically lead the way. Another sign of caution is that our XAU/gold ratio remains on its sell signal of a week ago yesterday.
A move above 67 on the XAU would renew the long term uptrend, but for our shorter term chart, a move back above 61 would indicate that a challenge of the higher level was forthcoming. Again, a push above this would renew the bullish trend, and also increase the odds that the bottom is in after all. In this event our analysis would shift to the more bullish wave interpretation, where the higher high would be counted as the minor fifth wave within a larger degree wave (1) rally. This seems unlikely in the short term, now that the bearish trend has been confirmed. Lower support below the key 56 level is at the 2/14, 45.64 low and then at the even more critical 7/14/00, 41.61 low. The silver lining remains the same. 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 |
| Tuesday, June
26, 2001: 6/22: Compaq Computer (CPQ) was added to our low priced portfolio at 13.50. It is DEEPLY oversold, and shows several bullish momentum divergences as the price made new lows. We think it is very cheap and well positioned for recovery when technology turns up, especially after announcing this week that they have become the dominant provider of hand held computers, the most booming part of the computer industry. They also announced yesterday that they would restructure to divest of their "Alpha" Chip that was part of their buyout of Digital Equipment a few years ago. |
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). |
|
|
|
