Last Signal: 6/23/00, SELL
Dow: 10,404.75 OTC: 3845.61
The Ratio turned down after last week’s technical deterioration, giving a sell signal after working off the oversold condition of recent weeks. As pointed out along the way, the recovery was narrow, divergent and vulnerable to a failure and we did not trust it’s ability to sustain itself.
FRIDAY June 30, 2000: Today is the last trading day of the second quarter and it should prove to be a barn burner! We expect a lot of "window dressing", especially since this is the day that the Russell Averages and some of the S&P Averages will have their components realigned. It may be volatile on both sides of the zero line. While the Dow has yet to break key support at 10,250, the markets are having no problem finding sellers after almost every morning’s higher opening. We’ve been telling or readers to use rallies for selling and this is why. Our shorter term indicators are neutral, but recently turned down from higher levels. Overall, we think that bullish sentiment is still way too high as there is almost universal optimism that we are still in a bull market. We don’t think so. What we do think is that even the best efforts to revive the bull have left prices far short of bringing it back to life.
Our Wave analysis continues indicate that a downside acceleration is the most likely resolution to the recent range bound volatility, within the developing third wave of decline. As stated on Tuesday, this is what we call this the "recognition stage" as more and more investors begin to recognize that the bull has lost its grip and the reality of the bear market undeniably sets in. Of course, this is yet to be proven. Initial support has been lowered to 10,600, but we remain bearish against the higher resistance near 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 the bullish case to see it on expanding volume. So far, volume has picked up, but so has the selling. Support at 10,450 - 500 was broken last Thursday, and the foot hills of key lower support is being probed. An hourly close below the critical 10,200 -250 level should trigger a cascade of further selling, confirming that the trend has turned bearish and significantly increase the odds that the 9732 low will be tested and broken.
TREASURIES
Treasury yields resumed their rally this week as the huge Tennessee Valley Authority ad Deutsche Telecom issues are being absorbed by the markets. The Treasury continued their ongoing Treasury buybacks, with another $2 billion yesterday. This should continue to support the market at least until September when they should complete their purchases of the currently authorized $30 billion. This week’s buying should have completed $13 billion of the $30. Also supporting the demand for bonds has been the flight out of the equity markets as some are seeking to diversify away from their heavy exposure to stocks.
We expect that the yield will soon re-test its April, 6.65% low and perhaps extend itself to our next objective at 5.50%, before completing what we consider the 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. They are at 54% after reaching 59% last week, so they are getting there. 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 continue to get no respect. Prices rallied $6.55 per ounce on Wednesday, only to give back half of it yesterday. The buying came on stop/loss buying as prices moved above short term resistance. We remain encouraged by the recent action on the metal, but are still somewhat discouraged by the action of the XAU, which has yet to make any progress at all. We continue to believe that conditions remain "right" for a sharp recovery that should at least test resistance at $300 per ounce, and most likely much more. Follow through buying in the futures should help to get the stocks moving. Merger news between Newmont Mining and Battle Mountain Gold could be the beginning of a new wave of consolidation within the mining industry, something we had discussed months ago as a strong possibility, as it is now much more cost effective due to the depressed prices, to buy proven assets than to expend limited resources to go looking for it.. We think there may be more combinations announced.
The XAU remains bullish against 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. Cash gold gave a new buy signal on our Point & Figure charts, and project a target of $326 per ounce. Of course, there is lots of long term resistance, beginning at $298, then at $314 and $324, providing lots of barriers on the way up.
PORTFOLIO CHANGES
FRIDAY
JUNE 30, 2000: None Today
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
The Reality Check Newsletter, and reprinted here with permission.
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