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REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL
2000-MAY
2001 |
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Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
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July 20, 2001 |
| STOCKS |
| REALITY RATIO: +0.194
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Last Signal: 06/29/01, TRADING BUY
Dow: 10,499.72 OTC: 2159.60
The Reality Ratio line turned back up to a "higher high", and last week s strong close also helped to turn up the ratio s moving averages keeping it on a trading buy. The volatility sure has many questioning how this can be the case, but when we look at the sum of all of our many indicators, it does not appear to be warning that the markets will be as bad as it feels when looking at the daily tape. Similar to last Friday when the markets were taken completely by surprise by GE and MSFT s better than expected news, we hope the ratio is telling us that more of the coming surprises will be on the upside as expectations seem to be very low! If our indicators change, we will attempt to remain flexible enough to change with them. It s becoming a close call.
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FRIDAY, July 20, 2001: WOW! This is one tough market to figure out! Up sharply one day (and/or minute) and down sharply the next. This is making it tough to have ANY opinion on the market for the short term. Perhaps much of this confusion is related to today s option expiration, but the trends of the economy, earnings and the Fed are NOT helping to clarify anything. We cannot honestly say that we have a clue as to the direction this trendless volatility will be resolved, so we are confident that investors from both sides of the fence are extremely confused as well.
In spite of all the rhetoric from Fed, Bush Administration, and corporate officials that the economy will begin to show its recovery in the second half of the year, we must point out that WE ARE IN THE SECOND HALF OF THE YEAR, and the signs are few and far between. Some are beginning to push their expectations further out into the future, to early in 2002. A few hopeful signs in the past few days were June Housing starts, which gained 3% over May and 6.3% year over year, and yesterday s third monthly improvement, a gain of .3% for the Conference Board s Index of Leading Economic Indicators (LEI), which implies the economy may actually be ready for some recovery in the week s ahead.
If the current outlook isn t bad enough for our immediate worries, Investors Intelligence reported their weekly survey of Investment Advisors sentiment, with 52.5% bullish and only 23.2% who are bearish. This is the single most alarming technical statistic that we have seen. To us, it indicates a clear majority fully expect the economy and corporate earnings to begin recovering in this second half, as the affects of lower interest rates, gasoline prices and taxes bail us out. What worries us is that this may be OVER-CONFIDENCE, that has us unprepared for a lesser outcome. We ll be discussing this and our other confusions in this month s Reality Check, which is due out this weekend!
Support begins near 10,400, with more near 10,300 and then at Wednesday s more critical 10,120 low. Longer term support is at 10,000, 9880, 9650, 9375 and at the 3/22, 9106 spike low. Resistance begins near 10,600-40. A push above this would confirm the short term low, with further resistance near 10,760 - 10,785, 11,000, 11,180, and the stiff longer term Dow resistance from the 5/22, 11,350 high. 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 this resolution is becoming less likely.
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TREASURIES
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Treasury yields continue to firm as investors are abandoning US and Latin American equities in favor of the relative calm of the 5 �% they re getting for parking their risk dollars, as Argentina s debt implosion was considered to have eased in recent days as their regional governments agreed to support a "tough government fiscal austerity plan", by "erasing" their budget deficits to help ease the pressure. They say this will keep them from failing to service their debt, but we are skeptical.
The push to lower yields has illuminated the less bullish of the two wave possibilities we gave on Tuesday, once the yield dropped below the 6/25, 5.567% low. This is now best counted as a more complex double zigzag rally, likely heading to our next Fibonnacci retracement resistance at 5.48%. Even under this more bullish resolution it remains unlikely to go beyond the 5.40% bearish reversal point from late March (That is, unless the market mayhem gets worse).
At the 5.567% low, the Treasury yield retraced an exact Fibonnacci 50% from the 5.217%, 4/22 low to the 5/15, 5.90% high. This is a typical retracement in a bear market. Next Fibonnacci resistance, at the .618 retracement is at 5.48%. Below that, there is significant yield and Fib resistance between the 5.40% key level and 5.36% ( with the Fib. .786 resistance at 5.363%). An upturn above the last high at 5.90% would ultimately confirm the larger degree wave (3) bear market was well underway, making higher support at the 5.975-6.025% the next upside target for the bear. Shorter term, a reversal to 5.80% is currently needed to reverse the bullish trend, giving it plenty of room. |
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GOLD
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Gold & the XAU also managed to find a bid from the money that is afraid of the equity markets. So far, the XAU has not quite reached the 57 level, which is needed to turn the short term P&F chart to a Low Pole (LP) bullish alert status. Before we can get too excited, this is the MINIMUM of what we need to see happen. The good news is that after another 20 ton Bank of England gold auction last Tuesday (which we completely forgot to report on) the demand was very strong for the second straight auction, and the markets absorbed the new supply without the typically bearish media fanfare. We discuss this in a bit more detail in the July Reality Check. Also good news for the metals, the US Dollar broke sharply lower this week, after we ve been pointing out for months now that we have been noting growing signs of a long term top for the greenback. A weak dollar makes owning gold more appealing for US investors.
XAU support remains just above 51. Looking at our longer term Point & Figure (P&F) charts, both the XAU and cash gold remain on bearish "High Pole at the Bearish Resistance" chart formations, indicating that prices ultimately have further to drop. The current effort to rally should serve to relieve their recent oversold conditions. Unless these bearish chart formations find bullish resolution, we cannot get too optimistic on gold in the near term.
Again, our next bullish signal will occur if the XAU can move to 57 where it would be a "low pole" buy alert on the shorter term 1X 3 Point & Figure (P&F) Chart. A push straight up to 61 would confirm the lower initial signal and bullishly resolve the longer term chart, but these numbers are still a long way off. For gold itself, long term support near $254 remains vulnerable to the next challenge for the bears. Support for the XAU remains near 51, at the key 2/14, 45.64 low, and then at the even more critical 7/14/00, 41.61 low. Higher resistance remains at the 5/18, 66.54 high.
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PORTFOLIO CHANGES |
Tuesday, July 17, 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). |
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