Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
The Ratio turned down to confirm the 7/14 sell signal, as we expected last week. With the extreme reached and the markets still FAR from their all time highs, it is likely that the recent lows will be tested and broken, confirming the resumption of the BEAR market.
TUESDAY, July 25, 2000: The markets were hit for the third day in a row, turning the short term trend lower for all the major averages with the continued exception of the Dow Utility Average. The "perceived" words of encouragement from Fed Chairman Greenspan’s beginning Humhrey-Hawkins testimony last week only served to put a cap on the market’s bullish excitement, as did Friday’s option expiration. Much of the weakness is more closely related to the overall earnings disappointments that are coming from many different industries, including the "infinitely" optimistic technology sectors.
Some of our short term indicators have turned bearish as further evidence that the downturn may lead to something greater than a bullish consolidation, as some are hoping for. Our Short Interest indicator turned bearish, indicating that further strength will not be helped by short covering. Our 10 Day Advance/Decline indicator is now bearishly below its level of 10 days ago, and we have also noted last night that the McClellan Oscillator made its first lower low since March. We continue to expect a large magnitude decline to emerge within primary degree wave (3) of the bear market. The Dow closed just above initial support at 10,680, which once broken will indicate a short term reversal, with next support at 10,600 [I would note that the S&P and OTC Composite and 100 averages have turned weaker than the Dow]. A break of this level would confirm an intermediate double top at the June 5, 10,863 and the July 20, 10,874 highs. A close below intermediate term support from the June 30, 10,336 low will confirm a significant trend reversal and that the expected wave (3) decline was underway, offering the potential for a much more substantial decline.
TREASURIES
Treasury yields are again consolidating their recent gains after breaking through resistance at the 5.85% level. We think the trend will remain overall bullish until the last of the Treasury Department’s $30 billion Treasury repurchase program is completed, by early to mid-September. The current consolidation, followed by one last rally toward our forecast target of 5.50% should complete the corrective wave "C" rally, within wave (2) of the long term bearish trend. This would theoretically be followed by the next larger wave of selling, but we’ll reserve that analysis until it becomes a more immediate threat.
A push to 5.50% would potentially complete the entire rally from the January high, retracing .618% of the rise from the 4.69% low back in September of 1998 to the 6.75% high reached in January. Strong resistance remains between 5.72% - 5.65% and then at 5.50%. Support remains at 6.05% and would confirm a short term bearish reversal, with next support at 6.20 - .25%, 6.32% and 6.40%. Our longer term bond indicator, the Dow 20 Bond Average remains bullish as does the Fed’s commitment to slowing the economy down, again, combined with the Treasury Department’s ongoing buyback program through the rest of the summer.
GOLD
The XAU & Gold gave us nothing new to evaluate over the weekend. Prices appear to be well within a "capitulation" phase of the entire decline from last October’s high above 92, but there has so far been little to suggest it is reversing back up. Conditions are becoming very oversold again technically, and sentiment is in a state of pervasive pessimism. These are conditions that should lead to a bullish reversal, and we’ll certainly point out the further signs of this when they emerge. For now, we remain patient. After breaking support at 54.24 last week, prices have little to hang on to ahead of a potential test of the major 8/31/98, 48.73 all time low, which is not far off at all. A move above resistance at 59 would suggest the bottom was reached, but a push above 64 is still needed 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. Higher resistance is at 69, 72 -3, and then 82, but this is now a long way off. For the week, we are looking for a higher close, which after posting a 52 week low yesterday would be a major selling climax (SC) and an initial sign that the bottom was reached, or at least was being approached.
PORTFOLIO CHANGES
Tuesday, July
25, 2000: NONE TODAY
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
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