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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 27, 2001 |
| STOCKS |
| REALITY RATIO: +0.29
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Last Signal: 06/29/01, TRADING BUY
Dow: 10,499.72 OTC: 2159.60
The Reality Ratio line moved higher and so far and in spite of the churning market averages, this tells us that overall, the average stock is holding up relatively well compared to the averages. We continue to hope for an upside resolution to the volatile but still range-bound NY and OTC markets. 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 27, 2001: WHOOPIE&TWO DAYS IN A ROW! We are heartened by the market s positive action of the past few trading days, ESPECIALLY as the bears tried and failed to take back Wednesday s gains yesterday in early trading! We see signs for encouragement, for the OTC markets and "chips" especially, as the recent lower price low was not confirmed by most of our trading indicators on the daily charts.
The Semi-Conductor Index (SOX) shows what we consider to be very bullish momentum divergences, as the most recent price low was not even close to being confirmed by daily trading indicators such as RSI, Stochastics, Momentum, Rate of Change (ROC), Commodity Channel Index (CCI), and the Williams %R. With it continuing to rain buckets of bad corporate news, the recent firmness of this important sector is in our opinion, quite significant! Yesterday, National Semi-Conductor and LSI Logic both said they see their businesses bottoming during the third quarter, for perhaps the first positive comments about a business turnaround. This helped to drive them and the markets in general. As always, the technicals LEAD the fundamentals as many of the chip stocks made their lows a while ago. We must note that while not a chip related stock, fiber-optics company JDS Uniphase reported a loss of (hold on to your wallet!) $50.6 BILLION for the year, an all time record! This is the type of news event that has in the past, marked a significant low for the market (we are NOT suggesting that here).
Maybe it is wishful thinking on our part, but to us it appears that the markets have just successfully tested their recent price lows and are in the process of resuming the trading rally that began from the March/April lows. Before reversing this week s selling, the Dow reached a low of 10,203.69, and the OTC Composite bottomed at 1939.28. We presented in our Tuesday Morning Update of 7/10, Fibonnacci forecasts for support at 10,228 for the Dow and at 1974 on the OTC Composite. We consider these forecasts successfully reached, and we hope the worst of the correction that began from the 5/22, 11,350 high is behind us for the next month or so.
A push above initial resistance near 10,400 yesterday cleared the way for the rally to continue higher, to the next level between 10,600 and 10,679. A close above this would confirm the upturn has further to run, with moderate resistance at 10,800, 11,000, 11,180, and then at the more significant intermediate term barrier of 11,350. Critical short term support remains near this week s low at 10,203, down to last Wednesday s 10,120 low, 10,000, 9880, 9650, 9375 and at the 3/22, 9106 spike low. A push above 11,350 would greatly increase the odds that the 11,750 high will be tested, but this resolution remains far from important at this time.
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TREASURIES
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Treasury yields have indeed turned higher this week, as suggested on Tuesday. We think the risks are clearly for yields to reverse higher to end the counter trend rally that s lasted from the 5/15, 5.90% high. Our daily "reciprocal" trading indicators, including Stochastics and RSI have now turned turning up (bearish), with Stochastics at a VERY extreme overbought level. The combination of the stock market upturn with a very heavy calendar for Treasury and corporate bond issues has motivated selling this week, and this is likely to continue as the bonds are issued and must be absorbed by the market, as well as the potential for further stock gains. We see very limited remaining potential for bonds, especially with what should be stiff Fibonnacci resistance near the 5.48% level. Even if the rally extends Itself further, we think it remains unlikely that it will push beyond the 5.40% bearish reversal point from late March
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 turn the trend bearish, giving it plenty of room. |
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GOLD
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Gold & the XAU have turned their early week stall into a downturn through yesterday s trading. The XAU has so far failed to reach the 57 level needed for a Low Pole (LP) buy alert formation on our short term P&F Chart, and the gold futures turned down after failing to penetrate its resistance from the July downtrend line. Tuesday s warning that "our trading indicators for the XAU are overall becoming extended and warn of a downturn," appear timely as they have now turned down and bearish for the near term. Short term support is at the 7/2, 51.30 low. A decline below this would warn of a deeper correction toward lower support levels. If the next upturn were to emerge from above this level, it would offer a strong sign for encouragement, but we are not confident that this will happen.
A push to 57 would still put our short term chart on a "low pole" buy alert and renew our immediate optimism. If the XAU drops to 53 first and then pushes to 57, it would turn our short term P&F chart bullish, but a move to 68 is needed to turn our longer term P&F chart bullish. These numbers remain a long way off. Support 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. For (cash) gold itself, long term support near $254 remains vulnerable to the next challenge for the bears, with resistance beginning near $272.
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PORTFOLIO CHANGES |
Tuesday, July
24, 2001: 7/23: Our last short sale position, Baker Hughes (BHI) was covered yesterday at 33 (+12%), after it and many other oil service issues had selling climaxes last week, by closing higher after making 52 week lows (It should not come as a surprise if we were to reverse our bearish position on this group with the suggestion of a long position or two)!
[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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