Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
The Ratio continued lower last week and remains bearish. We still see PLENTY of room for the decline to continue. It is likely that the recent lows will be tested and broken during this decline, confirming the resumption of the BEAR market.
TUESDAY August 1, 2000: The markets found a few bottom fishers into yesterday’s last day of the month portfolio dressing as money managers took what they think is an opportunity to add relatively depressed tech stocks to their accounts. This monthly buying may last into the latter part of this week before the sellers re-emerge. Last week’s selloff came on the combination of fears that the economy was re-accelerating and the end of the primary degree wave (2) rally that had failed on 2 occasions to punch through resistance at 10,870. We are confident that primary wave (3) of the bear market is underway, and that within this larger magnitude, minor wave "1" ended at Friday’s lows, after subdividing into 5 small waves of decline to the 10,464 Dow low and 3642 on the OTC Composite.
Supporting the bearish view is that the bullish seasonality for both, the new year’s rally (through the end of April) and the summer rally (bounce) phenomena’s have worked predictably well, as this seasonality is now turning bearish until late October. We also expect the most dominant, 39 month cycle force to exert selling into this same time frame. When these forces are combined with an economy that has ignored much of the Fed’s efforts to engineer a soft landing, lower earnings prospects and a level of enthusiasm that still indicates the average investor still fully believes that the bull is alive and well!
While prices have so far held at 10,500 support (at the minor wave "1" low), we think this level will give way shortly, with a test of critical intermediate support at the 6/30, 10,336 low the next big challenge for the bulls. A break of this level will likely turn into a selling cascade to test the 9732 low that was reached in March. Short term resistance is near 10,680, 10,750 & then up to the 10,874 high. We think (much) lower prices remain ahead [as calculated in the June issue of Reality Check].
TREASURIES
Treasury yields have begun consolidating again, having trouble making further progress on the mixed economic data and renewed fear of the Fed. We see more than enough evidence that suggests they will tighten again at their August 22 FOMC meeting, as this may be their last chance before the Presidential campaign begins to heat up. This remains well within our time-frame and forecast since early in the year and would then allow the Fed the opportunity to sit back and observe for the next few months.
We think that after the current consolidation ends, that one last rally will bring the yield down to our long awaited objective of 5.50%. This will have completed a .618 Fibonnacci retracement of the entire rise, from the 4.69% low of September of 1998 to the 6.75% high reached this past January. Initial support was recently established just beneath 5.95%, with more at 6.05%. A move above this 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, and the Treasury Department’s ongoing buyback program of longer term Treasury maturities through the rest of the summer. Yesterday, the Fed bought back $771 million in 5 to 16 year maturities, and have so far, retired close to $13 billion of their $30 billion program through early September. This should remain supportive through August.
GOLD
The XAU & Gold found no relief yet from mild hedge fund and producer selling. One promising sign that the XAU is groping for a bottom is that it managed to squeeze out a selling climax (SC) by closing the week at 51.29, above the 50.75 the week earlier, after capitulating to reach a 52 week low at 50.01last Tuesday. Major producer, Newmont Mining also had a selling climax after it had weakened on the announcement that they were buying Battle Mountain Gold. These are good signs, but we have yet to see prices turn up, but perhaps it won’t be long now.
The potential for testing major support at the 8/31/98, 48.73 all time low remains close at hand, and the selling climaxes are not in themselves enough to rule it out. Initial resistance is near the recently broken support near 55. A move to 57 would now suggest the bottom was in as this would produce new low pole (LP) buy alert, which has been lowered from the 59 level we’ve been sighting. A push above 64 is still needed 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.
PORTFOLIO CHANGES
Tuesday, August 1, 2000: 7/31: Our short on Biogen (BGEN) quickly reached our downside objective of 53 and was covered for a 25.35% gain from our 7/11 recommendation at 71. We hope to replace this shortly.
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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