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.
FRIDAY, AUGUST 4, 2000: Yesterday’s emotional NASDAQ reversal after a sharply lower opening was characteristic of the minor wave "1" low that we had correctly pointed out had ended last Friday for the Dow. If we remain correct, we should see a rally last for a few days to a week or so before the next phase of selling [minor wave 3] begins within larger, primary wave (3) down. This should put the final nails in the bull’s coffin, as the majority begin to recognize the bear has taken control.
Yesterday saw a ton of new OEX call buying, a sign that speculators have been eagerly waiting for what they think is an opportunity to load the boat on the long side. The OEX "daily" put/call ratio was .767 (7.67 puts for each call option purchased), the lowest level since April 7, just two trading days from the secondary high of 11,425, and a 978 point Dow plunge over the next three days that followed, including the biggest one day point decline ever for the Dow (-616.23) and the OTC Composite (-355.68). While we can never be sure of a repeat based on this evidence alone, it shows how speculators remain way too eager to turn bullish, and how this bullish sentiment remains plentiful. \
Prices held at 10,500 support, marking the end of minor wave "1" at last Friday’s 10,464 low. We continue to 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. The Dow pushed through initial resistance near 10,680 yesterday, but stopped short of the stiffer 10,750 level. Key resistance at the recent 10,874 high should not be exceeded or we will have to reassess or short term interpretation. We think (much) lower prices remain ahead [as calculated in the June issue of Reality Check].
TREASURIES
Treasury yields have continued making modest progress toward our overall target at 5.50%, closing yesterday at 5.74%, the lowest level since April 10, when the yield closed at 5.67%. The mixed messages given on the economy remains the wall of worry that the bond market is climbing, with one day’s reports signaling a slowdown followed by another day when the signal is economic strength. We think the odds the Fed will act one last time after their August 22, FOMC meeting remains higher than thought on the street. If they act, it may clear the way for the rally to power ahead toward our 5.50% target, as investors become confident that the Fed is through hiking rates.
A move to this level 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 buyback program of longer term Treasury maturities will last through the rest of the summer, remaining supportive through August. Resistance is at 5.72%, 5.65% and then or targeted 5.50% level.
GOLD
The XAU & Gold continued getting pounded as it appears we are in a phase of final, throwing in the towel capitulation. The problem with this is that there is no way to tell how far it can go. Last week’s selling climax on the XAU was an initial sign that a bottom is close, but it was not too strong and we’ll be looking for more of these and other signs that the selling is over before getting too confident.
We stated on Tuesday that "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." This is even closer now and seems like the markets are now going to happy until it is taken out. A new P&F buy signal would be given with a rally initial resistance at 55. A move to 56 would now suggest the bottom was in. Next resistance is at 59 and then at 64. This would be significantly bullish. Higher resistance is at 69.
PORTFOLIO CHANGES
Friday, August 4, 2000: 8/3: We covered our short of AMD right near yesterday’s opening low, at 58 3/8 (+34.37%), after it surpassed our 65+ downside projection. This was another very quick return after it was recommended as a short at 88 � on June 12. We have several new short sale ideas selected, but are waiting for them to bounce a bit before going for them.
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
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Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
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