Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
The Ratio continued to move higher, again approaching an overbought reading above .40. So far, the lower high against the market advance is considered an overall negative divergence. The potential for a bearish reversal is growing.
TUESDAY, August 29, 2000: The low volume, divergent pre-holiday rally continues unabated as sellers have disappeared and the few buyers that remain make it appear that the rally is healthy and that the bull market momentum has returned. Until we see the rally persist on volume that surpasses 1 billion shares per day, the rally remains very suspect. Of course, it has been rationalized that the buy side volume will return after the Labor Day holiday, but we don’t know that its been the SELLERS that have taken time off. We continue to argue that while the rally has pushed further than we thought, there is still nothing to negate it as approaching the end of a ‘bear market’ rally, as the Dow, Transports and the OTC Composite remain far below their all time highs.
We also continue to see generally bullish complacency stretching itself further to an extreme that warns of a potentially serious downturn ahead. This, combined with other of our momentum indicators showing bearish non-confirmations of the latest highs, along with a flattening and divergent daily A/D line. While these things do not guarantee anything, they certainly don’t reflect the healthy environment that we are hearing about by the media, who is simply elated that prices aren’t falling.
Support for the Dow now begins at 11,000, with the key level at between 10,500 - 464, at the 7/28 low. A break would signal a trend reversal that should lead to a test of critical intermediate support at the 6/30, 10,336 low. The Dow continued to push through resistance, exceeding 11,220 yesterday, making it possible that the key 11,425 will be challenged soon. A break above this would force us to reconsider our bearish opinion, but it must be pointed out that we have continued to balance short sale recommendations with buy side ones. A strong close above the resistance at 11,425 would make a test of the January, 11,750 all time high likely.
TREASURIES
Treasury yields are having a tough time making further bullish progress because of how extended they are. While bulls point to the slowing economy, technicians argue that the market is vulnerable to a setback due to how far its come. We agree with both of these appraisals, but our wave analysis suggests that the market is indeed becoming more vulnerable to a “complete” trend reversal. While we have been pointing to a yield objective of 5.50% because it would complete 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], it has consistently had trouble at the 5.72% level, also a Fibonnacci resistance level, of a 50% retracement of the same rise from 4.69% to 6.75%.
While our long term bond timing indicator, the Dow 20 Bond Average, and the Treasuries continuing buy back program, our lower target still remains possible.
We continue to reiterate our intentions to become progressively less bullish with any further progress toward our goal. Initial support remains just beneath 5.85%, 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 should remain supportive through August. Resistance at 5.72% gave way and the yield was close to testing the 5.65% level yesterday. A push through would be a good sign that we are closing in on our targeted 5.50% level.
GOLD
The XAU & Gold hasn’t managed to do more than tread water, with the bulls doing little to follow through to take prices higher after last week’s meager bounce after hovering near critical support for the bullion as well as the XAU. HOWEVER: we see a clear 5 wave decline on the December futures chart and the last low (minor wave 5) shows a very clear and bullish momentum divergence. This, as well as the XAU remaining above its recent low below 50 offers strong and growing potential for a very bullish reversal, especially as these bullish divergences must be making the shorts even more nervous as the potential for strong short covering is brewing beneath the surface. Stated on Friday, “recent weakness has been driven by speculative selling, meaning that the pressure is based on new short sales being established, rather than real investor selling. These types of trading positions are always temporary, as the holders need to pay back the gold they had to borrow before establishing their short sales.” We see this commencing at any time now.
A push above 55-6 would be a short term buy signal on our 1 X 3 P&F chart, which will not take much effort to achieve. Sentiment remains very bearish, making an upturn even more likely and sustainable. A close above 56 would signal the potential for a more sustained upturn than many may be prepared for. Higher resistance is at 59, then at 64, and 69. Support is at the recent 49.55 low and then at the critical bear market low reached on 8/31/98 at 48.73. We can only wait for something of analytical value to emerge, which we think is coming.
PORTFOLIO CHANGES
Tuesday, August 28, 2000: 8/28: Adobe Systems (ADBE) again hit our 132 stop and was removed with a small, (-6.77%) loss. We are suspending our 100 stop for now on the QQQ’s, because we think a turn is close and the 100 may be violated by a small amount. For now, I am willing to sit on it rather than having to wait for 31 days to re-establish it.
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 .
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