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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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August 31, 2001 |
| STOCKS |
| REALITY RATIO: +0.29
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Last Signal: 08/24/01, TRADING BUY
Dow: 10,423.17 OTC: 1916.80
Last week s strong close turned the ratio line back up just enough to keep us bullish and hopeful. Unfortunately, this is exactly what bear market s do to keep even the most pessimistic hopeful that a turn was coming, just as the rug is pulled out once again. This action is by design to whittle away at any last bit of confidence.
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FRIDAY, August 31, 2001: HOLY COW! What a horrible week for the bulls, including us! What can we possibly say except that we couldn t have been more wrong about this market. We are very disappointed in how badly and quickly it has gone from constructive looking to all hell breaking loose. We must admit our frustration with the market s terrible reaction to news and economic reports that could not have possibly been a surprise to anyone. A severe slowdown in the GDP, which by the way came in BETTER than expected. A slide in the largely depended on consumer confidence, and more key earnings warnings, have brought the Dow down by 500 points SO FAR for the week. Thank God this is the last day of trading for August, as the pre-holiday week comes to a close.
On the side of continued hope, the selloff is turning sentiment very bearish. A guest on CNBC yesterday showed how the OTC s P/C Ratio was 3:1, showing 3 puts being bought for each call option. This is a pretty extreme level of confidence that the OTC is going still lower, YET, the guest says that for them to expect the market to bottom, they expect to see 25:1, or 25 puts bought for each call. While I don t follow the OTC PC ratio per se, I will say that from over 10 years of watching the CBOE, OEX and Equity P/C ratios each day, that nothing I ve seen has even come close to 25:1, so I don t know what criteria they are basing this hysterical sounding criteria on. What we can take from comments such as this is that bearishness is becoming pervasive, at a time when the markets are at historically oversold extremes based on some of our proven indicators.
Does the break down mean we have shifted our opinion back to bearish? NO. While we are discouraged by this week s plunge, and while some key support levels have been violated, we still hope for a significant low in this time frame and this remains supported by many technical signs that we watch for. Perhaps the selloff is the tale end of a correction that began from the 5/22, 11,350 market high. In other words, when we ask ourselves, "is this the beginning of something new, or the continuation of something old?", our conclusion is that this correction is already VERY mature, and must be closing in on its end. We feel even more confident of this based on our wave criteria which still suggests we remain within intermediate term wave "B", with a strong "C" wave rally still ahead. We certainly hope we have not simply become unrealistic wishful thinkers, but we don t see much wisdom in running with the hysterical mob at this late date.
While many technical indicators have finally joined the downside after staying resilient throughout much of the correction, we think they may the final shoes to fall, ahead of an attempt at finding a trading bottom. The technical break down has triggered the cascade of stop loss selling that we had mentioned on Tuesday, when we also said that "in itself, this would not change our expectation that a tradable low is due." Next lower support is near 9650-9700, 9375 and then at the 3/22, 9106 panic low. Resistance now begins between 10,120-200, 10,400 and 10,600. We ve got a long way to go before worrying about levels above this!
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TREASURIES
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Treasury yields rally sharply in direct relation to money panicking away from equities. This has pushed the yield below our next targeted Fibonnacci resistance at 2.363% (.786 retracement), but yesterday s 5.339% low was not sustained but for a few minutes at best before it turned higher to end the day near 5.39%. In essence, this next level has so far been reached and is holding. Here too, we hope we aren t just being wishful thinkers, but the chart indicates to us a market that is very vulnerable to a trend reversal, especially as the money that is driving the rally is that of the weakest and most fickle trend followers. If we are correct about this, it will likely be because we were correct about the equity markets.
Next short term resistance is now at yesterday s low, down to 5.30%. Beneath this it is at the key, 3/22/01, 5.217% low. We continue to remain bearish against these levels. Initial resistance is near 5.40%, with the next higher level at 5.617%. A break above this would confirm a short term bearish reversal. A break above the 7/6, 5.771% high would confirm a more substantial bearish trend reversal and indicate to us that the larger degree wave (3) bear market was underway. |
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GOLD
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Gold & the XAU continued to consolidate their recent gains, with gold bouncing over the past two days, while the XAU has been churning. So far, there s still been no net progress made since the 8/17, option and futures expiration. If these markets are going to resume their uptrend, it is likely to be lead by the XAU as the stocks generally lead the futures. This may be a sign that the rally has only paused and not ended. While we have not been bullish on the metals recently, we would gladly become so under the right circumstances, and we still need to see more before we would change our overall opinion for the near term. As stated last week, "we think that like other bull markets, when it is gold s turn, it will EXPLODE to the upside, leaving NO DOUBT that it has begun. This is not how it is acting now, which is much more suggestive of a bear market rally."
So far, the 58.44 has not been exceeded, but prices did manage to close minimally below last Friday s low at 56.90, confirming a very short term bearish reversal. We do not know that this is enough to call for an overall trend change, especially with the troubles related to the equity markets that are forcing many to seek alternatives for diversification. Next resistance is at the 6/14, 60.39 high, and then at the 5/18, 66.54 high. A clear breakout above 60 would be very bullish because it would also break above the long term downtrend line drawn from the 2/7/96, 155.60 high. Support begins near 52 and with more at the 2/14, 45.64 low, and then at the even more critical 7/14/00, 41.61 low. For (cash) gold itself, resistance begins near last week s $279 high, with more at $280 and $286. Cash pushed below support at $272, triggering a very bearish High Pole at the Bearish Resistance (HPBr) on our short term P&F Chart.
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PORTFOLIO CHANGES |
Friday, August 31, 2001: - none today--
[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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