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REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL
2000-SEPTEMBER
2001 |
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Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
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September 7, 2001 |
| STOCKS |
| REALITY RATIO: -0.065
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Last Signal: 08/31/01, SELL
Dow: 9,949.75 OTC: 1805.44
Last week s market plunge took our ratio line down sharply, removing what turned out to be our wishful thinking of the previous week when we viewed the action of our indicators as a bullish divergence. This was a harsh lesson for us to learn, but we still believe that a strong rally has become even more overdue, and that the plunge has a very good chance to be near the END of the selling.
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FRIDAY, September 7, 2001: The markets were taken down hard again yesterday as selling has taken on a life of its own as it has become the newest fad among Wall Street speculators. The Dow was off almost 200 more points after it had bounced for the past two days, but the Nasdaq markets have fallen every day of this holiday shortened week. The Nasdaq 100 reached a new low while the Composite is still a bit above its low of 1619.58, reached on April 4. Emotions are running very high, and while it is scary, it is generally what is seen near significant turning points.
The fact that the wholesale selling has come before what we had anticipated would be a "C" wave rally indicates the possibility that the markets had never completed their 5th wave of decline, and are doing so now. This is more probable for the OTC averages than the Dow, which can still theoretically be within wave "B" down, with the "C" wave rally still ahead. A new low for the Dow would negate this, but it still has a way to go for this, especially when compared to the OTC Composite and 100. With the selling already well progressed, emotions running at very highly pessimistic levels, the majority of indicators already very oversold, and literally no one expecting a rebound, the prospects for one remain high and growing. At this point, we must go against the frantic heard, regardless of the economy or current media spin.
We must continue to point out that this decline is not the beginning of something new. It began from the 5/22, 11,350 market high and has now gone beyond what we consider as a normal period for most selloffs. This too supports the case for some sort of tradable low being close at hand. At least, conditions appear right for one. Last week s technical break down triggered the cascade of stop loss selling that we had mentioned a week ago Tuesday. These should be running their course, as those who had planned to sell have been doing so. Next lower Dow support is near 9650-9700, 9375 and then at the 3/22, 9106 panic low. Resistance now begins near the psychological 10,000 level and then between 10,120-200, 10,400 and 10,600. The OTC Composite is about 100 points above its April low, near 1620. Resistance begins near 1930-40.
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TREASURIES
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Treasury yields have been equally as volatile as the equities markets, as fickle money has moved in and out depending on the daily course for stocks, which this money clearly favors. From Monday s 5.339% low, the yield pushed violently higher on Tuesday to 5.48%, on the better than expected NAPM news, indicating that the worst is over for the hardest hit manufacturing sector, as inventories have been worked down and production is picking up to meet demand. But wait&yesterday s meltdown in stocks brought the money back to Treasuries, driving the yield back down to 5.40%. This is NOT a market for investors as each day is bringing a new short term trend in its own right.
Similar to the potentially capitulative selling in the stock markets, the tug of war between bulls and bears who cannot decide on how they want to be positioned is typical of the volatility that develops at the pinnacle of a major trend change. We see conditions right for a bearish reversal, barring the prospects for further support from flight to safety buying out of equities. The yield has so far NOT sustained itself below our targeted Fibonnacci resistance at 5.363% (.786 retracement). Whatever happens from here, the rally is old and has already used up a great deal of its bullish currency/energy. Again, 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 Tuesday s 5.339% 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 support is near 5.40-.42%, 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 do little without the influence of the activities that have prevailed ahead of options and futures expiration weeks. If there was ever an opportunity for money to seek out and move to alternative investments like precious metals, it would be now. The fact that this is not yet evident is a sign that investors are not yet ready to seek out alternatives to stocks. While we firmly believe the day is coming and could begin at any time, we don t think it has started yet.
In an interesting interview I ready last night called "Prospecting for Silver" that was posted on the Gold-Eagle web site (www.gold-eagle.com), Precious Metals Analyst, David Morgan made a few good points regarding silver. First, he pointed out that CPM Group is increased their forecast for a 2001 silver deficit by 20%, from 97 million ounces to 115 million. This expectation means that their would be 115 million fewer ounces available than the anticipated demand. In recent years, the supply shortfall has been made up with the sale of government bullion coin sales and recycled silver from scrap, as new mining production has declined due to depressed prices. Mr. Morgan explained that this is similar to the 1920 s and 30 s when gold fell to such an extreme low that the US government began to buy silver to bring the price back. This was the result of "Congress abdicating all of its monetary responsibilities to the Executive Branch". We think this was similar to today s irresponsible fiat currency based system that is backed by nothing but the confidence that governments will be able to make good on their paper IOU s. As this perception may now be changing, we think it will become more pressing that currencies are backed by real hard assets, and this will mean central banks, who have been net gold and silver sellers for decades now, will begin to repurchase them at some point in the future.
Resistance begins at the recent 5/17, 58.44 high, with the next level at the key, 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. The XAU slipped to 54.50 yesterday, but have shown no great pressure in either direction. 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,
September 7, 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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