Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
After
bouncing back since late in July, the Ratio weakened again ahead of the
long holiday weekend.It now
shows a bearish divergence by making a lower high against the market’s
higher high.This is one of
many concerns as we have now moved into the most bearish seasonal period
of the year.
FRIDAY, September 8, 2000: The pre-holiday low volume rally the market had enjoyed may have come to an end now that we’ve moved out of the end of the late August vacation season. Volume since this week has indeed picked up a bit, but so has the selling. The Dow and NASDAQ have reverted back to their suspicious and divergent behavior of moving in opposite directions on an average day. For instance, on Tuesday, the Dow gained 21 & the NASDAQ lost 91. Wednesday, the Dow gained 50 & the NASDAQ lost 130, & yesterday, the NASDAQ recovered 84 but the Dow lost 51. This is not what we would consider healthy, but fractal and divergent. We continue to expect that the next good buying opportunity still lies ahead, perhaps toward the end of October.
The bullish complacency we’ve discussed continues, further setting the stage the a big disappointment. One of the sentiment indicators we use, the Option Volatility Index (VIX) reversed UP in recent sessions from the most complacency registered since it bottomed out last July, just ahead of the major bearish reversal and subsequent meltdown at that time. This is a clear warning that prices may be in the process of reversing.
Very short term support for the Dow is up to 11,200, with progressively more critical support at 10,980, and the key level still 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, reaching 11,401 on Wednesday, just 24 points from the key 11,425 level that would force a change of our overall bearish view if exceeded. A strong close above this would make a test of the January, 11,750 all time high likely.
TREASURIES
Treasury yields have continued to meander and the rally appears to be running out of gas. We still think there is enough left to push the yield further toward our 5.50% yield objective, but that could change. As we stated last Tuesday, “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%.” This has not changed.
On the positive side, our long term, Dow 20 Bond Indicator remains firmly bullish, the economy shows growing signs that it is slowing, and the Treasury continues to support the market with their long maturity buyback program. On the bearish side, heavy corporate supplies are scheduled to be issued, taking away from the demand for Treasuries, sentiment has become pretty optimistic, and the rally has quickly lost its momentum. We think this makes the market’s future path a toss up for now, with the odds slightly favoring the ongoing bullish trend.
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 have remained under their perpetually bearish sentiment, but we do see some very encouraging short term signs. Most impressive is that while the price of gold has remained under selling pressure, the XAU has managed to hold its ground near 50 before reversing minimally higher. This bullish price divergence is what has typically preceded powerful rallies in the past. We think this will happen now too, especially as no one thinks it is possible for the price of gold to rise, as seen in the Market Vane survey that shows a very low level of just 20% who are bullish. Every other market in the world has had its day of extended bullish exploitation and we think that gold too will have its day.
A push above 55-6 is still required to turn the short term trend bullish on our 1 X 3 P&F chart, which will not take much effort. 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 await something of analytical value to emerge, which we think is coming.
PORTFOLIO CHANGES
Friday, September 9, 2000: 8/24: Storage Technology (STK) was added to our low priced portfolio at 13 7/16, after it broke out of a nice base, after a 3rd selling climax (SC) below 15. 8/28: Our ADBE short was stopped out again at 132 (-6.77%); 8/31: The CMB short was stopped out at 55 (-13.695%); 8/28: the 100 “buy” stop was suspended on the QQQ short, as we think the market is very extended and likely to turn lower. 9/5: Recommended new short on large cap biotech co., Biogen (BGEN) 67 �. This appears to remain the weakest major issue in the strongest market sector, which we believe is as vulnerable as the NASDAQ is. 9/7: Also added to the short sale portfolio, we added KLAC Tencor (KLAC) at 61 �, and Gateway Computers (GTW) at 64 �. Both of these issues have plenty of insider sellers and both are on bearish “high pole” formations on their P&F charts.
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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