Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
After bouncing back since late in July, the Ratio reversed down again completing what appears to be a divergent lower top. This is clearly a bad sign and what we had been expecting all along as the ratio had recovered, especially as we are now in the most seasonally bearish period of the year.
FRIDAY, September 15, 2000: It’s hard to believe, but summer is almost over, and that means that a change of season is just around the corner for the markets. To most, the end of the summer is represented by the Labor Day holiday weekend, but to me, it is today’s third quarter triple expiration of options and futures. The markets continue to act split and fractured, perhaps because there is simply no longer enough money to float all boats, as it appears that only one of either the Dow or OTC markets have been able to have a good day at the expense of the other. Yesterday was another example of this, as the Dow lost 94 points and the OTC Composite managed a small 20 point gain. We’ve said it before, but this is NOT how a strong, healthy bull market behaves, especially if prices are to rally through the seasonally bearish period we are now in.
As previously stated, we think that overall, we are entering the devastating cycle degree wave (3) decline of the bear market that’s been with us for well over a year now. If correct, the bearish cyclical forces that we have expected all year will drag prices much lower than many foresee, finally showing how bear markets sneak up on the uninitiated in order to keep the greatest majority believing the worst is over long before it even gets started. We think the worst is yet to come, but for the prepared, it will offer great trading opportunities on both sides of the market. These opportunities mean that we not only have to step up to the plate, but will have to take a few swings too. Of course, this is easier said than done!
At least some of the current weakness is related to both, this week’s triple expiration of options and futures, and the approaching end of quarter portfolio “re-adjustments”. Perhaps by the end of the month there will be even more “adjusting”. The fully complacent environment seen by the VIX and other measures do not just go away. They will only find relief with a lot more selling than what we’ve seen so far. We’ll have more on the VIX in this month’s issue of the Reality Check Newsletter, due out this weekend.
While everyone is haggling over the Fed’s next move, we think that what OPEC is doing may be just as important. Oil prices have risen by 350% from their 1/99 low beneath $11.00. When this is combined with the Fed’s six rate hikes, their is a much greater risk that the economy will not land so softly as so many think. In fact, consumers worldwide are being strangled far worse by the gas pump hose than by the Fed. Now that’s a hose job!! Higher oil prices are BAD for the economy, acting effectively worse than the Fed as its impact is felt much more directly as it takes spendable income out of everyone’s pockets. The imbalances created by higher oil prices will show up somewhere and the impact cannot be “factored” out of government data forever (like in yesterday’s .2% PPI gain). That is, not unless the government can convince all of us that these imbalance never really existed to begin with. Perhaps this is the message being delivered by the utility and financial sectors which have attracted money that is seeking shelter from something.
The Dow nominally broke another short term technical support level by closing below 11,100 yesterday, as it appears to be heading for the next, more significant test of support at 10,980. A break of this level will confirm that the short term trend has indeed turned bearish, although we already see enough to not wait for lower prices. Key support remains between 10,500 - 464, from the 7/28 low. A break would signal the larger trend reversal that we see coming, and should lead to a test of the last bit of critical support at the 6/30, 10,336 low, before pushing below 10,000. The rally ended at a high of 11,401 last Wednesday, just 24 points from the key 11,425 resistance before turning lower. A break above this level is still needed to force a change of our overall bearish view, keeping us bearish against it. A strong close above this would make a test of the January, 11,750 all time high likely, but this is becoming less likely. Shorter term resistance is near 11,250. Have a great weekend!
TREASURIES
Treasury yields accelerated their correction yesterday, moving up to close at 5.82%. This is closing in on our 5.85% support level. A close above this would turn us cautious as it would call into question the markets ability to resume its move toward our 5.50% yield objective. The markets fear the higher energy prices and have not been able to easily absorb the tremendous supply of corporate bond issues hitting the markets this week of better than $12 billion. Dealers are selling off their inventories of treasuries to make room for this corporate paper. Perhaps this supply can be worked off so the Treasuries can recover, but this is not a certainty.
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 an important bearish reversal, with next support at 6.20 - .25%, 6.32% and 6.40%.
GOLD
The XAU & Gold haven’t done anything new OR different. Investors Intelligence reported that the precious metals mutual fund bullish percentage just moved up to 34% and a “buy alert”. We also see the overall group bullish percentage capable of turning bullish from a deeply oversold level with just one or two good days, as many of the charts that we follow are close to a new P&F buy signal. We have also been noting that the XAU has shown better relative performance over gold itself, a bullish divergence that typically precedes an upturn. Sentiment remains deeply bearish overall as there is literally NO confidence that a sustainable rally can be forthcoming. Of course, this is a very bullish omen! We have also seen a continued steady flow of insider buying of various mining issues, a vote of confidence from their respective management’s. The Bank of England will auction off another 25 tonnes of their gold reserve next Tuesday, promising to keep sentiment for the metal on pins and needles. We wonder why news such as this hasn’t felt factored into prices months ago already, as it is simply a planned event that the markets have always managed to easily absorb. It would be a very good sign if prices rally after the results are out.
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 (else) of analytical value to emerge, which we think is coming.
PORTFOLIO CHANGES
Friday, September 15, 2000: - none today -
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).
Copyright � 1998-2002 Tulips and Bears LLC.
All Rights Reserved. Republication of this material,
including posting to message boards or news groups,
without the prior written consent of Tulips and Bears LLC
is strictly prohibited. 'Tulips and Bears' is a registered trademark of
Tulips and Bears LLC
Last modified: April 01, 2001
Published By Tulips and Bears
LLC
