Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
Last week’s selling turned the ratio down from a LOWER high, as the suspected bear market “retracement rally” came to a screeching halt. This confirmed last week’s comments that the ratio had completed a divergent top, a leading warning of the pending downturn that is now underway.
TUESDAY, September 19, 2000: The Fall market has arrived! That is, everything is FALLING!! With yesterday’s close, we are starting to see what we think is close to the end of many minor 5 wave declining patterns, particularly in the OTC market averages. While all indications remain firmly bearish, we expect to see efforts to rally the markets back, within minor wave 2 of the larger degree wave (3) decline that we’ve been warning about. The Dow has so far plunged 600 points in 9 trading days. Here, it is not yet certain that the wave 1 decline has completed, leaving room for a small bounce and one more lower low. If correct, this implies that the OTC will recover a bit ahead of the Dow, and ultimately lead the markets lower again as the wave 2 corrective rally runs its course.
The OTC Composite has declined 538 points so far, from 4250 to yesterday’s 3702 low. This makes it likely that a retracement rally to at least 3908 is approaching, with further potential toward Fibonnacci resistance to 4035 - 4126 is also possible. Until the Dow shows the end of its 5th minor wave of decline, it is not worth the effort to attempt forecasting its retracement potential.
Several of our short term trading indicators are adding to the evidence that a bounce is due. The McClellan Oscillator for instance closed at -120 yesterday, and we had a “tick” buy signal with -655 down ticks at the close, indicating a rush to the exits ahead of what was feared to be another day of selling. The Dow closed right at 10,800 support yesterday, allowing for a modest bounce ahead of the final minor low to complete the minor wave structure. Next support is 10,700 and then our critical level, near the 10,464 7/28 low. P&F resistance essentially begins at 11.020, and then at 11,200 and at the most recent 11,401 high. For the NASDAQ, initial resistance is at 3860, 3980, 4100, 4200 and 4260. Once yesterday’s low is broken at 3702, NASDAQ support is at
3560, 3400 - 3350, and then at 3050. We’ll see how long any attempts at a bounce will last (assuming the markets are ready to bounce!).
TREASURIES
Treasury yields continued to rise sharply over the fears that the economy will land “harder” than the consensus was hoping for. This would mean less Treasury security buybacks in the future as the influx of tax receipts would slow with it. The heavy supply of new bond issues being rushed to the market, and the $37 per barrel oil reached yesterday haven’t been helping either as the market was not prepared for these supply risks. Of course, we have warned of these risks and that the bond market was becoming more vulnerable to a trend reversal. We would also warn that a growing perception that the US economy would slow more than thought may lead to a sharp reversal in the dollar’s perpetual good fortune, as foreigners cool their desire to “own America”.
Support at 5.85% didn’t provide much of a challenge for the bears as yields plowed right through them to close at 5.96%. This is the highest yield since June 28, when the market was not yet convinced that the economy was slowing. Our forecast for the yield to reach a low of 5.50% is now becoming a distant memory, although our long term bond indicator, the Dow 20 Bond Average remains bullish. Until this changes, we will continue to respect the potential for the bullish trend to re-assert itself.
Our warnings that we would become progressively less bullish have served us well. Next support is at 6.00 - 6.05%, and the 6.20 - .25%, 6.32% and 6.40%. Resistance is again at 5.85%, 5.72% and 5.65%, where a push below 5.65% is now needed to re-assert the bullish trend.
GOLD
Working in a gold mine, going down, down, down…” The XAU & Gold haven’t done anything new OR different and I am therefore leaving Friday’s comments as is, with just one new comment. The market has remained bearish ahead of today’s 8th great Bank of England (BOE), 25 ton gold reserve giveaway. This offers the market the strong potential to begin recovering in relief of this, regardless of the auction results. Investors Intelligence reported last week 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
Tuesday, September 19, 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
