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.
FRIDAY, September 22, 2000: Today, we emphasize the “FRI” in Friday as intel’s shocking, surprise earnings warning after yesterday’s close is certain to fry the entire market, especially as the publishers of the Wall Street Journal (Dow Jones & Co.) had to attempt to manipulate the market last year by adding it and Microsoft to the Dow Jones Industrial Average!!! We have been warning that the market would take the majority by surprise during this seasonally bearish period that will continue through the end of October. We must admit that we didn’t think it would get this ugly this quickly, but it implies to us that the cycle will either bottom early, - or - the bearish seasonality will be much more damaging than can currently be imaginable. Either way, it doesn’t require a whole lot of imagination to remain BEARISH! Intel’s warning is just the latest to reflect that US corporate profits are being hurt by the strength of the US Dollar as it makes our products more expensive and less competitive abroad.
So what does our Congress do? They APPROVE another of our communist nemeses’, CHINA for most favored nation trade status, by a vote of 83 to 15, so they too can flood our marketplace with cheap goods that were produced from the sweat of slave and child labor. We personally see this as the selling out of our Democratic principles, exactly what our politicians hypocritically pretend to believe in when making campaign promises of “restoring our values”. We say BULLS@#?!!!!!!!! We agree that removing trade barriers is a good thing, but not at the expense of compromising the very most basic of what this country was founded on, especially when it is with nations that have nothing to lose and everything to gain by making promises to the US that cannot be trusted. By the way, this will mean the potential for an even stronger dollar in the future, as they too will be doing a lot of business that will require converting their unstable yuan into US Dollars.
We had thought the markets were getting very oversold within the end of their minor 5 wave declining patterns, and they did manage to bounce over the last few days. The question is, was that it within the larger degree wave (3) decline, or will this morning’s plunge actually be the end of the fifth wave of minor wave 1 within the larger wave (3) decline? I know this may sound confusing, perhaps because there is no better way to describe the wave structure ahead of this morning’s certain weakness.
Our technical indicators support the view that the market is due a better and longer bounce than what we had in the past two days. The McClellan Oscillator reached a very oversold 142 yesterday, and may be even more so by this evening’s close. 14 day Stochastics and RSI are also very oversold, as are many other trading oscillators. On the bearish side, our 10 day A/D Line Indicator turned bearish with Monday’s weakness after remaining bullish for 27 trading days out of the past 29, for the longest bullish stretch in more than a year. One other point to be made, the oil futures show a very pronounced bearish divergence against their waning momentum, making oil AND the US Dollar vulnerable to a sharp decline of their bullish trends. This may add further weakness to the market decline.
The Dow closed at 10,687 yesterday ahead of Intel’s bad news, after reaching a low of 10,567.32 on Wednesday. This was very close to the top of what we consider critical support of between 10,500 and the 10,464, 7/28 low. A close below this level will reconfirm the Dow Theory sell signal that is already in force. This morning’s Dow future’s indicate a test of Wednesday’s low at the opening, so the market truly remains under siege. We will not pretend to know whether or not the market will bounce after the open or plunge further. Lower support for the Dow is at 10,220 and then at the 9732 low that was reached in March. Initial resistance begins at 10,800, 11,020, 11,200 and at the most recent 11,401 high. It will now take a close above this to establish a bullish trend and that is a long way off. For the NASDAQ, initial resistance will be at 3800 after this morning’s opening, with more at 3910 and 3980. More important, Monday’s 3702 low is likely to be challenged this morning, with next support at 3530, 3400 - 3350, and then at 3050.
TREASURIES
Treasury yields reached a high of 5.976% yesterday before reversing to close a little lower. If there is to be a beneficiary of this morning’s turmoil, it should be here, as we have still held out for a last gasp move. We stated last Tuesday (9/12) that, “Perhaps the needed push through the 5.65% barrier will be on a renewed flight to safety if we are correct about a steep decline in the equity markets.” Now is the time that this may reveal itself as a flight to safety would take precedence over the technical damage done to bonds so far.
The market did become quite oversold recently and the potential for a technical bounce/retracement to develop was growing anyhow. We therefore, think bond yields will begin to rally this morning, but even if they do not, they should have only limited higher potential, perhaps to a test of the next level of support at 6.00% - 6.05% ahead of the next attempt for yields to rally lower. Initial resistance is now at the 5.85% that was support, then 5.72% and at the 5.65% low.
GOLD
The XAU & Gold managed to hold their own as Tuesday’s 8th great Bank of England (BOE), 25 ton gold reserve giveaway found strong demand at the price of $270.60 per ounce. The offering was oversubscribed by a margin of 2.6 to 1, meaning they received offers to buy 2.6 times more than the supply that was made available. Even with this continued strong demand, the metal sold off on Wednesday and Thursday, and the XAU made an marginal all time low at 48.46. This puts us on the lookout for a major selling climax (SC), which would take a rebound today and close above last Friday’s 51.21 low, not very likely. We would continue to watch for this if a new low is made early next week, as the requirement will have been lowered.
The dollar also had a sharp plunge yesterday, and could find plenty of selling pressure on yesterday’s announcement from Intel, as the dollar’s strength has been partially due to the perception of foreign investors that the prospects in the US had been good. They may now show a change of heart, and a declining dollar would take a very heavy pressure off the US gold market. A push above 55-6 is still required to turn the short term trend bullish on our 1 X 3 P&F chart. On our 2 X 6 chart, a move to 56 would also be a low pole (LP) buy alert. This would also confirm the upturn in the Precious Metals Bullish percentage indicator that was reported on Wednesday by Investors Intelligence [(914) 632-0422]. Higher resistance is at 59, then at 64, and 69. Support is at the 8/31/98 low of 48.73 to this week’s 48.46. Below this, we see support below 44.
PORTFOLIO CHANGES
Friday, September 22, 2000: we added a new short yesterday, on Energy Service leader, (9/21) Ensco International (ESV) at 36 3/8, after it had a very bearish high pole top (HPT), had a recent shift from insider buying to selling and trades at an over exploited 64 P/E ratio, indicating the expectations are already priced in. The stock may very likely bounce, but we would use it for adding it as a new position if not done now.
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
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