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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 25, 2001 |
| STOCKS |
| REALITY RATIO: -0.613
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Last Signal: 09/07/01, TRADING BUY
Dow: 9,605.85 OTC: 1687.66
The Reality Ratio plunged to its deepest oversold reading since 10/15/99, when it reached an oversold extreme of .677. From there, the rally that followed pushed it quickly back to a high of .355 in just three weeks. This illustrates what we believe to be extreme bullish potential in the weeks ahead, and perhaps longer. That makes the results of this week or potentially next week very critical in determining if we are indeed at an important low.
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TUESDAY, September 25, 2001: Our markets finally found some relief yesterday after one weak week and a weekend that was without any new news of disaster. Relief was certainly more than a little overdue, and while it is premature to say for sure that prices have hit bottom, it does serve as a warning to the short sellers that buyers are still willing to come in and scoop up some great bargains when they are served up by over-zealous emotional selling.
Last week we discussed many record and/or at least extraordinarily extreme oversold readings in many of our key shorter term trading indicators. With the emotional, panic selling on heavy volume, we saw many signs of capitulation, and this brought down our longer term indicators to join the shorter term ones. These include the Investors Intelligence (I.I.) NYSE bullish percentages, which are now ALL oversold below 30% bullish readings. Upturns in these, especially from the depressed levels they have reached will be a very encouraging sign for the bullish case. While this will likely still need a bit more time, it is now appropriate to begin selecting stocks we will want to buy into an upturn. Our Short Interest Ratio Indicator has also plunged in recent days, and is now down by almost 22% from its early September high, as they have been covering their shorts into the weakness. This has the potential to help drive prices higher in the near term as it will help encourage more buying.
Based on our short term Elliott Wave analysis the decline does not yet look like it is complete, where Friday s low may only be the end of minor wave "3", with 4-up now in progress, ahead of one last decline to complete the entire sell-off. While this may yet occur, we will attempt to buy into any further weakness, especially issues that appear to have already seen their lows ahead of the market, as these will likely do well when the market is rising again. Short term resistance begins near 9000-100, with more near 9430, 9650-80 and near 10,000. Support begins at Friday s low at 8062, and then near 7750, 74-7500 and 7000.
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TREASURIES
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Treasury yields are attempting to stabilize near support at 5.60-.625% after last week s key bearish reversal and short term sell confirmation. Our longer term P&F yield chart reversed enough for a "High Pole at the Bearish Resistance" (HPBr), increasing our confidence that higher yields remain ahead. Also adding credibility to this analysis is that the Dow 20 Bond Average, one of the longer term indicators that we use also gave a sell signal last week.
In the short term, bonds got a bit oversold and a bounce is due. This may be helped by yesterdays crashing oil prices, which brought October Crude down by -.3.97 at the close, and were even lower than that intraday. We are not certain whether those prices will be sustained, but they came down over fears that the world may be entering into a prolonged recession. Combining this with the lost "peace dividend", and we can see why rates are spiking higher even into the face of greater than expected economic weakness.
Failing to make progress below our targeted Fibonnacci resistance at 5.363% (.786 retracement), the yield has reversed to a closing high of 5.626% on Thursday before bouncing. This broke what we had been targeting for some time as key short term support at 5.617%, confirming a bearish trend reversal on our short term P&F Chart. The yield will confirm a longer term sell signal with a rise to 5.80%, but will need to rise above the 5/15, 5.901% high. This would confirm that larger degree wave (3) of the longer term bear market was underway. Resistance is now near 5.51%, 5.40 - 5.34% and then at the 5/22, 5.217% low. We remain long term bearish against this lower level. |
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GOLD
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Gold & the XAU sipped back yesterday, after a better than $3.00 surge into Friday s option and futures expiration. We had been, and remain concerned that gold s recent surge was helped by short covering and position roll outs that have occurred with regularity into these expirations. While the short term trend has been up, we are still concerned about this post-expiration period over the next week or so. To be sure, the new reality that we are in will likely provide periodic shocks to the financial markets, as the "good" do battle with the "bad and the ugly" from time to time as they are "smoked out of their holes", a little bit at a time, as we do not see a traditional theater of war, but more of an era where the US and its allies become the enforcers of a worldwide police state. This is how we foresee the war being waged over time. It should provide a new reason/realization for the virtues of owning hard assets such as gold and silver.
Initial XAU support is at the 9/6, 54.48 low, with more critical short term support still near 52. Beneath this, longer term support remains at the 2/14, 45.64 low and then at the 7/14/00, 41.61 all time low. Prices pushed to an intraday high of 60.44 before reversing sharply on Friday close at 58.20, still their highest close since the 59.68 close on 6/28. To confirm the upturn, a breakout above the key, 6/14, 60.39 high is needed. While this level was challenged, it has so far failed. We must also point out that a bigger concern is that our longer term P&F Chart remains on a "High Pole at the Bearish Resistance (HPBr) formation, after a Buying Climax (BC), from its 5/18, 66.54 high. While a sustained breakout above 60 would be very bullish as it would also break above the long term downtrend line drawn from the 2/7/96, 155.60 high, the XAU still needs to contend with this more substantial higher technical barrier and bearish chart formation before the long term trend can be considered bullish.
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PORTFOLIO CHANGES |
| Friday, September 21 , 2001: We are taking another stab at AMR. We will add it at this morning s opening. While it s situation is likely to remain uncertain for a while longer before business becomes more normalized, We think it offers good value, assuming of course that the worst of these problems are passing now. The stock gapped down from a low of 29.25 and we think it has the potential to rally to "close this gap", hopefully in the next few months. |
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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