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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 28, 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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FRIDAY, SEPTEMBER 28, 2001: The markets have been attempting to sustain a rally into today s last day of trading for the quarter. Generally, this generates lots of end of quarter window dressing, when positions are changed ahead of when they must report to their shareholders, and they use this last opportunity to close positions they don t want to show, while adding positions that they do want to show. Usually, this lasts for at least a few days into the new quarter as the re-positioning continues.
The rally we expected and were hoping for has continued through yesterday s trading, impressing us on a supposed light holiday trading day that reversed earlier losses of almost 100 points to close 114 points higher, on 1.47 billion shares traded. That s got to be the heaviest "light holiday trading" volume on record! While the market seems to be falling on forced margin related liquidation, it seems to be supported by bottom fishing combined with the presence of heavy short covering, as our Short Interest Ratio Indicator has fallen very hard from its recent high. This indicates that short covering is contributing to the market s recent gains. An upside reversal will warn of renewed short selling, that will likely occur into further strength.
While we are finally seeing relief from the emotional selling after the WTC/Pentagon atrocities, we are not yet totally convinced that we are out of the woods quite yet. October will likely see at least some further selling, particularly as mutual funds complete their tax loss sales as their fiscal years generally end on October 31. While it is likely that the majority of this is already completed, it is also likely that their is some left to be done.
The Elliott Wave structure does not look complete either, as the last low counts best as the end of minor wave "iii", within intermediate wave "3", with minor wave "iv" now in progress. If this is correct, it still allows for another low to complete wave "3", another minor to intermediate rally within intermediate wave "4", and then a final minor decline to complete the entire primary degree wave 5 structure, within primary wave "(C)" decline. In the event that the markets do suffer further losses in the next few weeks, we will be looking to buy issues that appear to be shaping up by holding above their lows, as they would appear to be poised for quicker recovery.
Many of our trading indicators have turned up, relieving many of the record oversold levels recorded at the recent lows. Some are moving up rapidly, quickly spending much bullish energy as they move toward the side of their short term overbought extremes on the swinging pendulum. As these continue higher, and as others join them in approaching higher ground, it will support the case for the next downturn.
Another decline where the averages hold above the prior lows would be a very promising sign to support a more sustained bullish case. We plan to remain objective if we recognize this as an increasing possibility, mostly because when we ve expected lower lows in the past to complete our interpreted wave structure, we were reluctant to change our view close enough to the bottom. We will outline parameters for this in the future, in the event that the possibility offers them. Short term resistance begins near 9000-100, with more near 9430, 9650-80 and near 10,000. Support begins at yesterday s 8472 low. A drop below this would indicate a deeper decline was under way, with lower support at 8062, and then near 7750, 74-7500 and 7000.
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TREASURIES
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Treasury yields have been rallying strongly in the past two trading sessions, due more to the fears over the weakened economy than to fears over continued acts of terror. This is not to say that investors are no longer buying Treasuries out of that fear, because this too remains supportive to the market. The bond has surged by almost two full points on the further signs that the US has fallen into recession, and that the Fed will cut rates again at their next policy meeting next Tuesday. It is expected that they will most likely cut by another 50 basis points and offer the potential to cut again later. While this will provide psychological support, we continue to think it will do little to re-invigorate consumer spending, outside of a modest holiday shopping season.
So far, last Friday s 5.663% high has held, but that did break support at 5.617%, confirming the bearish reversal. Because of this, we assume the yield to be in a corrective rally that will ultimately fail, reversing to continue to even higher levels. The rally has allowed us to lower the level it will take to confirm a longer term sell signal, from 5.80% to 5.65%, which would confirm that larger degree wave (3) of the longer term bear market was underway. This is one incrementally higher level on our (5X15) P&F Chart above the 5.633% high reached on 9/21. Higher support remains near 5.80%, the 5/15, 5.901% high, and then near 6.00 - 6.025%. Next resistance is near 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 traded flat yesterday, digesting the strong $3.00 gain Wednesday on the Dec futures to its highest level since May. Perhaps this too is being influenced by the end of quarter portfolio adjustments taking place, especially as today is the OTC gold option expiration, where many gold contracts are expiring, forcing traders to roll them out into future expirations. The promise of an ongoing worldwide policing action against terrorism certainly supports the long term case for owning gold. This is another of the many bullish fundamental signs that have to date, not helped prices.
Our daily trading indicators have become overbought, warning the bulls that the rally may be close to ending. On top of this, sentiment among futures traders is a whopping 80% who are bullish, serving as an even more serious warning against too much optimism. We continue to need to see more evidence that we are in the midst of a new bull market before we would join this lopsided consensus. We d love nothing more in the markets than to see our many gold stocks blast off into the outer layers of space, but even as the bullion has acted relatively well of late, the XAU has not managed to push through its next level of resistance. While a sustained breakout above 60.44 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. 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. 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.
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PORTFOLIO CHANGES |
Friday, September 28 , 2001: -- NONE TODAY --
[Part of our offensive is to have a good defense! That means limiting losses and protecting gains]! |
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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