Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
Our ratio indicator followed through, declining further toward an oversold reading, but it has further to go, keeping the short term trend clearly bearish. We continue to view any attempted rallies to be opportunities for selling in the very near future.
TUESDAY, September 26, 2000: Part 2 of the end-of-quarter window dressing period continued yesterday, but as portfolio managers had cleared out much of what they wanted to avoid showing on statements and quarterly reports, they rushed in to buy the stocks that they wanted to display in the same reports. We don’t think much has changed since “Wednesday’s” close, but follow through buying will be given the benefit of the doubt for the very short term bounce that we had been looking for. Overall, we do not think that yesterday’s power buying was the beginning of a sustainable uptrend, especially as mutual fund managers will be dumping more of their losers into the end of October, when their fiscal year ends!
Perhaps yesterdays huge short covering and portfolio dressing inspired rally was a bit pre-mature as after the closing bell, Apple Computer pre-announced that their earnings would fall far short of expectations, ending their string of better than expected results. We don’t know how the market will close, but we think that at best, we will see backing and filling on this morning’s open, as the futures already show losses.
The more immediately bearish of the three short term Elliott Wave possibilities we offered on Tuesday was eliminated with yesterday’s strong recovery. We think that in light of the strength, it is most likely that cycle degree wave (1) down was completed at Wednesday’s low, leaving the door open for more of a corrective rally to develop ahead of the next leg of selling. A decline to below 10,700 on the Dow’s hourly chart this morning would call this into question. Support beneath that is at 10,560 - 80 and then at the 10,464, 7/28 low. Dow resistance begins near 10,900, with more at 11,100, 11,280 and at the most recent 11,401 high. A close above this would turn the ball back over to the bulls, but that is still a way off.
TREASURIES
Treasury yields have done little but hold the flat line in recent days, trading between our sighted 5.85% resistance and 5.90%. Something is bound to break this deadlock soon, and I suspect that it will be toward next support at between 6.00% & 6.05%. However, bonds do remain relatively oversold and this allows the potential for a better retracement toward lower yield resistance at 5.72%. We no longer feel it appropriate to have more bullish expectations than that, and even this is tentative. It has become much more likely that the intermediate and cycle degree trend has turned back toward higher rates. If this is the case, it strongly indicates an eventual RISE above the January high of 6.75%. This would certainly rattle the equity markets and place more pressure on the already slowing economy and corporate earnings.
Yesterday’s Danish vote AGAINST joining the ECU may have been the beginning of the end for this cross border social experiment, as it indicates the lack of confidence the PEOPLE have when allowed to make their own decision. The final blow would ultimately come from a NO vote in Britain, and the people already strongly oppose membership, against the desire of now very unpopular, Prime Minister, Tony Blair. We think it remains a matter of time before the continued slow implosion of the euro, and the reluctance for each member (and non-member) nation to give up the sovereignty of their own currency will be too much to compete with what has so far proven to be a failure. Perhaps this will lead to new talk of independent, GOLD backed currencies and the end of this paper tiger, supply side plan that has lead to the perpetuated diminution of paper backed by nothing but more paper.
Bonds seem to be between a rock and a hard place regarding the economy. If it remains too strong, the threat of further rate hikes will continue, while if the economy slows down, it will likely do so more than hoped for, and this would limit or even eliminate altogether the Treasury Department’s future Treasury buyback plans. This had helped to support the market into late August, but as we had warned, that plan was ending in September, and the buyback announcements since have disappointed the market. Another warning that emerged on Wednesday is that our long term bond indicator, the Dow 20 Bond Average, gave its first sell signal since March by dropping below 96. With this confirming the shorter term warnings we had warned about, we must advise caution until the environment changes again, and this will likely take its own sweet time.
Again, with the market still relatively oversold, the potential for bounces should be used for selling, as they can still not be ruled out. As stated on Tuesday, longer term bearish confirmation would be confirmed with an ultimate break of next support at 6.00% - 6.05%, with 6 .20%, 6.32% and 6.40% the upper levels. I do not currently see the yield pushing below resistance at 5.72% and even a retracement that far seems to be getting less and less likely.
GOLD
The XAU & Gold was actually hurt by yesterday’s Danish referendum on the EU, as it is perceived that it will continue to be a plus for the US Dollar. We are not certain about this, but the strong $4.00 gain on Wednesday was reversed by a loss of $2.70 yesterday, coincident to the vote. Wednesday was also the Comex OTC options expiration which surely influenced the market. Our short and intermediate term indicators remain in position for a significant upturn, but for the longer term trend to turn bullish, a break above resistance at 55 is needed. This would also be a breakout above the long term downtrend line that has defined the entire bearish trend from the high above 92.50 of early last October. When its ready, this should not take much effort, and the bullish percentage indicators have just turned up from very oversold levels.
Future dollar weakness should help the bullish case, and this remains our expectation. Again, a push above 55-6 is still required to turn the short and long term trends 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 last week 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 29, 2000: 9/26: Eastman Kodak (EK) was stopped out at the 50 � opening (-14.52%) on Wednesday, below our 51 7/8 stop loss point as it gapped much lower. We are disappointed, but it this is why we use stops! Also on 9/26: our shorts on KLA Instruments (KLAC) reached our downside objective & was removed (+34.96%), and Gateway Computer (GTW) reached our 50 objective & was removed (+22.4%). Our short selling portfolio has been doing very well this year!
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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Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
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