Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
Our ratio indicator remained flat this week, bearish, and not yet oversold. We expect more selling over the next few weeks, perhaps over more disappointing earnings, higher rates and energy prices and etc. We continue to advise selling into rallies and so far this has been good advise as rallies have been sharp but short lived.
TUESDAY, October 3, 2000: Part 2 of the end-of-quarter window dressing period is now ending, leaving other factors to influence trading. One of these factors has been the strong downward gravitational pull of the dominant 39 month cycle, which is due to bottom at the end of this month. This leaves the potential high for another October panic liquidation. While many talk about how they are viewing any October weakness as the potential for a lasting bottom, they are not advising holing enough cash to make it a worthwhile buying opportunity. We say, it is preparation that creates opportunity and we want to be ready to step in once it appears that the bearish seasonal period is ending. This may not be until the end of the month, when we are at the tail end of Q3 earnings announcements and when the fiscal year concludes for mutual fund managers, ending their need for last minute tax loss selling.
Yesterday, another of our portfolio holdings, Xerox fell victim (again) to the slowing economy, strong dollar and cut throat competition in a saturated market. We think they will get it back together, but it is taking longer than we thought it would. They are certainly not alone as many, many companies have made similar announcements. We have heard that the warning period was ending but in all actuality, there are likely to be more as we move through the earnings reporting period.
The OTC was slammed hard again yesterday, giving up all of what it gained on Friday. CNBC reported that this was the worst September for the OTC Composite in 20 years, with a 12% loss that undid all of the gains made in August. Yesterday’s plunge was driven buy what was possibly some short term panic capitulation selling in the biotech and semi-conductor equipment markers. We’ll see about that if they can begin to bounce back, but even if they do, it is likely to fail as the sellers are waiting to unload more without waiting for too much.
The Dow has been managing to hold above next support between 10,560 - 80, but we suspect that it will fail to do so for much longer. A close below the 10,464, 7/28 low would confirm that the larger wave (3) decline was in force, making it likely that we are on the way to a test of the 9732, March low. Dow resistance begins between 10,850 - 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.
TREASURIES
Treasury yields have not yet managed to regain their lost ground, rising back above 9.30% yesterday, ahead of this morning’s FOMC meeting. They are NOT expected to make any changes, so traders will focus on their formal statement, typically made at the meeting’s conclusion. This would be when they say something regarding what they see as “the risks of inflation going forward”, or that the economy is slowing as they have been hoping it would. Trading has remained narrow, between our sighted 5.85% resistance and next support at between 6.00% & 6.05%. Perhaps the market will find some encouragement from something related to what the Fed says. Even if it is short lived, we would use a bounce to sell, especially because our main bond timing indicator, the Dow Jones, 20 Bond Average gave a sell signal late last Friday. Resistance beneath 5.85% is at 5.72% and then at 5.65%. Support above 6.05% is at 6.20%, 6.32%, 6.40%, and at the 6.75% January high.
GOLD
The XAU & Gold remains flat and lethargic. Investors seem more interested in the already over-exploited utilities and energy sectors than in hard assets. We don’t know what will change this, but we feel confident that once there is a change in perception, it will be long lasting. Not even the crises in confidence over the euro, high energy prices, the US government’s acknowledgment and higher restatement of the past year’s inflation statistics, have helped it. If gold is to react to something, perhaps it will be a loss in confidence in the US Dollar, or another crises in Asia (which we think is brewing now), or even the enormous monthly trade imbalance that will likely get even bigger now that China can sell their cheap goods here without any impediment. Whatever it might be, all the technical signs are in place for a rally to begin, but that hasn’t helped it to actually happen.
We continue to expect renewed dollar weakness that should clearly help the metal. Prices need to push through resistance above 55-6 to turn the short term trends bullish. An upturn a few weeks ago in the Investors Intelligence [(914) 632-0422] Precious Metals Bullish percentage indicator is a good sign that higher prices should be just around the corner. 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
Tuesday, October 3, 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
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