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, energy prices and etc. Since the Friday, July 14th sell signal, the Dow moved a bit higher but the OTC Composite topped at 4289 on Monday, just 1 trading day later! Our Reality Ratio could not have been more timely!!! We continue to advise selling into rallies and so far this has been good advise as rallies have been sharp but short lived.
FRIDAY, October 6, 2000: The Fed left their interest rate policy unchanged at Tuesday’s FOMC meeting, and this morning’s trading will likely be influenced by the 8:30 release of the September employment report. By the way, the NASDAQ had the worst September in 20 years, losing 12%. The markets have been attempting to stabilize as one earnings warning after another has hit the market, particularly in the tech area, as REALITY cannot be hidden or denied. The one hiding place, utilities even joined the downside with a very stiff 11 point dump on Wednesday, as oil and more particularly, natural gas prices tumbled. Natural Gas was a large component of the utility rally and this area too can only neglect over-exploitation for so long before coming to terms with it.
We do see “some” signs of light at the end of the tunnel, as even as selling has continued, both, the daily cumulative volume and A/D numbers have held relatively flat. This indicates that it is mainly the big, large cap issues that remain under siege, as many smaller, less influential issues are holding much better in relative terms. This is in now way an effort to hedge our opinion. We still have not seen what we expect before the end of the current barrage of selling, which is a final PANIC downside acceleration, where investors throw in the towel and acknowledge that they are too heavily invested for the risks they were (inadvertently) taking. Until there is some sort of a panic bottom, it remains doubtful that the selling pressure will end.
A few words on the Presidential and VP debates. First, while I watch all of the debaters with an open mind, it struck me very clearly that Gore was much more organized and seemed much more mature and “presidential” than Bush. His answers seemed much more clear, detailed and to the point. Bush seemed lees mature, antagonistic and unprepared. Regarding the two VP’s, both seemed VERY capable as second in command, mature, professional and “vice-presidential”. I have two criticisms regarding Mr. Cheney. First, the issue of the Gulf War came up, and Mr. Cheney told America about his “special interest” in the military affairs. He talked about their successful “mission” against Saddom Hussein’s effort to develop weapons of mass destruction, but that it was under Clinton-Gore that our NATO partners interest in enforcement has eased. I must point out that this was the direct result of Bush Sr. And Cheney’s “failed” mission in the first place to remove Hussein from power when the opportunity was there. America has been paying the price ever since and this is the DIRECT result of their flawed “mission” that left a mass murdering thug in power, when they had the unique opportunity to get rid of him. Second, Mr. Cheney supports the Bush proposal to open the Alaskan Wildlife Refuge to oil drilling and big oil development as part of their long term solution to the energy problem. Being the CEO of the second largest oil service and equipment company in the world, is no one concerned about the magnitude of this incredible conflict of interest???? Surely, both oil men are pre-disposed to a bias that should be debated in itself. In fact, Cheney still holds over a million of Halliburton stock options that will make him 10’s, if not hundreds of millions in the event they benefit from a biased energy policy. I simply believe that this conflict of interest in itself should be open for debate, as it would have to influence the way they handle any energy policy.
Our short interest indicator is starting to accelerate its decline. This is an indication that short sellers are in a hurry to close their short sales, a sign that sentiment remains too optimistic as even these bears are acting ahead of what they perceive to be a market bottom. Also, our 10 Day A/D Line indicator remains bearish, continuing to support the view that the overall trend remains down for the short term. These are just two of many things that do not yet support that the market is ready to resume any meaningful rally. The Dow has continued to hold above 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 is still needed to confirm that the larger degree, wave (3) decline was in force, and would increasingly make it likely that we are on the way to a test of the 9732, March low. It managed to reach a high of 10,843.30 yesterday before falling back. This was just 7 points from what we stated on Tuesday was initial resistance, at between 10,850 - 10,900. Should a rally push through this, more resistance is 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 any of their recently lost ground, reaching a high of 5.947% this week. This morning’s strong employment report shows the unemployment rate back down to its 3.9%, lowest level in decades, and this will likely way heavily on the Fed in the future. We have suspected that the economy’s momentum would remain stronger than expected, and in light of 6 rate hikes already, and a 340% rise in energy prices, the evidence continues to support this view.
Technically, we do still see the potential for a short term retracement rally as our trading indicators are becoming very oversold. We continue to think that a steep drop in stock prices will add to this potential, and if correct, we would use it as an opportunity to sell bonds. Even without this, an attempted rally is becoming due. Longer term, our long term bond indictor, the Dow 20 Bond Average has turned bearish and we use this to keep our overall view in perspective. As Investors Intelligence has pointed out recently, This indicators record has performed FAR in excess of a buy and hold strategy, and has had an incredible record of 75% reliable, with several of the signals that failed doing so by a very negligible amount. We may have more on this in the October issue of Reality Check.
Trading continues to remain narrow between our sighted 5.85% resistance and next support at between 6.00% & 6.05%. The Fed meeting didn’t seem to help or hurt the market. If this morning’s much stronger than expected employment report doesn’t drive the yield higher, perhaps the retracement rally we are now looking for may be ready to develop. If it does we would stand ready to recommend selling when we think it will had run its course. 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 under selling pressure and suffers from a perverse lack of interest. The XAU broke to a new all time low yesterday at 46.91, even as gold was up .20 for the day. We think we may be seeing the end of the year end tax loss selling of gold shares by mutual funds as their fiscal year will end on 10/31. The dollar continues to hold the world’s confidence, and until this ends, gold will likely remain under pressure as foreigners still perceive the US to be the best place for their money, over hard assets. We think they either need to update their cell phones or get new glasses, because they may be close to losing their advantage, especially if oil and stocks decline and bond yields rise. The technical signs remain in place for a rally to begin, but that hasn’t helped it to actually happen, yet.
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 develp. Higher resistance is at 59, then at 64, and 69. Support is now near 44, as prices finally decisively broke support from the 8/31/98 low of 48.73.
PORTFOLIO CHANGES
Friday, October 6, 2000: 10/3: We added Liz Claiborne (LIZ) 39, to our list of short sale recommendations. It had buying climax (BC) at 48, and has a bearish high pole at the bearish resistance (HPBr) P&F chart formation that we use to identify short sale candidates. The stock has also remained bearish relative to the overall market since 2/92 (according to Chartcraft Inc., New Rochelle, NY 914 632-0422). Our downside target is 24 and for now, we would use 50 for a stop loss. 10/5: Another new short sale recommendation is Merrill Lynch (MER) 66 �, It is also on a HPBr P&F chart formation and we think it has priced in a potential buyout offer. We are using a stop at 75, which would be an all time high.
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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