Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
The ratio continued to slip further toward its ultimate, oversold destination last week, but it is not there yet. We expect some type of climactic panic selling over the next few weeks, before a tradable low is made. Perhaps this will be made on the news of an disappointing earnings announcement of a very significant company. 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!!! Our advise to sell into rallies has been good and continues, as rallies have been sharp but short lived.
TUESDAY, October 10, 2000: Yesterday’s better than 100 point upside reversal after losing more than 100 points in the OTC markets seemed pretty dramatic, but it was on very thin trading volume due to the Columbus Day and Yom Kippur holidays. Perhaps traders were attempting to “buy Yom Kippur”, after selling “Rosh Hashanah”, as the saying goes. Again, yesterday’s thin volume allowed for the markets to recover from steep early losses on the prospects for a better attempt on a trading rally. Pointed out Friday on CNBC, the Dow closed at 10596, less than 10 points from its close exactly one year ago of 10,588. At the same time, virtually none of their guests have had the fortitude to claim that we are in a bear market. They’ve called it an “extended correction, an industry shake out, earnings slowdown, intermediate term correction, and a buying opportunity, but NOT a bear market. Until these professionals yield to the reality of their own devastation, downside potential will remain likely.
An example of how “no one” is immune from the steep decline of many stocks, It was announced Friday that Worldcom CEO, Bernie Ebbers had a $3 million margin call on his credit purchase of his Worldcom stock that forced him to file with the SEC to sell 3 million shares of his stock to cover the debt. Even the confidence of top company leaders has been hurt by the price devastation, while it is not even being called a bear market. If this truly isn’t a bear market, we must wonder how we’ll all fare when it is.
Technically, the Dow broke support at 10,560 yesterday, recovering after testing the next lower level near 10,500 yesterday, still holding above the 7/28, 10,464 low, that we’ve been calling “critical”. A close below this would confirm that the larger, wave (3) decline was in force, and would open the selling flood gates for a test of the lower, 9732 March low. Only a move above 10,900 would call our bearish appraisal into question. A close below yesterday’s low would certainly make it likely that the decline is still well in force, but this may not happen before we see a few days of an attempted recovery. A move above 10,650 would indicate that this was developing.
TREASURIES
Treasury yields were closed yesterday, but the bond market responded favorably to Friday’s stronger than expected employment report, on the perception that the strong employment gains still show no rising wage pressure. That’s fine with us, as we continue to hold out for the yield to retrace more of its recent losses before heading higher again. As stated on Friday, we had thought that declining stock prices would add to this potential, offering a better opportunity to sell bonds. This may be developing now, but follow through is needed as the yield popped through the 5.85% resistance we’d been pointing to. Further gains would point toward next resistance at 5.72%. We continue to stand ready to recommend selling. 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 made another all time low on Friday at 45.84. If the pressure is due to year end tax loss selling, a very strong rally should develop when it ends. This could begin as soon as the beginning of November, when mutual fund year end tax loss selling will have ended. 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 develop. 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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