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.
FRIDAY, October 13, 2000: Welcome to FRIDAY THE 13th and tonight’s FULL MOON!! Another day, another slaughter in the great liquidation of 2000! Yesterday investors found plenty of new reasons to worry about their holdings, with another earnings warning, this time from home improvement monolith, Home Depot, an issue we were lucky enough to have recommended SHORTING at 55 1/8 on August 15. This was hit with almost a 14 point loss for the day, about 60 points of the Dow’s 379 point crash. The other major panic driver was the terrorist attack on the USS Cole, a US destroyer that was docking to refuel in the port of Aden, Yemen, in the Persian Gulf. The panic selling was on the memory of the events of 10 years ago, combined with accelerated fighting in the West Bank town of Ramallah
Yesterday’s accelerated liquidation took the Dow back to its lowest level since March, and the OTC Composite to a new low for the year, unwinding almost all of the gains of the spectacular blowoff phase that began about this time last year, when investors decided that the markets would go up forever and regardless of the economy, earnings, politics, interest rates, weather, commodity prices, or any other reality that could be ignored. Unfortunately, this type of rationalization could only go on temporarily, and generally only during the most speculative final stages of a bull market, as investors had been successfully conditioned to FORGET why speculating is not for everyone.
Like someone who was hit in the head, temporarily suffering from memory loss, it has quickly all come back to investors, who not long ago laughed at anyone who issued words of caution. The last few days came on very heavy volume of 2 billion shares on the NASDAQ and almost 1.4 billion on the NYSE. This is certainly the sort of volume we’ve talked about many times as the capitulated selling we expected before a market bottom. We cannot say that the selling is now that exaggerated, but we do think the markets are now oversold enough for a tradable rally to develop, or better. Many of our trading oscillators are becoming deeply oversold and offer great prospects for relief. One concern remains sentiment, where very few analysts or investors are calling this a bear market, or even believe that there is a risk of one. They seem to be deeply entrenched in denial, but this should quickly change on further declines later in this BEAR MARKET.
As pointed out on Tuesday (and before), once the market broke critical support from the 7/28, 10,464 low, the selling flood gates opened and the next major level of support is at the 9732 March low [cycle degree wave (1) low]. The break re-confirmed the Dow Theory sell signal that has remained in force and confirms the likelihood that cycle degree wave (3) is well underway (as we have been expecting). Resistance now begins near 10,240, with more near 10,500 & 600. A direct recovery to Dow 10,500 on our (50 X 3) P&F Chart is needed for a Low Pole (LP) buy alert signal, and would offer the prospects that the bearish seasonality was giving way to the traditionally bullish year end rally. It is however, still too soon to be sure that the selling has ended, but we can say with confidence that our projection for a seasonal cycle low remains right on course.
TREASURIES
Treasury yields benefited only slightly from the fight to safety, but as we have expected, we still think there’s potential for a further retracement to lower yields before the selling resumes. A weak economy is traditionally bullish for bonds, but the market fears that a slowing economy will limit, or even eliminate the repurchase of longer dated Treasuries and that the budget surpluses could even dry up. This would make it necessary for the Treasury Department to resume issuing new supplies of long bonds. Of course, it is not too early to think about this, but well ahead of when it will become a more realistic possibility.
We continue to look for the opportunity to sell bonds into the strength of a retracement rally which may continue to develop. Further gains would point toward next resistance at 5.72%. We continue to stand ready to recommend selling. Lower resistance is at 5.65%, but it is doubtful at this point that it would be reached again. Support above 5.85% is at 6.05%, 6.20%, 6.32%, 6.40%, and at the 6.75% January high.
GOLD
The XAU & Gold finally found some buyers during yesterday’s turmoil. It is too soon to know if this is another blip on the radar screen, but as we’ve been pointing out recently, conditions remain excellent for a recovery to begin. Sentiment remains universally bearish, year end mutual fund tax loss selling nearing an end, and virtually ever technical indicator we look at is dramatically oversold, the potential is NOT unrealistic. Another positive noticed yesterday, our friend, Steven Kaplan, of the Gold Mining Outlook website, decided to “take a break from updating his web site.” We are sure his decision is due to frustration, criticism and a lack of anything new to say about remaining bullish. This is not a surprise as the biggest bulls during any market’s decline finally throw in the towel and give up as the end of the bearish move approaches. Of course, this is just another anecdotal sign that based on “probabilities”, a bullish reversal should lie ahead.
Prices dropped deeper into new low territory before yesterday’s drama, to an all time low at 45.03 on Wednesday. The decline lowers the Low Pole (LP) buy alert point to 51 on our 1 X 3 P&F chart, but has not changed our sited point of initial resistance, at 55-6, which is still needed to turn the short term trend bullish. An upturn a few weeks ago in the Investors Intelligence [(914) 632-0422] Precious Metals Bullish percentage indicator was a good sign that higher prices should develop, but that turned lower again with the continued liquidation. Higher resistance is at 59, then at 64, and 69. Next support remains near 44, as prices finally decisively broke support from the 8/31/98 low of 48.73.
PORTFOLIO CHANGES
Friday, the 13th (of October): 10/11: Our Biogen (BGEN) short reached our downside price objective and was covered at 48 � (+28.04%); Our shorts on Home Depot (HD) and the NASDAQ tracking shares (QQQ) also have “exceeded” our downside objectives, but we are still holding them for now. If we decide to cover them, we’ll issue an email notice to that affect, as we still do not see enough signs of a bottom and think it is too late to add new bearish positions.
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).
Copyright � 1998-2002 Tulips and Bears LLC.
All Rights Reserved. Republication of this material,
including posting to message boards or news groups,
without the prior written consent of Tulips and Bears LLC
is strictly prohibited. 'Tulips and Bears' is a registered trademark of
Tulips and Bears LLC
Last modified: April 01, 2001
Published By Tulips and Bears
LLC
