Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
The ratio continued lower for another week, moving within a hair of the minimum oversold -.40 reading. We still think it is pre-mature to get optimistic before there is some type of climactic panic selling over the next week or so. Perhaps this will be made on the news of an disappointing earnings announcement of a very significant company, into the end of the month ends the period of seasonal bearishness. 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 17, 2000: The markets continue trading in a highly emotionally charged manner, suffering from many bouts of disappointments, from earnings to energy prices, and from Persian Gulf fears to fears over the election. Investors seem to have awakened to the realities that we have pointed out so often in the past, that earnings do matter as do interest rates and external factors such as oil prices and a stable world. Now, NO earnings seem good enough, the markets seem scared of our next president, regardless of which one pulls ahead in the poles, and the instability in the Mid-East have gained our daily attention as Americans have now died there.
Friday’s near record one day recovery managed to find follow through buying on the NY exchanges but couldn’t hold for the OTC markets, as two brokerage firms downgraded Intel, hurting the entire sector again. It never ceases to amaze me how the leadership of this sheepish behavior always seems to be most believable by investors AFTER the downgraded stocks or sector has already collapsed! Intel, for instance was already down by more than 50% from its September high of 75 to yesterday’s 35. This morning, Morgan Stanley/Dean Witter and Paine Webber came out and bravely downgraded Micron Technology after it had already declined from a July high of 97 � to below 34 yesterday. AND THESE GUYS CONTINUED TO GET PAID FOR THIS INEPT, LOOSELY DEFINED, ABJECT EXCUSE FOR ANALYSIS!!! I wonder how I can find a job like this, which seems like they don’t need to be any more accurate than our local weather “professionals”.
Getting back to Friday’s near record single day price rise, we think it was a classic bear market reaction to a desperately oversold market. It may not take much more time to find confirmation of this, but we are treating the rise as minor wave “a” of a corrective “a-up, b-down & c up rally within the intermediate and cycle degree wave “4” bounce. This will leave enough time for the selling to resume to new lows by our long targeted cycle low of late October.
Many of our trading oscillators are becoming deeply oversold and offer great prospects for relief. We will soon expecting to find bullish divergences show themselves, if the markets continue to plunge while some of the indicators fail to confirm the decline by making lower lows. This would be a very good sign ahead of an expected market bottom. This cannot begin to develop unless the markets do push to lower lows, so for now it is just an effort to think ahead. The Dow closed right at our sighted initial resistance at 10,240 yesterday (10,238.80). A push higher will allow for a move to next resistance, between 10,480 and 10,600. A 50% retracement of the decline from the 11,400, September high to last week’s 10,020 low is at 10,550, making it likely that if the rally continues, it will be able to make it to this resistance before stalling out. Support is near the 10,023 low, and then all the way back down to the 9732 March low.
TREASURIES
Treasury yields have not managed to do much even as a safe haven during the recent pandemonium, making it likely that the move will not hold out much longer below the 5.90 level. We did get the bounce we were hoping for as we had been recommending their sale into any further strength. We did take our own advise and are now out of the market and bearish on bonds. This certainly does not mean that the yield cannot fall a bit further, but we think the risk of higher rates is now growing rapidly. This is obviously not consistent with the thoughts of those who insist that bonds are a good place for money as equities fall apart and as the Fed will have successfully slowed the economy. We are concerned about the declining credit quality of even the best corporate issues, the credit worthiness of future issues, and with a slowing economy, less tax receipts would raise the likelihood that the Treasury will be limited to future Treasury buybacks. We are also concerned that if the US Dollar were to weaken, foreigners who are already holding way too many dollars will repatriate their money out of the US, adding to the pressure on our interest rates. A weaker dollar would also put additional pressure on US inflation even as the economy may be slowing. The risks are growing while the sentiment for bonds remains relatively too optimistic for bonds under such circumstances.
Further gains would point toward next resistance at 5.72%, but we are no longer waiting for this possibility. 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 quickly reverted back to the quo, sell on every bounce. The turmoil of last week seemed quickly forgotten by yesterday’s market open, but little has been resolved in Israel or in regard to the USS Cole’s terrorist attack. While the market sold gold back off again, the sharp one day gain of $5.80 per ounce was testimony to the reason the world is under-invested in metals as a hedge. We think this will change dramatically, but no longer have a timetable for when it will begin. For now, we can only point out that both, technical and fundamental conditions surrounding gold seem very ripe for an explosive rally to begin at any time.
The XAU continues to carve out modest lower lows, reaching a new low of 44.97 yesterday, another 6 cents below last Wednesday’s 45.03 low. 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. This downturn may actually be a bullish factor, because it lowered the point of confirmation for a bullish reversal to 26%, versus having to wait for more volatility before this confirmation would be made possible. Higher resistance is at 59, then at 64, and 69. Next support remains near 44, as prices had decisively broken support from the 8/31/98 low of 48.73.
PORTFOLIO CHANGES
Tuesday, October 17, 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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