Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
The ratio was unchanged last week but the moving averages continued lower and are also very close to reaching an oversold buy signal. The fact that they are all close but haven’t yet reached the minimum oversold -.40 reading makes the current rally difficult to assess, but so far, we think the rally will fail or at least come back down to test the lows of last week. 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 has been to sell into rallies, but this is not as clear cut as it was.
FRIDAY, October 27, 2000: We are back on CRASH ALERT for the first time since the morning of April 14, a day when the Dow lost 616 points and the NASDAQ Composite lost 355 points for the day. What this means is that conditions are right for a severe market decline/selling capitulation that would conclude the liquidation phase that began from the August top. The good news is that if it does materialize, we will be presented with the intermediate buying opportunity we have been waiting for. HANG ON TO YOUR SHORTS!!! Yesterday’s bullish reversal is being viewed as a technical bounce on short covering. As indicated above, we think the volatility of the last few days was within the 4th wave of a larger 5 wave decline. A resumption of the rally may be counted as minor wave 2 up within the 5th wave of decline, against resistance between Wednesday’s 10,460 high and the 50% Fibonnacci retracement resistance near 10,527. We do not see enough evidence that the market has seen its lows, as the presence of fear and climactic selling has remained absent.
We are looking for bullish divergences to emerge that would offer signs of encouragement, and so far, we’ve found only one. During yesterday’s sell off and test of the lows, the NASDAQ Composite held by about 55 points, but the NASDAQ 100 (NDX) slipped to a modest new low. We view this as a “bullish” price divergence because the Comp is the larger of the two. On the downside, The Option Volatility Index (VIX) is on a “low pole” (LP) that may be setting up for another spike higher of fear among option traders; Several of our volume indicators have turned bearish again; The A/D Line has made a new low during the recent selling; Stated in the Tuesday update, “we think the sellers will re-emerge, at least to test the recent lows.” The best case scenario is that this was successfully completed with yesterday’s selloff. On the flip side, the next few trading days are within the time window for the strongest part of the bearish cycle that we’ve been expecting. This may lead to the selling capitulation and climactic low that we have been looking for, especially as next Tuesday is the last “trading” day of the year for many mutual funds who are scrambling to realign their portfolio’s for disclosure within their year end reports.
Next minor resistance is at Wednesday’s 10,462 high, with stronger resistance near 10,527, the 50% retracement of the recent decline [11,401 - 9654 = 1754 X .50 = 873 + 9654 (low) =10,527] where there is also reasonably strong price resistance. This remains a likely area of congestion. We think that the first opportunity to turn bullish for a bigger, longer lasting rally “could” be in progress now that prices turned up again after a test of the lows, at least for the NASDAQ. As for the larger cap averages, yesterday’s lows didn’t even come close, leaving us to believe that lower prices still lie ahead. Initial Dow support is now between yesterday’s 10,265 low and 10,220, with more near 10,000 and then at the 9654 low. Higher resistance is near 10,600 and at the Fibonnacci, 61.8% retracement level at 10,733 [11,401 - 9654 = 1754 X .618 = 1079.65 + 9654 (low) = 10,733.65]
TREASURIES
Treasury yields stalled and reversed slightly after bouncing lower, into resistance, ahead of yesterday’s $1.5 billion Treasury buyback and greater attention on the equity markets. The average maturity of the buyback was in the 20 year range. The Labor Department reported that Q3 Employment Costs rose by +.9%, less than the 1% that was expected. The markets are calling this “tame labor inflation”, but we aren’t sure that that is what an annualized +3.6% increase is so moderate. The long end has remained firm on the perception that the Fed will take no action in the foreseeable future.
Preferring to concentrate on “the market”, the recent yield low above 5.65% appears to be a point of resistance, that we have been listing. A reversal higher, to above 5.825% would be a bearish “high pole at the bearish resistance line” (HPBr) on our short term yield chart. This would indicate that a move back above 6.00% was forthcoming. A push below 5.65% on the other had, would indicate that the move we gave up on, to 5.50% was underway. We see this as the less likely resolution of the recent range. Support is layered all the way up, beginning at 572%, 5.85%, 5.97%, 6.05%, 6.20%, 6.32%, 6.40%, and at the 6.75% January high.
GOLD
The XAU & Gold got slammed over the last few days, perhaps as the market liquidates ahead of the end of the mutual funds fiscal year end, but this is not as clear is it is for the equity markets. Some have said that investors are giving up, throwing in the towel on their disappointment that gold had not acted better during all the recent events and market volatility as a safe haven. It has also suffered from the extreme pressure endured from the US Dollar’s surging strength, but we don’t know how much longer this bullish complacency can last. So far, it has lasted “indefinitely”.
The XAU reached deeper to new lows to 41.64 on Wednesday, still showing no sign of a bottom. A surge to above 43.39 by this evening’s close would produce a major selling climax (SC) for the week. This is achievable but in no way guaranteed as they have been so entrenched by complacency and a lack of interest. Perhaps it would be a bit more likely next week, after we move into the new month of November. This is still what we are looking for as a first sign that prices are trying to bottom. One more P&F box lowers the potential for a Low Pole (LP) buy alert on our 1 X 3 P&F chart to 49, but a rally above the 55-6 level of resistance is still needed to turn the short term trend bullish. Higher resistance is at 59, then at 64, and 69. Next support remains near 40 and then 37.
PORTFOLIO CHANGES
Friday, October 27, 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
(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
