Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
The ratio bounced “slightly” with last week’s recovery, but this was to be expected after so much selling. While the Dow continued higher yesterday, our best guess remains that the sellers will re-emerge, but it is a very difficult call, as our indicators remain very mixed. In any event, a follow-through rise in our basic Ratio line this week would be a very good sign. We do not plan to 2nd guess or jump the gun on this, hoping we’ll have plenty of time to benefit “after” we get more bullish confirmation. 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 less clear cut than it was.
TUESDAY, October 31, 2000: The CRASH ALERT we issued on Friday was obviously incorrect, but our work did indicate a BIG move and we certainly did get that from the Dow. Unfortunately, we didn’t get the direction right, as we thought the cycle would produce a last selling capitulation before the turn. Instead, the turning point within this anticipated time window may indeed be a “high”. Cycle turning points in themselves do NOT assure the direction of the change, even when the actual projection correctly identifies the turn date.
Yesterday saw the 2nd straight day of dramatic NASDAQ under performance, relative to the Dow and Transports. Even the S&P failed to pace the more narrow Dow averages, as did the market’s breadth of less than 2 to 1 advancing issues over declines. The overall market is having difficulty keeping pace with the Dow’s 500 + point gain of the last 3 trading days. Friday’s 200 point gain was on noticeably light volume relative to recent days of selling, as it may be “blowing off” into today’s last day of the month. Today is also the last day of the fiscal year for many mutual funds that have been “re-aligning” their portfolios in an effort to make them appear better than how they actually did. This is the last day of their housecleaning, where they are dumping many losers for the year to help offset the gains earned early in the year. This is also an effort to reduce the taxable capital gains distributions that will reduce investor results, even as many may not have made a profit, hopefully softening the impact.
Our 10 day A/D Line indicator turned bullish for the 1st day yesterday after remaining bearish for the last 31 trading days. Prior to that downturn, it was bullish for all of 9 days. So far, our Short Interest indicator has not reversed higher. This indicates that in spite of the media claims of heavy short covering, we do not see enough of it to think it has materially contributed to the last few days of strength. The S&P Commitment of Traders Report that was issued on Friday had the smart money Commercial Insiders increasing their already record S&P short interest to another record of -66,429 net short open interest. These are not generally the losers in the futures pits, and they are NOT celebrating the short term strength, but using it to increase their bearish positions. Finally, Friday produced a closing “Tick” sell with +788 on Friday. This suggested a great deal of optimism into the close of the week, generally a warning that a market turn is approaching. We continue to look for the trading opportunity that we have thought, and still think will develop. We just don’t want to be premature as there could still be another steep selloff first.
We continue to think the volatility of the last few days remains within a larger bearish pattern. The Dow pushed right through the presented Fibonnacci resistance of 10,527 and 10,733.65 yesterday, clearing the way for the next level, at 11,046:
[11425 - 9654 = 1771 X .786 = 1392 + 9654 = 11,046]. The Dow closed yesterday into the next level of “price” resistance between 10,800 and 10,880. Above these levels, additional price resistance is at 11,100, 11,250 and 11,425. Any push beyond this higher level would indicate that a test of the high was developing. Resistance begins at 10,600 - 580, near 10,260, 10,000 and then at the 9654 low.
TREASURIES
Treasury yields have taken the back seat to the exciting rally as money is not seeking safe havens, at least for the moment. Friday’s much lower than expected +2.7% gain in Q3 GDP didn’t even do much to push the yield beneath resistance at 5.75 - 5.725%, as another strong sign that the economy is slowing dramatically. The consensus was for a gain of +3.7%, showing that the economy may not be coming in for the hoped for “soft landing”.
A reversal 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
Gold continued to run in place but for the first significant development in recent memory, both the XAU and our XAU/Gold Ratio indicator reversed up by just enough to eke out a major selling climax (SC) last week, as did sector leaders, Barrick Gold (ABX), Placer Dome (PDG) and Homestake Mining (HM) (according to Investors Intelligence [(914) 632-6422]. This is a good initial sign that the selling and depressed prices has finally reached a level that is attracting accumulation. Our XAU/Gold Ratio has been a very good quick leading indicator that has turned up after reaching its most depressed reading in our records, at . 158, before closing higher last week. We expect to see more bullish signs develop that ultimately lead this very under-owned, over-hated market to higher ground.
The XAU reached deeper to new lows to 41.64 last Wednesday, before closing at 43.41 for the week, just 2 cents higher than the close from week earlier. Still, this was enough for the major Selling Climax we had looked for. A push to 49 on our 1 X 3 P&F chart will be a “Low Pole” (LP) buy alert, 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
Tuesday, October 31: We do have several long positions that we are close to recommending, but are holding off for now. 10/31: We added a new short sale, Coca Cola Femsa (KOF), the Mexican Coca-Cola, reversed down in a “bull trap” bearish P&F chart formation, indicating further selling to come. We are using a stop at 23.
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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