Last Signal: 11/03/00, BUY
Dow: 10,817.95 OTC: 3451.55
As stated last week, the volatility of recent weeks made second guessing last week’s modest initial upturn a difficult one to call ahead of this past Friday’s confirmed buy signal. Even now, we are suspicious that the rally will continue for much longer, and the basic ratio line at +.195 is already somewhat extended relative to its two moving averages. We interpret this to mean that another bout of selling is likely to bring the line down again. If correct, either a higher low, or a lower low could be capable of producing an easier to interpret reading. This suggests that we remain patient for now, as the next setback may offer much better potential for us to pass judgment. While the Dow is back to about where it was when the Ratio gave its July sell signal, the OTC is 791 points, or 18.65% lower, and MANY, MANY issues are much lower than they were at that time!
TUESDAY, November 7, 2000: ELECTION DAY is here!! (Gee, that almost sounds like saying, “today is the beginning of Armageddon”)! With the polls now open in the eastern time zone, it won’t be long before we have chosen the leader of the free world for the next four years! This may be a scary thought, regardless of who it is, as we can appropriately say that the fate of the US and indeed the world is in our own hands.
Another mixed day in the markets ahead of today’s Presidential election and yesterday evening’s release of OTC bellwether, Cisco Systems earnings report, which beat their forecast by 1 cent, but only met the “whisper” number and warned about expectations going forward. The Dow surged another 159 points, but it was at the expense of the NASDAQ, which lost 35 points. Volume was noticeably light, with only 927,812 shares traded on the NYSE. Also suspect was market breadth, with only 1422 issues advancing and 1385 down. We are guessing that regardless of the outcome of today’s election, because of the run-up ahead of it the markets are due to sell-off on the news.
A push sustained push through 11,000 would indicate that a stronger bear market rally than we expected was continuing, that would extend it from a simple three wave to a more complex 5 wave corrective wave structure.. This is our subordinate view to our stronger expectation for the selling to resume. A renewed downturn would find initial confirmation with a close below support at 10,750 (Friday’s low). Stronger confirmation would occur with a drop below support near 10,260, indicating that intermediate term wave 3 of the larger, cycle degree wave (3) decline was developing, and that a new low has become more probable. While it may be too soon to know whether the October lows will hold, our suspicion is that they will not. A selloff that does not ultimately produce new lows for the averages would be the most impressive scenario as a successful test. If correct about the general direction but mistaken about its magnitude, we will be looking to recommend issues that manage to hold “above” their October lows. These will likely do well in future rallies, regardless of what the overall market does. To clarify, we still expect that before the current rally can be substantiated as something much more bullish (than currently thought), it will need to prove itself by successfully testing its lows. This may be setting itself up now.
Many of our indicators have turned bullish, but short term ones are quite extended and very vulnerable. Most visible of these are the McClellan Oscillator, our 5 day Up volume indicator, 10 Day Trin, the 10 day A/D Line indicator, and 14 day Stochastics. 14 day RSI is still bullish but formed a bearish divergence yesterday by not confirming the Dow’s high. We also are quite concerned that with a rebound of 1346 Dow points from the 10/18 low, that there has been virtually NO sign of short covering and that commercial traders have continued to build their record short interest to <-70,306> S&P futures contracts. Something is up with that!!
Our Elliott Wave analysis still suggests that the rally remains within a larger bearish pattern. It seems to be stalling just below the next level of Fibonnacci resistance, at 11,046 [11425 - 9654 = 1771 X .786 = 1392 + 9654 = 11,046], reaching a high at 11,006.50 yesterday. Above this level, additional price resistance is at 11,100, 11,250 and 11,425. Any push beyond this would indicate that a test of the high could develop. Support begins 10,750, 10,483-50, 10,324-270, 10,166-050, 9940 and at the 9654 low.
TREASURIES
Treasury yields continued to rise, surging higher to 5.89% yesterday as traders were too nervous about the outcome of today’s election to hold steady. Again, regardless of the victor, the bond market is concerned over the potential for a larger budget, that slower growth and tax cuts will lead to lower tax receipts, and less Treasury debt retirement in the future. Also hurting the bulls is the perception that slower growth will be sustained, preventing the Fed from easing as many had been suggesting. The US Dollar’s sharp plunge from its high in recent days didn’t help the case for US Treasuries either, and we expect that this will now continue for some time to come, as we think the top is in for the dollar.
The reversal above 5.825% that was suggested on Friday has taken place, leaving our short term yield chart on a “high pole at the bearish resistance line” (HPBr), a highly reliable “sell alert” chart formation. It closed at 5.89% yesterday, now suggesting that a move back above 6.00% is forthcoming. Overall, our analysis has remained on track and our long term view is that bonds have been in a bear market since they reached a low of 4.69% in October of 1998. If this appraisal remains correct, the yield will eventually push far above the 6.75% high that was reached this past January. While a continuation of the bear market rally is not expected, a push below 5.675% would negate the bearish chart formation and resume the bear market rally that we think has ended, indicating once again that the move we gave up on, to 5.50% was underway. We remain bearish bonds. Support is layered all the way up, with the next level at 5.97%, then 6.05%, 6.20%, 6.32%, 6.40%, and at the 6.75% January high. Resistance is at 5.85%, 572%, 5.675-.65%, and then at the unfulfilled 5.50% level.
GOLD
Gold & the XAU The Bank of England’s (BOE) 9th 25 ton gold auction went off this morning, receiving much stronger demand for the 2nd time in a row. It was oversubscribed by 3.3 times more than the amount of gold they made available, at a price of $264.30 per ounce. This strong demand continues to suggest that the market remains rigged and manipulated, as stronger demand than supply over the past 3 years AT LEAST, is not consistent with the current price trend, especially with so much discontinued production due to the low prices. We remain suspicious that the insinuated scheme by the EU, BOE and US governments to keep the price depressed is continuing, and will, until it blows up in their collective face.
The major selling climaxes (SC) a few weeks ago made by the XAU and our XAU/Gold Ratio, and sector leaders, Barrick Gold (ABX), Placer Dome (PDG) and Homestake Mining (HM) (according to Investors Intelligence [(914) 632-6422] remain the first good initial sign that the market is trying to bottom. Perhaps more evidence will begin to appear with his morning’s auction out of the way. Support remains at last Wednesday’s 41.64 low, and then between 40 - 37. 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.
PORTFOLIO CHANGES
Tuesday, November
7, 2000: NONE
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
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