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!!
Friday, November 10, 2000: ELECTION DAY came, went and still lingers without a winner!! That’s a historic first! We’ll spare you the details as if you haven’t heard by now, you’re way too isolated!! We are updating today due to yesterday’s HUGE NASDAQ plunge, as we had added several more short sales and two of the three were dragged lower with the techs.
The suspicions we stated on Tuesday that volume and breadth of the last few days of rally were a warning, and that the markets were due to sell off on the news, regardless of the winner were correct, even though we still have no outcome. Perhaps the markets are just disappointed that the political advertising has ended! Yesterday’s tech, chip and telecom breakdown within the OTC markets are evidence that this market was NOT out of the woods as bullish wishful thinkers were insisting during the most recent bombardment of “expert” opinion on bubblevision. While yesterday alone was not enough in itself to suggest that new lows are forthcoming, we were expecting a test of the lows at a minimum, and with “the voting” portion of the election out of the way, the sell on the news has likely started.
As has been the case since the markets have topped, what again, appeared to be a bearish retracement pushed the limit of the Elliott Wave rules governing them. These rules suggested that much beyond a .786 Fibonnacci retracement of the preceding decline would put our immediately bearish opinion in jeopardy. The rally that may have ended reached a high of 11,006 on Monday, just shy of this important Fib. resistance cluster of between 11,027 [11,401 - 9654 = 1747 X .786 = 1373 + 9654 = 11,027], and 11,046 [11425 - 9654 = 1771 X .786 = 1392 + 9654 = 11,046]. We see this resistance as key to whether or not the year end rally began already, or may have to start over from a lower level. We continue to prefer to see whether a test of the 10/18 lows will succeed before getting too giddy over the seasonally bullish period that the markets entered on November 1. We also suspect that supporting the bears, this very volatile year still has plenty of tax loss selling potential ahead before the bulls may be able to get the ball and hold onto it for a while. We recommend starting this process NOW, by either selling losers that can still be bought back this year, after the 31 day wash sale rule ends, or by averaging down NOW, still offering time for the sell decision before year end.
A sustained push through 11,046 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 remains our alternative view until proven otherwise. 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 still too soon to know whether the October lows will hold, our suspicion remains 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 show bullish divergence, by managing 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 credible (than currently thought), it will need to prove itself by successfully testing its lows. This may be setting itself up now. Additional price resistance is at 11,100, 11,250 and 11,425. Any push beyond this would indicate that a test of the 11,750 all time high could develop. Support begins 10,750, 10,483-50, 10,324-270, 10,166-050, 9940 and at the 9654 October low.
TREASURIES
Treasury yields reached a high of 5.923% yesterday, as sentiment for long bonds is turning increasingly less optimistic over a host of anecdotal reasons. A Bush victory would be bad because he will offer a larger tax break that would re-stimulate consumer spending. The slowing economy will jeopardize tax revenues, reducing Treasury bond repurchasing. A weakening US Dollar will reduce the foreign demand for our bonds. Finally, the recent surge in corporate bond issuance combined with the pressure on corporate earnings has reduced the credit worthiness of many, dramatically increasing the yield spread between, high yield and investment grade corporate bonds, and between corporates and Treasuries. These are ALL good reasons for backing away from the market, particularly as our technical work has turned even more bearish than it was recently.
Our short term yield chart remains on a “high pole at the bearish resistance line” (HPBr), a highly reliable “sell alert” chart formation. It continues to suggest 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 already ended, indicating 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 have yet to shake off Tuesday’s 9th Bank of England (BOE) 25 ton gold auction, even after it was greeted by 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
Thursday, November 9, 2000: We had recommended three new shorts in the last few days and thought they needed to be listed sooner than on our regular Friday morning report. 11/7: EMC 97, with a stop at 108, after hearing that they had a bullish Forbes Magazine cover. We had been watching this for another try. We thought it was about to make a third lower high after two lower lows, since a September buying climax (BC), a strong sign of distribution. We also think that its September high ended its major 5 wave bull market. Now that it has turned bearish on its P&F chart, we expect it to decline below its last low at 80, and perhaps much further. Chubb Corp. (CB) had a 3rd BC last week and a High Pole Top (HPT). It has also had a recent increase of insider selling and its relative strength chart has been bearish since 1994 (according to Investors Intelligence 914-632-0422). Finally, 11/8: we re-added the � position of the Nasdaq 100 tracking stock (QQQ) at 79 5/8 after it reversed for a High Pole at the Bearish Resistance Line (HPBr). We last covered this position on 10/18 for a 22.77% gain, stating that we would come back to it. That turned out to be the day of the exact market low, and perhaps we can profit again from the Nasdaq’s persistent weakness.
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
