Last Signal: 11/10/00, SELL
Dow: 10,602.95 OTC: 3029.10
Our suspicion over last week’s buy signal has quickly proven to be correct as the renewed selling reversed the ratio back to the sell side. We stated 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 14, 2000: ELECTION DAY came, went and still lingers without a winner!! And that particular saga continues to plague the markets with drama, but the “uncertainty” investors are supposedly worried about is quite petty, as there are only two possible outcomes, neither of which would mean the end of the world. We therefore believe that the election related portion of the market’s heebie-jeebies amounts to little more than the latest episode of TV journalism’s programmed drama (that they are turning into a full fledged comedy)! We prefer to concentrate on the “real” issues affecting the markets, slowing corporate earnings, the newly re-emerging demand for the “E” part of the P/E Ratio, the technical signals we look for every day, and what the Fed may do next.
Since failing to penetrate resistance near 11,000 through last Wednesday, the Dow has turned lower again, giving back 630 points through yesterday’ intraday low. We “think” the technical failure should have ended minor wave “iii” within the larger, intermediate degree wave “3” of the bear market. If this is correct, the current wave of selling should not end until it takes the Dow to another new low, below the 10/18, 9654 low. We have introduced in this month’s issue of the Reality Check Newsletter, a cluster of Fibonnacci support that we are forecasting as a downside target. To receive a copy, please email us to request a sample.
Now that the market failed to penetrate the stiff Fibonnacci resistance between 11,027 - 11,046, the best case scenario remains that a test of the October low holds for the Dow. Unfortunately for the NASDAQ market, prices have already moved lower, perhaps a leading indicator for a new low on the Dow. Stated on Thursday, we continue to wait to see if 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.
The downturn quickly blew through initial support at 10,750 with Friday’s 231 point loss. This leaves support near 10,260 the next point of contention, that is, if yesterday’s low at 10,369 fails to attract support. A drop below these two support levels would imply that the low was about to be challenged. Minor resistance is found at 10,630, 10,700, 10,880 and 11,000. A close above 11,007 would confirm the extension of the rally that was disrupted by the election standoff, with key resistance remaining at 11,402 - 25. 425. Any push beyond this would indicate that a test of the 11,750 all time high could develop. Lower support is found near 10,324-270, 10,166-050, 9940 and at the 9654 October low.
TREASURIES
Treasury yields are also quite pre-occupied with the election recount, remaining in a tight range on light volume. The Treasury Department managed to support this thinly traded market with the purchase of $1.25 billion in long dated maturities on Thursday. The market is likely also pre-occupied with tomorrow’s FOMC meeting, where the Fed is expected to leave rates unchanged and their policy bias toward tightening. Of course, it will come with their typical rhetoric that the risks are on the side of rising price pressures due to the continued tight labor market.
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. Wednesday’s 5.923% high is now initial support, with more layered all the way up, beginning 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 last 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. We must admit that the lack of interest in light of the extreme uncertainties surrounding the US market’s and our future president is not a very good sign for the short term. Still, we have seen more and more signs that a bottom is not too far off, with the precious metals group bullish percentage down to a VERY oversold 10% and sentiment among futures traders near 20%, conditions remain good for a strong rebound. Also constructive was 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. Support remains at the 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 14, 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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