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!
FRIDAY, November 17, 2000: The JURY’S, I MEAN, THE ELECTORAL VOTE’S STILL OUT! No verdict yet as the drama keeps building! 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 just decided NOT to do, are having their own impact on the swings in the market, as it should be! By the time we know who the next President will be, it will likely no longer even matter to the markets!
The market’s continue moving further away from the resistance that stopped the rally in its tracks since reaching its November 6 highs. We continue to believe that those highs marked the end of minor wave “2” within the larger 3rd primary wave of decline within the bear market. We mislabeled this on Tuesday but think it is correct now. If this is correct, there should still be a LONG WAY DOWN!!! At an absolute minimum, prices should fall below the lows reached on 10/18, when the Dow bottomed at 9654. 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 sample issue, please email us your request, including your name, address & phone. We will email it early next week!
We think the parameters that define the next larger market move are easily defined. A move above last Monday’s high will renew and prolong the bear market rally, offering potential to next resistance to 11,400 - 25. While we think this is unlikely, if it does occur, the only thing it really changes is the immediacy. On the downside, an hourly close below Monday’s 10,369 low would confirm a short term top and increase the likelihood that the next larger degree decline is underway. A drop below lower support at 10,280 would add to our confidence that new lows are just around the corner.
One technical note that was discovered yesterday that keeps my confidence high that the bear market is alive and well is the daily A/D Line. This made a new low on 10/18, the same day the overall market bottomed. Before an extended bear market will end, we think the A/D Line will have seen its low AHEAD of market prices, as many stocks generally see their lows before the overall market. This is how leadership develops ahead of the next bullish move, and we have not reached that point yet. When we see this bullish divergence, it will offer great encouragement for turning bullish. This is but one of the things we think is likely to happen ahead of a change in our overall bearish view.
TREASURIES
Treasury yields seem to have gotten over the pre-occupation with the election results, finding the flight to safety bid that had failed to materialize earlier. The market strengthened after Wednesday’s FOMC meeting, when the Fed left both, interest rates, and their tight policy bias unchanged, as they continue to see higher oil prices and the tight labor market as the bigger risks that add to inflation pressures. We agree, and think the evidence that the economy is slowing is so far, not as compelling as the markets would like us to think.
Our short term yield chart remains on a “high pole at the bearish resistance line” (HPBr), a highly reliable “sell alert” chart formation. While this continues to suggest that a move back above 6.00% is forthcoming, the recent rally to 5.73% re-opens the door for a move to our previous objective of 5.50%, at the Fibonnacci 61.8% retracement of the 4.69% - 6.75% range of the past two years or so. First, the HPBr will need resolution, by moving to 5.60%. This leaves little room to chase the market even if the lower target is reached, and so far, our indicators remain bearish. We therefore do not recommend chasing the bond market. If our indicators change, we will reconsider.
Bonds have been in a bear market since reaching their bullish pinnacle, a low of 4.69% in October of 1998. If our appraisal remains correct, the yield will eventually push far above the 6.75% high that was reached this past January. Initial support is back down to 5.85%, then layered, beginning at last Wednesday’s 5.925% high, 5.97%, 6.05%, 6.20%, 6.32%, 6.40%, and at the 6.75% January high. Next resistance is at 572%, 5.675-.65%, and then at the unfulfilled 5.50% level.
GOLD
Gold & the XAU seem to be biding their time ahead of the next move. The question remains, will that move be up or down. Perhaps the market is still digesting last Tuesday’s 9th Bank of England (BOE) 25 ton gold auction, even though 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 see signs that a bottom is not far off, with the precious metals group bullish percentage down to a VERY oversold 10% and sentiment among futures traders below 20%, conditions remain good for a strong rebound. 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
Friday, November 17, 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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