Last Signal: 11/10/00, SELL
Dow: 10,602.95 OTC: 3029.10
The ratio line backed down again last week but remains above the oversold level of -.40. From here, we don’t know which direction it will take next, but the selling does not appear to be over yet, and our indicators remain mixed. We think it is better to wait for a more clear reading before we pass judgment, while continuing to look for trading opportunities on both sides of the market.
TUESDAY, December 5, 2000: The Gore campaign was dealt a life-threatening blow after the market closed yesterday, when Florida’s Leon County Circuit Court Judge N. Sanders Sauls rejected Gore’s request to have 14,000 disputed ballots from two heavily Democratic Florida counties recounted by hand. The markets rejoiced in after hours trading, but the two BIG questions will likely be, can Gore’s legal challenge regain momentum, and how long will any celebration last?
Yesterday’s rally came on the news that the U.S. Supreme Court sent back the Florida Supreme Court decision that extended the deadline for certifying the presidential election. While the rally seemed powerful, it was really another day. Their were actually more NYSE issues that declined than advanced, NYSE volume slowed slightly, relative to the last week’s daily volume, and on a day where the Computer and Semi-Conductor Indices were flat to up marginally, the OTC Composite was still down slightly. This makes the Dow’s 187 point gain unimpressive and “suspect” to us, implying that a Bush honeymoon period may be very short lived. After all, the election was never an issue that anyone thought would last very long.
Stated on Friday, in reverse of when the markets had no problem inventing new rationalizations for chasing over-bloated stocks on the upside, investors are having little trouble finding reasons for their fearful selling…The markets will likely soon re-focus on issues such as the very disappointing earnings deceleration, the rapidly decelerating economy, continued inflationary pressures, the perhaps too big to manage debt problems, and finally, what the Fed may be able to do about it all.” Perhaps the markets will hold up until the Q4 earnings pre-announcements begin, next week. We also think we’ll see a pick-up in forced margin liquidation, which generally contributes largely to selling capitulation.
We cannot ignore the fact that our measures of investor sentiment remain much too high to indicate any lasting market low. Last week’s Investors Intelligence survey of Investment Advisers showed that even after a 50% decline in the popular OTC averages, 55% are still bullish and a very low 29% are bearish. Typically after an extended period of selling, this would be reversed, with less than 30% BULLS and over 50% BEARS. In itself, this tells us that the markets have still not hurt investors enough to shake their confidence. . If the market were to be bottoming now, it would be without precedence as investors have never remained bullish throughout any period of extended selling before. It is much more likely that this will indeed change before a lasting bottom becomes evident, & this doesn’t even seem close.
The Dow held above key support again for a second time on Friday, closing at 10,373 for the day, after reaching an intraday low of 10,292 on Thursday. A clear break of this level is still needed to confirm that primary degree wave (3) is indeed developing. A break of this level should quickly usher in more selling, down to 10,000 and below, to ultimately test the 10/18, 9654 low. Short term resistance is found at 10,500-640, 10,790, with more at 11,000 - 27 (Fibonnacci .618 retracement resistance of 11,407 high to 9654 low). A push above 11,050 would make it more likely that the Dow is still within a more complex, double zig zag corrective rally toward next major resistance at 11,400 or so. We think that before an extended bear market will end, the A/D Line will have likely seen its low AHEAD of market prices, as many stocks generally see their lows before the overall market. To receive a sample issue, please email us your request, including your name, address & phone NOTE: We are not set up to email our morning updates as part of our sample and reserve this service for our subscribers The Tuesday and Friday updates are available for free at more than 30 financial websites, some of which are listed below, making it very easy to obtain!
TREASURIES
Treasury yields continued to hold most of their gains through yesterday’s close, ahead of Florida’s court decision. We think that once the issue of who will be the next president is resolved, the Treasury market will lose its flight to safety bid that it is holding during the uncertainty. We think that at some point, Treasury yields will begin to rise again, as it is realized that a soft economy will limit the potential for budget “surpluses” and that will not only mean no more Treasury buy backs, but re-issuance of long term Treasury debt, as a slower economy will clearly mean lower federal tax receipts.
Treasury yields finally pushed through the resistance that had turned them back since their first attempt failed back in April. This re-established the bullish trend for bonds, and again makes it more likely that our 5.50% target will be realized. It does not change our long term outlook, and in fact may support it further. Our trading indicators are overbought and our long term indicator remains bearish overall, but it did turn up yesterday. Our Elliott Wave analysis continues to suggest that the long term trend is most likely approaching its primary degree wave (2) high. Again, next resistance is near 5.50%, as a Fibonnacci .618 retracement of the entire rise in yields from the 9/98, 4.69% low to the 1.00, 6.75% high is at 5.48%. Support now begins at 5.725%, then 5.85%, 5.925%, 6.00 - 6.05%, 6.20%, 6.32%, 6.40%, and 6.75%. For now the trend is back to bullish.
GOLD
Gold & the XAU continued to attract buying to the latest upturn, as the US Dollar has been getting dumped. Perhaps international investors are not as confident in a Bush Presidency as many seem to be hear at home! They MUST be losing confidence in the US economy too, as the falling dollar should also reflect foreign selling of US Bonds and stocks, that is, if the dollar’s demise continues. We see the dollar as the most over-owned, highly vulnerable currency, as many nations have even abandoned their own in favor of the strong dollar. We wonder what will happen to this added support in the event of a more serious slide in the greenback.
Our reason for discussing currencies in our precious metals section is simply that the strong dollar contributed dramatically to the prolonged selling of gold in US dollars, while gold has remained strong in many countries where it was priced in their perpetually weak local currencies. We think the euro will be the greatest beneficiary of a falling dollar, and a strengthening euro will hopefully help to reverse the desirability of further sales of European gold reserves. If this source of supply dries up, the supply shortfall that has added to each years deficit of gold availability should finally lead to higher prices, even if it comes at the expense of short sellers, carry traders, and other over-extended bearish hedge traders. While we would not rule out further efforts to keep the price of the metals down, we think the war that the world’s central bankers have waged against gold will continue to lose its edge. If correct, it should remain a matter of time before continued strong demand will overcome the advantages that have kept prices depressed.
The XAU made further progress, closing above 50 yesterday for the first time since its September plunge and October Selling Climax (SC) low below 42. Initial support is up to 45, at the 41.64 low, and then between 40 - 37. A push to 54 on our (2 X 3) P&F chart is still needed for a longer term “Low Pole” (LP) buy alert. A rally above the 55-6 level of resistance is still needed to confirm that the short term trend has turned bullish. Higher resistance is at 59, then at 64, and 69.
PORTFOLIO CHANGES
Tuesday, December 5, 2000: 12/4: We are re-adding Compaq (CPQ) 22 � to our large cap portfolio, as we said we would when we were stopped out at 28. Also, 11/28: we were stopped out of Fannie Mae (FNM) at 80 5/8 (-7.86%), but forgot to mention it on Friday.
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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Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
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