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.
FRIDAY, December 8, 2000: The markets focus yesterday turned away from the post election trial rig-a-morole, in favor of a ton of earnings warnings and the state of the economy. We think (and hope) that less attention will be given toward who our nation’s next chief baby-kisser will be and more toward our sinking economy and corporate earnings, as eventually, these issues will require our focus and undivided attention.
The market’s took back 90% of Tuesday’s record gains in the last two days, making it difficult to discern any meaningful, clear cut trend reversal for the week, as many had hoped for. Entering the fourth quarter’s pre-earnings warning season, it remains likely that more tax loss selling and earnings disappointments will hold the market back for another couple of weeks. Already, there have been some alarming pre-announcements by some of the market’s most visible companies, including our entire auto sector, computer sector, many semi-conductor makers, banks and financial issues, and lots of specialty retailers. According to CNBC recently, 130 dot.coms have gone out of business this year, and many more are getting the life squeezed out of them too. When the pendulum swings away from one great extreme, the opposite extreme can indeed be unbearable! These sectors cover lots of ground and offer clear warn that market fundamentals are deteriorating rapidly, and that valuations remain way too rich to justify such erosion.
Some brighter signs that we must note, there was a HUGE surge in OEX put buying yesterday, with the daily OEX Put/Call Ratio a whopping 2.79, nearly 3 X’s the put buying than calls. I don’t know why these speculators decided so conclusively as a group that the market was ready to resume its plunge, when even with the many earnings warnings, the markets held up “relatively” well. It may just be a sign of capitulation among this group of speculators. A few other bright spots among our technical observations, our 10 Day TRIN indicator is at a very oversold level, indicating that selling breadth and volume may be ready to turn up for the near term. Also, our 10 Day A/D Line indicator turned positive after Wednesday’s close, even as the market gave back 233 points. The question will remain, how long might the markets be able to hold on to any reprieve before sellers re-emerge to push prices “broadly” lower? Perhaps the markets will get some help from the “Presidential Resolution”, as well as from the end of tax-loss related selling. We can only take it as we see it, one day at a time.
Our most compelling reasons to remain cautious are the expectation for renewed forced margin liquidation, as margin interest remains near an all time high, and bullish sentiment, with the Investors Intelligence [(914) 632-0422] Advisors Sentiment Survey showing close to 55% who remain bullish, a level that is MUCH closer to warning of a top than a bottom. We can find further arguments for either side of the fence, but these are among what we consider to be the most telling, with sentiment alone indicating that, perhaps, rallies will remain choppy and short lived.
As long as the Dow held remains above key support, between 10,260 and 10,373, the potential for another advance will remain reasonable, with key short term resistance between 10,900 and 11,000. A push above this would make it likely that we are at the tail end of completing a double zig zag corrective rally from the 10/18, 9654 low. :In this event, Upper resistance remains at 11,400-25, with some resistance incrementally at 11,100 and 11,200. 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 out of this current range (10,300 - 11,000) will point the next direction. Because of the tug-o-war that has been a tie in recent trading, we’d prefer to simply wait for direction, as we have managed our portfolio’s to benefit regardless of the outcome.
TREASURIES
Treasury yields continued lower, reaching our long standing 5.50% yield objective yesterday on the expectations that the economy is slipping more rapidly than expected, opening the door for the Fed to shift their policy bias from tight to neutral when they next meet at the December 19 FOMC meeting, when they set their policy for the next six weeks. In the process, the futures have rallied on lighter volume and momentum appears to be weakening slightly against the high in prices and low in yield. We are shifting our opinion to neutral from here, as 5.477% will equal an exact Fibonnacci .618 retracement of the entire rise from the 4.69% low that was reached in 10/98, to the 6.75% high of this past January, and is a typical retracement level for what we continue to see as a longer term bear market in bonds. We haven’t checked yet, but we as confident that both, sentiment and the Commitment of Traders report will reflect that the market is stretching itself thinly at an unsustainable pace. We report more specifically on these in the Reality Check Newsletter.
As stated on Tuesday, our trading indicators remain very overbought and our long term indicator remains bearish overall, but it did turn up on Monday. Our Elliott Wave analysis continues to suggest that the long term trend is most likely approaching its primary degree wave (2) high. Again, resistance just beneath 5.50%, is at hand, with next lower, longer term resistance near 5.25%, 4.95%, and then at the 10/98, 4.69% low. Support begins at 5.65%, and is then found at 5.725%, 5.85%, 5.925%, 6.00 - 6.05%, 6.20%, 6.32%, 6.40%, and 6.75%. For now the trend remains bullish, needing a reversal back above 5.675% to turn the short term bearish again.
GOLD
Gold & the XAU have continued acting constructively, against the bearish reversal in the dollar, along with the political, economic and earnings problems that have developed. We see this as having the potential for a very constructive fundamental reversal in the conditions that have helped to push gold to the throws of its historically depressed levels. The worse things get here in the US, the more compelling it should become for foreigners to dump their US Dollar denominated assets, particularly Treasury Securities and US equities. These factors should go a long way toward undoing some of the damage done to the gold sector. It should also prove to reverse the efforts among central bankers and forward sellers of gold to stop this bearish practice, particularly as they become re-acquainted with the reasons that gold has always been among the world’s greatest, least political reserve currencies!
We see some preliminary signs of bottoming developing among some of the leading gold producers, including Barrick Gold (ABX), which has moved up enough for a “Low Pole (LP)” buy alert, Newmont Mining (NEM), which gave a buy signal, both on their P&F Charts yesterday, and our own personal favorite, Placer Dome (PDG) which recently had a third Selling Climax (SC), and Bear Trap reversal. had a . These are the three largest producers in North America, and follow through will likely be a good sign for the entire sector surrounding the XAU.
The XAU is managing to hold above 50 for the first time since its September plunge and October Selling Climax (SC) low below 42. Initial support is near 45, then at the 41.64 low, and between 40 - 37, should the low fail to hold. 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 would confirm that the short term trend has turned bullish. Higher resistance is at 59, then at 64, and 69.
PORTFOLIO CHANGES
Friday, December 8, 2000: We are biting the “silver” bullet and taking the losses on Silverado Mines (SIVRF) 1/8 (-99%), Sunshine Mining (SSCF) .05 (-100%), and Hecla PrB (HLprB) 7 1/8 (-84.34%), from our income portfolio, with the potential to buy it back after the 31 day wash sale rule. for taxes and to free up space for different ideas, using yesterday (12/7/00) as our sell date.
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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