Last Signal: 11/10/00, SELL
Dow: 10,602.95 OTC: 3029.10
The ratio line inched higher again in the past week as the markets gained back more lost ground. Financial TV guest analysts have been crawling out of the woodwork lately to get in front of the cameras to state their bullish case. While they may be right, we cannot get comfortable with this rally when the clear majority remain so eager and willing to tell us at the drop of a dime why the worst is over. On the positive side, we are at the tail end of tax selling season and this may indeed provide upward support as we move into the new year. Still, we think the current rally is much more likely to be approaching its end than its beginning, and as we have become less bearish for now, we would like to see how well the markets act during the next pullback, not during the current rise.
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TUESDAY, December 11, 2000: LOTS of confusion over the weekend, with the Florida Circuit & Supreme Courts, and the US Supreme Court all passing differing opinions while the markets have been trading not only on every word, but on every breath taken in court. It seems that by the time the winner is determined, the markets will have already discounted it, regardless of which one is the victor. We are confused regarding why there would be any celebration anyhow, as few of either of the candidates promises will likely be kept as neither will be effective in office. Whatever the outcome, the markets will likely soon be re-focusing their attention on declining earnings and the badly deteriorating credit outlook that has placed the economy in much greater jeopardy than is currently thought. The markets will likely learn this lesson in the same manner it learns most of its greatest lessons, through the school of hard knocks!
Santa Claus Rally, or relief rally? Even with the market’s recent strength, it may be pre-mature to declare victory over the bear, as we still need to see how the markets perform during the next DOWNTURN, which we think will develop within days, or perhaps even sooner. To confirm the short term move, we need to see prices close above 11,050 on the hourly chart; -or- a pull back where prices remain above 11,580, or more critically, above the 10,292 low that was reached on 11/30.
We are starting to see more attention paid to the rising Dow Transports and have even heard some say that based on the Dow Theory, that we are confirmed in a new bull market. This is NOT TRUE!! Not yet at least. For a new Dow Theory bull market confirmation, we will need to see each close above their intermediate term levels of resistance. For the Industrials, this level is at the September high at 11,425. For the Dow Transportation Average, this means a close above 3000. While the transports have bounced after becoming the most beat up market sector (even before the tech’s got beat up and we don’t consider most .coms much in the way of legitimate "real" companies). They are moving toward this level, but there is appreciable resistance there. As an addendum to the Dow Theory, We also see some signs that the leadership from the Utilities is slipping as we have been and remain under the impression that they are building at least an intermediate term top, after a significant Buying Climax (BC) and a break of its uptrend line drawn from its late June low. We’ll have more on all of this in this week’s issue of Reality Check. To receive a sample copy, email us your request at: mtr@fuse.net. Please include your name, address, phone and of c8ourse your email address.
We continue to see mixed signals technically, but several of our more important ones have definitely improved. In particular, Our short Interest Ratio Indicator has turned up, but remains on a Low Pole "buy alert" signal, which means the odds favor enough further short covering ahead that a buy signal will ultimately be confirmed. Also, the number of new 52 week highs has indeed expanded impressively, reaching 247 yesterday. Of course, many stocks haven’t had to move too terribly much higher to make a new high, but the fact that they made it is what’s important. Also, our 10 day A/D Line indicator turned bullish on 12/6. As long as these remain bullish, we don’t see too much in the way of immediate downside potential, but of course, these things can all revert quickly. For now, we are neutral to slightly bullish on a VERY selective basis only, with the expectation of changing quickly if things begin to unwind quickly as we suspect they might.
TREASURIES
Treasury yields pulled back immediately after reaching our exact bullish long standing Fibonnacci objective at 5.50%. While we certainly may see more backing and filling, we think the risks in the bond market far exceed the potential for greater gains. We turned neutral once this level was reached and expect that our next change will be to the bearish camp, perhaps when the election issue is resolved and safe haven money decides to get greedy again. 5.477% will equal an exact Fibonnacci .618 retracement of the entire rise (in yield) 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. As theorized on Friday, both, sentiment and the Commitment of Traders report do indeed reflect that the market is stretching itself thinly at an unsustainable pace and indicate that speculators are relatively heavily long and getting over-optimistic. We report more specifically on these in the Reality Check Newsletter each month.
Our analysis suggests that the long term trend is near 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 remain constructive against the bearish reversal in the dollar, along with the political, economic and earnings problems that have developed. This offers the potential as an alternative haven to shift assets, especially as a hedge against a potentially weaker dollar, something speculated that a Bush Administration may support. The monthly record merchandise trade deficit, along with the slowing economy and severely weakening effectiveness of the Presidential victor may all contribute to a rebound in the price of gold, but even if this does emerge, it will take time. This is something that gold bulls have already invested in gold heavily, so we don’t think this is a good time to become impatient. As stated on Friday, these factors should go a long way toward undoing some of the damage done to the gold sector. It may also change the desires of the European central bankers who have done everything within their power to keep their over-sized thumb on the price, favoring the very paper that is failing to hold strong.
Some preliminary signs of bottoming among some of the leading gold producers were recently seen in 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. 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, which is holding near 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
Tuesday, December 12, 2000: Some of our shorts hit their protective stop losses and were removed. I couldn’t find mention of it but Fannie Mae hit its 81 stop on 11/28 & was removed at 80 5/8; 12/8: Chubb (CB) hit its 88 stop (-5.55%), and Home Depot hit its 47 stop (+17.29%) [Part of our offensive is to have a good defense! That means limiting losses and protecting gains]!
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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