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. This will be the last Update for the Year! We may put out an interim report if we are in town and see the need. We wish everyone a very Happy Holdiay Season and a Safe, Healthy and Prosporous "Real" New Millennium!
FRIDAY, December 8, 2000: It took almost 900 hours, but Election 2000 is DEFINTIELY in the history books! The Santa Claus rally was "Bush-whacked" by the Supreme Court! With all the counting, recounting, and recounting again, the election came down to a vote of 5 to 4, as even at this highest level in the land, the justices themselves couldn’t be moved away from their party lines! George W also won the entire black vote! Clarence Thomas! The markets can now get on with the Bears dirty business.
It appears that the honeymoon is over before it ever got started! The top of this rally so far, looks coincident to the Supreme Court’s Weekend decision. The pre-earnings warnings have taken the front seat to the new President, and the numbers and magnitude of the warnings are clearly shocking! Some of these disclosures are related to the SEC’s new disclosure rules that limit the corporate monkey business and force them to be more forthright and less manipulative. This may be the day of reckoning for corporate America, along with the general lack of business momentum. According to First Call’s Chuck Hill, through Tuesday, there were 304 earnings warnings this year vs 204 last year at this time, a 50% increase. The lack of bullish leadership and the trend of earnings "invisibility" is the leadership on the downside.
We don’t think this has run its course yet, but as stated previously in our updates, it has not been how well the rally that just ended does, but how well the markets hold up into the first set back. So far this year the averages have been making lower lows. A successful test of the lows would be a strong sign that a rally to higher highs could develop in the new year. Our short term indicators have just turned lower and are bearish for now. If the Dow is to remain constructive, it needs to hold above key short term support from the 11/30, 10,292 low, with initial support right at 10,600, which stopped the decline yesterday. A close below 10,292 will make it much more likely that its on its ways to new lows. Resistance is building at 10,900, with our key level to re-affirm the uptrend remaining at 11,050 on the hourly chart. The OTC Composite closed just above its key short term support yesterday, at 2728.50. A decline below 2700 would increase the odds that this too is headed for another new low, below 2525. We have used the 2200 -400 level as a forecast for a potential low, as there is a very large cluster of Fibonnacci and price support within this range. Keep it in mind that if this comes to pass, it should be the end of the primary degree wave "(3)" low, making the next big rally phase another corrective one, still within the larger bear market. In other words, it ain’t over yet! Resistance on the OTC Composite begins between 2850 and 2920, with key resistance now at Monday’s 3028 high. A close above this is needed to revive the bullish trend that appears to have ended.
Also stated on Tuesday, was that we heard talk that the Dow Transports were confirming in a new bull market. This is still NOT TRUE!! It appears here too that the rally has rolled over after failing to push through the lower resistance at 2950. Support begins at 2700, then 2600, the most recent low at 2350, and then at the 3/22, 2262 cycle degree low. To confirm a new Dow Theory buy signal, the Dow Industrials need to close above 11,400 - 25, at relatively the same time as the Transports moving above the stiff resistance between 2970 -3030. The Dow theory is still BEARISH against these TWO things occurring together.
We’ll have more on all of this in this week’s issue of Reality Check.
TREASURIES
Treasury yields pushed through our long held forecast and Fibonnacci objective at 5.50% yesterday, reaching a low that was just above 5.40% yesterday, on continued fears over the economy, and corporate earnings in particular. The markets are taking for granted the assumption that a slowing economy will make it easy for the Fed to ease and drive long term rates lower and lower. We are not quite as sanguine, believing that while the economy is slowing rapidly, inflation pressures remains the key risk for now. Sentiment for bonds is very bullish, which is another sign of caution for bonds. On the positive side, our long term bond timing indicator, the Dow Jones, 20 Bond Average, moved higher to bullishly resolve the sell signal that it was on. We still think it is likely too late to chase this market, with the long term rate now in the low 5.4% range, as we don’t think this is enough compensation for the risk. Next resistance is near 5.375%, 5.25%, and then 5.00%. Initial support is 5.65%, 5.725%, 5.85%, and 5.925%. 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 are now neutral. We report more specifically on these in the Reality Check Newsletter each month.
GOLD
Gold & the XAU reversed down this week but still remain constructive so far, against the bearish reversal in the dollar, plus the political, economic and earnings problems that have developed. This offers will offer a better and better alternative haven for shifting assets, especially as a hedge against a potentially weaker dollar, something speculated that a Bush Administration may support. Typically, precious metals bottom in the fourth quarter, and even if their is another selloff, we see many compelling signs to believe that the end of its bearish phase is close at hand.
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 15, 2000: --None today -- [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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Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
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