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REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL
2000-SEPTEMBER
2001 |
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Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
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September 11, 2001 |
| STOCKS |
| REALITY RATIO: -0.419
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Last Signal: 09/07/01, TRADING BUY
Dow: 9,605.85 OTC: 1687.66
Last week s continued selling cascade quickly brought the sum of our trading indicators to its deepest oversold reading since reaching -.484 on March 23, at the last significant intermediate turning point. We THINK we are at a similar point now, but still must caution that while the line has reached its extreme, the slower moving average lines are still well above and falling. This indicates that their could be more trouble down the road, after the markets unwind their current oversold condition. While the extreme volatility of the past three weeks has whipsawed the Reality Ratio, we hope it is getting back in harmony with the markets.
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TUESDAY, September 11, 2001: The markets recovered yesterday after another extremely weak opening, with an additional 110 point drubbing for the Dow, reaching an intraday low of 9558.39. Perhaps ultimately more significant, the S&P 500 and the NASDAQ 100 (NDX) made new lows for the year before recovering. These lows are significant because if they can close higher for the week, their upside reversals would be selling climaxes, and a very important sign that the sellers have exhausted themselves. This would also be true of many other issues and indices that would make new 52 week lows before closing higher for the week. We will keep our fingers crossed.
We believe that regardless of the potential indications mentioned above, the markets have already been "over-discounting" the current news by reacting negatively to the same announcements as they have been repeated. This has been the case as economic or corporate news has been announced after the markets had already reacted to the same things that had been previously announced. A good example of this was in last week employment data that while worse than the consensus, we have already been well primed for unemployment to rise to 5% and even a bit higher. Yet, the markets came tumbling down as if they didn t believe that it was coming.
News aside, our indicators have become deeply oversold, even in relative terms within a bear market. As many have warned that this doesn t matter in a bear market, we can definitely say that even within the bear s tight grip, the markets have become more than sufficiently oversold for this particular drubbing. Put/Call Ratios suggest that put buying has become way too popular. The McClellan Oscillator reached a deeply oversold -191 reading yesterday, the lowest since its -230 reading at the March low. RSI has moved below its rare 30% oversold reading, and Daily Stochastics closed near 10% yesterday. These are but a few meaningful indicators that are well poised to signal a bullish upturn. We will also point out that our Short Interest Ratio Indicator reversed with yesterday s rebound. In a market that has been controlled by the short sellers, and the ratio reaching its highest level of short interest since December, we see this as a good sign that the shorts are just beginning to cover and this will contribute to a market rebound.
Because the wholesale selling has come before what we had anticipated would be a "C" wave rally indicates the possibility that the markets had never completed their 5th wave of decline, and have done so now. This is more probable for the OTC averages than the Dow, which can still theoretically be within wave "B" down, with the "C" wave rally still ahead. A new low for the Dow would negate this, but it still has a way to go for this, especially when compared to the S&P, OTC Composite and 100. With the damage already done, emotions running at very highly pessimistic levels, the majority of indicators already very oversold, and literally no one expecting a rebound, the prospects for one remain high and growing. At this point, we must go against the frantic heard, regardless of the economy or current media spin.
As previously pointed out, the decline was not the beginning of something new. It began from the 5/22, 11,350 market high and snowballed beyond what we consider a normal period for most selloffs (in terms of "time"). This too supports the case for some sort of tradable low being close at hand. At least, conditions are right for one. The cascade of stop loss selling that we had mentioned a week ago Tuesday may have finally run its course. Yesterday s low exceeded our lower Dow support near 9650, but quickly snapped back. This established more support near 9550, with lower support still at 9375 and then at the 3/22, 9106 panic low. Resistance now begins near the psychological 10,000 level and then between 10,120-200, 10,400 and 10,600. At yesterday s low, the OTC Composite reached a low of 1670, just 50 points above its April low, near 1620. Resistance begins near 1835, the 1930- 2000.
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TREASURIES
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Treasury yields have remained as volatile as the equities markets, as fickle money continues moving in and out depending on the daily course for stocks, which this money clearly favors. From last Monday s 5.339% low, the yield has been all over the place, with last Tuesday s 5.48% high and Friday s 5.347% low. This establishes the very short term parameters. A break above or below will clue us in on the next direction. A push above the upper level would be the first clue of a potentially more significant trend reversal was developing, which is what we continue to expect. This may be the case even as the Fed cuts rates again at their next FOMC meeting (or sooner) on 10/2.
Conditions are right for a bearish reversal , barring the prospects for further support from flight to safety buying out of equities. The yield has so far NOT sustained itself below our targeted Fibonnacci resistance at 5.363% (.786 retracement). Whatever happens from here, the rally is old and has already used up a great deal of its bullish currency/energy. Next short term resistance is now at Tuesday s 5.339% low, down to 5.30%. Beneath this it is at the key, 3/22/01, 5.217% low. We continue to remain bearish against these levels. Initial support is near 5.40-.42%, with the next higher level at 5.617%. A break above this would confirm a short term bearish reversal. A break above the 7/6, 5.771% high would confirm a more substantial bearish trend reversal and indicate to us that the larger degree wave (3) bear market was underway. |
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GOLD
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Gold & the XAU remain stuck, again, doing little without the influence of the activities that have prevailed ahead of options and futures expiration weeks. If there was ever an opportunity for money to seek out and move to alternative investments like precious metals, it would be now. The fact that this is not yet evident is a sign that investors are not yet ready to seek out alternatives to stocks. While we firmly believe the day is coming and could begin at any time, we don t think it has started yet.
Some of our trading indicators are beginning to look oversold, offering the potential for a rally to begin from current levels. This would be a good sign because prices did virtually NO damage to the market during the recent consolidation. Resistance begins at the recent 5/17, 58.44 high, with the next level at the key, 6/14, 60.39 high, and then at the 5/18, 66.54 high. A clear breakout above 60 would be very bullish because it would also break above the long term downtrend line drawn from the 2/7/96, 155.60 high. Prices have managed to hold well above the support that begins near 52, with the selling so far confined to a low of 54.48 last week. Lower support is at the 2/14, 45.64 low, and then at the even more critical 7/14/00, 41.61 low. For (cash) gold itself, resistance begins near last week s $279 high, with more at $280 and $286. Cash pushed below support at $272, triggering a very bearish High Pole at the Bearish Resistance (HPBr) on our short term P&F Chart..
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PORTFOLIO CHANGES |
| Tuesday, September 11, 2001: 9/7: the selling took us out of our most recent position, AMR, at 30.20, after it broke its P&F support at 31. Yesterday, 9/10, we added the QQQ s at 33.80, and will keep our fingers crossed. [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
(513) 421-8737,
Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
MTR also publishes a monthly investment newsletter called "Reality Check", which offers technical commentary on the stock & bond markets, the Dollar Index, gold & gold stocks (XAU), Treasury yields, utilities, investor sentiment, and Federal Reserve policy. It also offers stock trading recommendations each month with price targets, stop loss points and insider activity. There are 4 trading portfolios, including a short selling account (we are very proud that our short sale recommendations have averaged 12.5% "compounded" during the roaring bull market of the last 5 years). Short term market commentaries are updated on Tuesday and Friday mornings, along with portfolio changes on this web page. They are also emailed for free to anyone who provides us with their email address. The regular subscription rate is $200 (US) per year. Samples are available upon request. MTR will be happy to send information on any of the above mentioned services. Please email us your home or business address along with your daytime phone number and specify your interest(s). |
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