MomentumCycles

Momentumcycles commentary for the open of Monday, January 11, 1999:

Several of the established option commentators had mixed reviews for Friday's action.Bernie Schaeffer says the "10 day and 21 day figures are not dramatic, and its only when the numbers bottom and start to climb,that a sell signal is seen,thus no top yet."

Don Fishback says "the action is similar to July 96 and October 97 ,so its time to sell calls against stock positions to capture some bloated premium,not to go short in the face of strong upside momentum".

Using another method previously discussed here to judge the risk of long positions{the number of consecutive equity put /call overbought ratio days},we have had as of Friday 4 consecutive topping days.It is to be remembered that the top in 1987 was signaled by 5 consecutive days at topping ratio levels.That is not to say a crash is signaled here,but a decline due to extreme sentiment levels is due soon.

XAU has formed a pattern similar to the initial rally seen in late August/early September of 1998.Off an oversold bottom with a STOCHASTIC 5 and 20 reading under 10,the initial rally has reached a STOCHASTIC 5 reading near 100.In September 1998,a retracement followed such a short term overbought reading,followed by a higher high.A close above the upper 12.5 % band of price,presently 74.5,would suggest at least one higher high.Watch the declining tops pattern seen in the longer term XAU chart below,to see if an important breakout will be achieved;perhaps one in concert with the declining tops pattern in yields on the 30 year T bond.

Seasonality and pattern recognition ruled the first week of 1999. Beginning of month seasonality officially ended the week with an up bias and the Pre-Expiration week trade began Friday afternoon. As long term readers are aware, the Pre-E week trade goes long Friday on the close (officially, but timing is modified with intraday technicals). The OEX fibo daily chart illustrates just how this works. This particular Friday formed a declining wedge pattern that tested the pivot line until 3PM. Even the Moontide (breadth measure) had crossed below its hourly, daily, and 2 day moving averages. It certainly looked like this Friday was going to deviate from previous E week patterns. Then at 3PM the day traders started closing out short positions from the AM pop and gap filling action. A fast, sharp rally ensued, providing daytraders with a 50% gain in one hour with the OEYAE. Note that this type of action is very similar to the day of expiration with a pop on the open, fade into the middle of the day, and a rally in the PM. On a longer term basis the bullish situation is getting tenuous as evidenced by two of three sell components on the ADHL intermediate term chart being armed. A pick up in new lows is all that is needed to trip this into sell mode. EquityCP and Sentiment are at trend peak levels. McOsc has run out of steam and the SuperT is in congruence with price. Expectations should be for some consolidation.

Here are some charts:

CODI CHART. CONE CHART. CYCLE CHART. INDU CHART. MOSS CHART. NHNL CHART. NYA CHART. OEX PIVOT CHART. OEXPF CHART. OEYME CHART. OEX WEEKLY CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

Intraday update 10:17 am:

Here is an update on the DBCC recommendation from MomentumCycles last week at 16 3/4. Now trading at 36 1/2. 30 was the initial target.

$$ Correction: Last week we mentioned that Data Broadcasting (DBCC) owned only 38% of CBS Marketwatch. They actually own 50% and will own 38% AFTER the IPO on Thursday. BTW, we think the CBS Marketwatch IPO will be absolutely HUGE. The symbol is MKTW and will debut Thursday at $10-12. (We think they will price it higher.) First trade? $30? $40? Higher? Can't wait! More news regarding Data Broadcasting: They also own 50% of a joint venture with Travelers, known as International Finance Network and information about it can be found at http://www.ifn.com/html/abdefault.html This joint venture may also be headed for an IPO soon, possibly as soon as February.

Momentumcycles commentary for the open of Tuesday, January 12, 1999:

The FED is trying to jawbone the T bond market into holding support by a threat to use excess cash to buy 30 year T bonds to prevent a meltdown if the multiyear downtrend in yields is broken.T bonds are flirting with breaking the trendline in yields{see TYX CHART.}.Inversely,a close Monday above the upper 12.5% band of price in XAU almost guarantees at least one higher high,even after a short term correction due to STO readings at maximum overbought.{See XAU CHART.}.CRB has come to life again,while DJIA 5 day up volume has peaked and turned down,normally a short term bearish sign,and we have had 5 days now with equity call/put ratios at topping levels,the same number of days that preceeded the 87 top.{Monday's level was the highest of the 5 day series}.All in all,a series of interesting reversals or potential reversals in many different asset classes.Symptomatic of the recent changes is the recent action in FNM,which we had predicted as vulnerable once the target of the mid 70's was hit last month{see FNM 12/21 chart and comment.}FNM closed at 68 11/16,at risk of violating its long term channel.High of the last year was 76 3/16,near the day of the quoted chart.

On to Monday's schizophrenic action{NDX,IIX,OEX divergence!}...

Expiration weeks are notoriously choppy and tend to have the opposite bias of the previous week. Last week was up, so the expectation is for this week to have an overall downward bias. Equity CP and Sentiment are still in the too optimistic zones. ADHL is weakening with the new lows picking up and new highs dropping. McOsc dropped back to the zero line. Moontide is in a distributive mode. Sell the rallies and cover on the dips should be the norm until a decent washout occurs. Note how far the INDU is above its 200 day average. That simple indicator is stretched to the maximum and consolidation/retracement is due.

Here are more charts:

CODI CHART. CONE CHART. CYCLE CHART. INDU CHART. MOSS CHART. NYA CHART. OEX CHART. OEXP CHART. OEXWM CHART. OEYAE CHART. OEYME CHART. RSISTO CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

To quote from the Intraday update 10:17 am Tuesday,January 12,1999:

"Here is an update on the DBCC recommendation from MomentumCycles last week at 16 3/4. Now trading at 36 1/2. 30 was the initial target.

$$ Correction: Last week we mentioned that Data Broadcasting (DBCC) owned only 38% of CBS Marketwatch. They actually own 50% and will own 38% AFTER the IPO on Thursday. BTW, we think the CBS Marketwatch IPO will be absolutely HUGE. The symbol is MKTW and will debut Thursday at $10-12. (We think they will price it higher.) First trade? $30? $40? Higher? Can't wait! More news regarding Data Broadcasting: They also own 50% of a joint venture with Travelers, known as International Finance Network and information about it can be found at http://www.ifn.com/html/abdefault.html This joint venture may also be headed for an IPO soon, possibly as soon as February."

To quote from Momentumcycles commentary for the open of Tuesday, January 12, 1999:

"The FED is trying to jawbone the T bond market into holding support by a threat to use excess cash to buy 30 year T bonds to prevent a meltdown if the multiyear downtrend in yields is broken.T bonds are flirting with breaking the trendline in yields.Inversely,a close Monday above the upper 12.5% band of price in XAU almost guarantees at least one higher high,even after a short term correction due to STO readings at maximum overbought..CRB has come to life again,while DJIA 5 day up volume has peaked and turned down,normally a short term bearish sign,and we have had 5 days now with equity call/put ratios at topping levels,the same number of days that preceeded the 87 top.{Monday's level was the highest of the 5 day series}.All in all,a series of interesting reversals or potential reversals in many different asset classes.Symptomatic of the recent changes is the recent action in FNM,which we had predicted as vulnerable once the target of the mid 70's was hit last month. FNM closed at 68 11/16,at risk of violating its long term channel.High of the last year was 76 3/16,near the day of the quoted chart.

On to Monday's schizophrenic action{NDX,IIX,OEX divergence!}...

Expiration weeks are notoriously choppy and tend to have the opposite bias of the previous week. Last week was up, so the expectation is for this week to have an overall downward bias. Equity CP and Sentiment are still in the too optimistic zones. ADHL is weakening with the new lows picking up and new highs dropping. McOsc dropped back to the zero line. Moontide is in a distributive mode. Sell the rallies and cover on the dips should be the norm until a decent washout occurs. Note how far the INDU is above its 200 day average. That simple indicator is stretched to the maximum and consolidation/retracement is due."

MomentumCycles commentary for the open of Wednesday, January 13:

XAU had the predicted correction from STO readings near 100{maximum short term overbought}.The recent close above the upper trading band will likely see at least one XAU higher high down the road,but the timing of that higher high is questionable.

FED jawboned the 30 year T bonds into holding the 2 year trendline of yields, so the bond market longer term trend is still intact for now,but it bears watching.

5 consecutive topping days on the equity put /call ratio did its magic again with a mini-crash in the IIX and NASDAQ,and a correction in the other averages.

We had indicated weeks ago that Brazil was vulnerable to a Russian-style debt default that might cause a ripple effect in tertiary equities markets.Brazil was 9000 at the December top.Tuesday saw intraday 5792.

On to Tuesday's action...

The negatives abound. Breadth indicators have turned negative, evidenced by McOsc dropping through zero on Tuesday. When the index makes a new high and the McOsc drops through zero within days of that high, you have a strong sell signal on your hands. ADHL still needs a higher reading in the New Low strength before it trips off a sell. This could happen later in the week if the downtrend continues. NHNL % is about to drop below zero also. CODI definitely forewarned of a sell signal. Momentum Cycles and MOSS were hanging out in the Extremely Overbought zones. Moontide gave us a day of warning also. Tuesday was a water fall. We shouldn't expect the market to turn on a dime and head right back up this week. Any rally would be short lived so give it some room to washout and base before considering a long trade. Sentiment and Equity C/P also worked as desired.

Option premiums are running pretty high. For an at or near the money Jan call, OEYAC, $9 is a bit steep to pay with three days left. Five dollars would be more like it, i.e. one strike difference. VIX at 29.68 is pushing on these prices. This would be more than the usual gamble since a VIX collapse to 20 would work against an index rise to 625 which is what it would take just to break even if held to expiration and to 630 to make 50%. Even an intraday move in the call's direction might not pay a dime on the front month. Februarys are likewise expensive. The Feb 615 call dropped from 32 on Monday to 24 on Tuesday. We don't need that kind of punishiment. OEX Cone projection oscillator is hitting the oversold level and Wednesday's have a way of shaking out the put holders, but still no sustained trend is expected this week. So it is up to daytraders to play off the OEX daily fib levels or Cone levels.

Sentiment and Equity C/P have backed off from their blistering overbought levels. They are not low enough yet for a lower risk call trade and the index oscillators are not oversold yet. Ideally we would like to see Stochastic momentum oversold and the C/P at a less risky level.

Here are some charts:

CONE CHART. FIBRET CHART. INDU CHART. NYA CHART. OEXFIB CHART. OEX MACD CHART. OEX PIVOT CHART. OEXWM CHART. OEYAE CHART. OEYME CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART. DAILY CONE CHART.

Momentumcycles commentary for the open of Thursday, January 14, 1999:

We had pointed out that 5 consecutive equity call/put ratios at topping ratios preceeded the 87 top-in fact that number of days is prime crash or mini-crash material.Similarly,5 days at topping ratios preceeded the recent drop.Traders had the opportunity to buy puts or short as late as Monday morning for a two day intraday 400 point waterfall. Covering on the down trendline break would have netted about 300 points.On to Wednesday's action...

Well, it finally happened. The intermediate term system, ADHL, generated a sell signal on Wednesday. That captured quite a few points from Sept '98. What this means is, it might not be too wise to position trade on the long side until it gives another buy signal. It might be better to trade the short side on rallies to resistance or downtrendlines, etc. The "oversold" nature of AMOSS can produce a short term Call trade back into the neutral zone. As was stated yesterday, currently the current volatility favors the day trader. Some gigantic profits were available on the Jan 615 OEYAC,for instance, from 1 1/2 to 10 if you had the intestinal fortitude to go with what the INDU Candle Volume chart indicated at the end of the first hour. Maximum downside volume occurred then, and the Ease Of Movement turned up after 45 minutes into trading.Bonds also broke their race to the 5% yield area that has recently contained 30 year T bond rallies,commented on before in previous updates.So at that point,money began to trickle back into stocks from the safe haven of bonds.

CODI is into the second day of its sell pivot that took the OEX to the lower side of its regression channel.This is where support better hold or the OEX is on a trip below 600. There is no denying that there is money waiting to get on board the equities train that left the station in September. All the market needs is for the train to pause a bit at the station to make the latecomer think it is still heading to Nirvana. Let's face it, short term technicals say we reached oversold at the classic support levels, regression channels, McOsc, WinMidas on NYA, 21 day avg. on INDU, etc. Thursdays are notoriously the weakest day of the week. As of the close on Wednesday we do have a daily downtrend with lower highs and lower lows, no denying that, so that fact alone pretty much dictates the prudent course of action. Equity C/P did not change much from Tuesday, yet it is back at normal levels. Also the Stochastic momentum has reached levels where the index has mounted a rally in the trend from last October. The same is true for the Sentiment index.

Using the method of consecutive basing days for the equity call/put ratio,we have had 2 marginal basing days,which can give a 1-2% bounce,but for low risk /high return buys we like to see 5 consecutive days{7 were seen at the October 98 bottom}. Here are some charts:

CONE CHART. CONE ID CHART. CYCLE CHART. MOONTIDE CHART. OEX FIB CHART. OEX PIVOT CHART. OEXWM CHART. OEYMC CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

TV Momentumcycles commentary for the open of Friday, January 15, 1999:

From DJIA 9600 Monday 10 a.m. to 9087 intraday Thursday,this down move signaled by the rare 5 consecutive equity put/call topping ratios{seen at the October 1987 top in similar sequence} has seen 4 days that started with euphoria,met with greed during the interim drops,and are only now beginning to smell of fear.In the same way that tops are seen at or above the upper 3.5% trading band,bottoms are often found near the lower 3.5% trading band.Often however,before that band is reached,an interim rally is seen between the 21 day moving average and the lower 3.5% band that retraces part of the decline,which is where we are now.Today we saw the first real evidence of a true basing day on the equity put/ call ratio,which looks for multiple days in sequence in one method to signal a final price low.In bear markets 5 days {or more} in sequence marks the bottom,with associated indicators like 5 day rate of change over -5%{October 1998 -14.5% !}.In bull moves interim bottoms are found after only 1 or 2 true equity put/call basing days,and 5 day rates of change at -4% or 5% ,where we are now.RSI 5 readings at 10 or less mark extreme oversold regions,and we are at 15.In a way,an interim rally here would prevent a truly advantageous oversold condition.On to more indicator discussion,and the results of our correct Wednesday prediction of a highly statistical probability of a "cursed Thursday"...

AMOSS made a tiny up pivot on Thursday at the edge of the Extremely Oversold Zone. Only 5% of prices ever get to that level so we are probably (in the full sense of the word) close to a short term hit and run trading buy signal. The Mechanical OEX signals which are often a day or two early have tripped off buy signals (ten contracts can be reduced to one in the table). This comes from a canned package. Now our own signals are not that far along even though most have hit the oversold levels and still need to turn,and this could happen Friday or Monday. Still, Moontide is going out,and not bottomed yet, McOsc hasn't turned yet. INDU is back testing the 50 day average, good place to bounce for a day or two, as OBV hits its centerline, also a good place for a bounce. One of the ADHL indicators could cross over into the buy mode on Friday, but an intermediate term buy is a few days off at a minimum. CODI is between the Whipsaw and the Buy Alert lines while the OEX closed under the lower regression channel line. This is one of those make or break situations because the new regression channels the superjocks are using are now pointing downward. We really could have things fall apart here where the psychology turns to bear and some are thinking "we haven't seen nothing yet" on the downside. Note that CODI reached 8 in selloffs last fall. It can do it again. The weekend analysts are going to have their weekly charts looking like sell on Monday. With the VIX chart bands flaring wider and VIX closing outside the bands, implies continuation of trend, i.e. downward in price. Personally we have mixed signals on the close of Thursday. Bear markets have these also and if we are now in one, then the conservative modus operandi is to not take the buy signals, but to wait for a rally and take the sell signals. However, if you are a nimble day trader, the situation is set up for the Friday expiration trade,so watch the NYA breadth numbers and rsi and stochastics on price for the Friday afternoon turn. The Sentiment and Equity C\P are "level" conducive but not trend conducive. That too, could change on Friday or early next week.In summary,not yet a perfect place for a position trade,instead a place for nimble intraday sprinters.

The recent top above 74 on XAU was signaled by a short and long Stochastic reading at 100.Those readings are relatively rare,and can mark short term tops and often begin corrections,as we had indicated 2 days in advance of the top.Momentum of price of 5 versus 21 has turned down from its uptrend, and Stochastic readings are not yet oversold enough to make us comfortable on a reentry,although we are near a support level on the XAU 30 minute chart.

Here are more charts:

CONE CHART. CYCLE CHART. INDU RET CHART. MCOSC CHART. NHNL CHART. OEX PIVOT CHART. OEX RET CHART. OEYAA CHART. OEYAT CHART. OEYBA CHART. OEYMC CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.