MomentumCycles

MomentumCycles commentary for the open of Wednesday, January 12, 2000:

To quote from yesterday's commentary: "A call bias was recommened last week and now that the Cone projection oscillator is overbought, issue and volume breadth are weakening, INDU60 is on a sell, I would be inclined to look for a short term Put entry on Tuesday. Of course, short term to me is a bounce between the cones. For Tuesday I would like to see a failing rally in the first thirty minutes taking us to the green cone above the pivot to about 796.34 or 794.16, Monday's high. OEX30 shows trendline resistance at the 796.34 and 800 so be careful here. You may have to make a couple of entries. You would look for the AdvDecl and FlowRate to be negative or weakening. Then look for an exit at the lower green cones or lower red cones if handed to you."

Now then, what actually happened? The early morning strength took the OEX to the first high at 10:03AM but did not reach our green cone entry target. Then another push up to 795.67 at 11:21 satisfied the price stretch entry requirement. The Jan 790 put OEZMR was available for 8 1/4 and AdvDecl and FlowRate(up/dwn vol) were well into a negative trend day. A negative trend day,as our readers are aware, is when the declines are above 1500 and advances are below 1200. The rest of the day was "slow death" to price as T bonds sold off driving TYX yields to new highs. This pretty much assured a winning put trade. Our target on the OEX was the lower green cone between 784 and 786. The low for the OEX was 783. By then the OEZMR 790 put had increased to 12.5 for a 51.5% one day gain.

The Total Put/Call ratio below 0.5 indicates a topping formation in indices. McOsc also shows an overbought situation, but McOsc can roll over while price edges higher. TYX yields are the real killer here in a super overvalued market {when examining trailing valuations where accountants and those with fiduciary responsibility look}. Brokers and those in the selling mode look to future valuations and tack on astronomical valuations. It would be nice if we got another test of the channel trendlines on Wednesday with VIX pushing down to 21, followed by another bout of weak breadth so we could enter another put trade. I am inclined to look for the same pattern on Wednesday. Though the upside may be more energetic than we had on Tuesday, the downside may be more energetic also and extend into Thursday.

We thought that FNM and 30 year t bonds might be setting up for a countertrend oversold bounce 2 or 3 days ago,but backed away from that immediately the next day when proved wrong by market action.We then said a move to the upper channel on the TYX chart was in the works {chart seen in first paragraph}.Rates have been going up as we anticipated. Price has been behaving well between the channels.Previous tags of the outer channels have been good reversal points.

XAU still seems to be putting in a long term accumulation bottom.

Value added for our readers:

Free Book when you email your request! "To get your FREE copy of the trading classic "Trading, Sex and Dying" by Juel e. Anderson, just email your request to freebook@traderslibrary.com. Known as one of the most influential books on game theory - it yours FREE just for responding."

MomentumCycles commentary for the open of Thursday, January 13, 2000:

Wednesday was one of those range-bound days between the pivot and S1, or the pivot and the lower green CONE. That makes 4 days up and two consolidation days, which is resulting in a neutral view on the MOSS and OEX Nsync charts. The cycle setup we look for this time of month is a downward bias into the end of pre-expiration week. Then on Thursday or by Friday close some significant buying comes in. It just depends if enough of the call premium has been squeezed out by the yo-yo effect of an up and down market earlier in the week. That short term view is going to be modified by report fears the next two days. The longer term picture is one of wintertime consolidation on the Volatility chart. This is also represented by the PC ratio chart. With this ratio at 0.46 we are faced with the possibility of a sharp selloff in February at the worst, or a sideways consolidation at best. Look at how the pattern developed in late 1998 and early 1999. There were numerous excursions below 0.5 until February, at which time the PC ratio jumped up to 0.75. That made a decent put trade. The Fed meets the first two days in February, right in the beginning of month seasonality. Seasonality may be delayed again as it was in January. The "buy the Friday" of pre-expiration week may have more to do with midmonth payrolls than it has to do with expirations. The plan here is to use any weakness on Thursday to pick up some calls, preferably at the lower green or red cones. Globex has a way of screwing up well planned intentions on the open, so you just have to wait for the entry opportunity.

When the FNM oversold condition {charts at left on sidebar}failed to give the expected 30 year T bond rally at the previously visited 6.4% area,we turned short term bearish the very next day and saw a high probability of a tag at or near the upper channel on the TYX chart.We are almost there now.Readers who shorted the T bonds for a short term trade on the reversal commentary posted here should be looking to take profits on any further weakness in T bond prices,to protect profits already achieved.Close was 6.701%.Cover the bond short on the open in case bullish inflation data is used to run in the shorts.

The XAU...Oh,how we wait!Notice how the XAU on balance volume chart is not confirming the recent decline in price.We still feel a rally to the upper 3.5% band {at minimum} will be seen.XAU charts are at the left on the sidebar.

To quote from the MomentumCycles commentary for the open of Thursday, January 13, 2000:

"When the FNM oversold condition {charts at left on sidebar}failed to give the expected 30 year T bond rally at the previously visited 6.4% area,we turned short term bearish the very next day and saw a high probability of a tag at or near the upper channel on the TYX chart.We are almost there now.Readers who shorted the T bonds for a short term trade on the reversal commentary posted here should be looking to take profits on any further weakness in T bond prices,to protect profits already achieved.Close was 6.701%.Cover the bond short on the open in case bullish inflation data is used to run in the shorts.

The XAU...Oh,how we wait!Notice how the XAU on balance volume chart is not confirming the recent decline in price.We still feel a rally to the upper 3.5% band {at minimum} will be seen.XAU charts are at the left on the sidebar."

MomentumCycles commentary for the open of Friday, January 14, 2000:

The TYX daily chart shows the wisdom of covering the 30 year T bond short Thursday early a.m.,as suggested,near the upper channel on the TYX chart.We don't suggest short term bond trades very often,but using our FNM correlation strategy,the history of these trades has been quite accurate.Here is the news service quote that was used to run in the shorts,as it was suggested might happen on yesterday's commentary.

"U.S. retail sales in December rose 1.2 percent against market expectations of a one percent increase. Excluding autos, sales gained 1.4 percent versus forecasts of a 0.7 percent rise.

However, the UK equity market gained comfort from U.S. producer price figures which met market forecasts."

Well,we finally have a buy signal on the XAU and its components,including HL.Longer term traders might pick up a bit of ABX also.This trade may require patience.See the XAU charts on the sidebar to the left for the two up arrows at the far right of each chart.The up arrows show the double non-confirmation of the recent XAU lows.

Mid month seasonality began today, and was sold into in large part with support found at the Keyline and resistance found first at R1 in the AM, and then R2 in the PM when the FlowRate picked up again. One of the hardest things to do is to hold a position through the flat middle part of the day because you just don't know what the PM will bring. One approach is to see if the issue and volume breadth stays strong or increases through the midday and on into the PM. If it does, then price will tend to be pushed higher into the last hour. Call it market environment or strength. It also helps if the new midmonth money buys bonds hands over fist like they did today and drops yields enough to get attention in the snp pit. If the breadth weakens midday, then the power players that return for the finale will take the market down a few notches by doing the "St Vitus Short dance". That's when the entire floor is flashing hand sell signals. The opposite is the "St. Vitus Long dance", of course. The FlowRate shows volume flow in shares per minute. Usually you get a morning trade and an afternoon trade out of the OEX. This week is actually a good week to trade the OEX as the premiums have a week or two left and the gamma effect is increasing, so if you catch the momentum runs you can do well. You just have to remember that near the open and close, as in expiration week, there are funny games played with the premiums. We said yesterday that Globex sometimes screws up a well planned opening by jacking prices up or down before the opening, and we also said to wait for opportunity. Today we were inclined to believe that pre-expiration or midmonth money flows would give us a positive trend for two days. Well, the market opened with a gap up, but if you were patient and did not buy the 785 calls at 12, and waited until the futures dropped to fill the gap, or dropped to the pivot or the OEX to S1 you could buy the same call for 8 to 9. It hit a high of 13 5/8 at R2. There is a lot of noise in the market that will swing prices between the pivot and S/R, or between S/R lines, or the classical pivot and the cones. So, if you get synchronized with your entries and exits using those levels, along with enough contracts of at the money options, you can take a nice slice of profit almost every day. The temptation to do a countertrend trade late in the day is like donating some of your fairly earned cash to the "Pit Charity'. Seldom do markets end at the high end of a candlestick on days preceding government reports, and it is possible to do a quick scalp in the last hour, but recognize that there is risk, and at this time of month you could be on the opposite side of the move the next morning....in case you decided to gamble overnight...and that is what it is,a gamble.

PCratio continues to lurk in the danger zone as it does at the end of long overextended bull runs. Sentiment is close to a Put Alert. EquityCP is kind of sanguine about the current state of affairs. Keeping with the seasonality I would try the same trick as the last three days, and look for a call entry at support, and sell at resistance. Expiration weeks tend to have that upward bias, but you never know when the majors are going to start running for the doors with the PCratio as low as it is. Strategically their best time for maximum leverage is {of course} on options expiration day when goldmines are created from expiring teenies. With the Fed meeting one week following expiration, there may be an exodus ahead of time. Februaries are just bad news in general for equities, as the bonus money is spent and April taxes begin to be a concern. Profits for the first quarter begin to be booked.

MomentumCycles commentary for the open of Tuesday, January 18, 2000:

Last week MomentumCycles' bias was for an up Thursday and Friday due to midmonth pension deposits. Buying an at the money call, Jan785C, OEZAQ, would have produced a double {or close to it} from Wednesday to Friday, or even Thursday AM to Friday PM. You may also recall that we thought the OEX might reach the underside of its up channel on the CODIoex and CONE charts, and that VIXpnf might drop to the Sell Alert area between 20 and 22. Friday opened with a gap up and provided an opportunity to exit longs and enter a Put trade at the Red Cones, as both of these objectives were within striking distance. The www intraday post was for the Jan795P, OEZMS at 4 3/4 or better, and later it was suggested to exit at 7. Since our own PCRatio, EquityCP,and Sentiment readings have entered the danger zone, we decided to take a look at the Barnes Stock Market Indicator. As of December 31,1999 the BSMI was also at maximum risk. This is a fundamental/monetary way of measuring risk whereas MomentumCycles is a technical way. When the two are in confirmation you would think that a decent put trade is near. Expiration week tends to provide lots of strike price range shifts, and is best played intraday from this trader's perspective. Expirations tend to have an upward bias, but not always, and with CBOE equity Call volume to Put volume measuring 3 to 1 and Equity+Index open interest measuring 1.5C to 1P, you would think that early next week some call holders are going to be shaken out of their positions, or that the shakeout will come on a gonzo down Friday. The bias for this trader is to trade the short side next week, but with entries at the upper green and or red cones, or failures at the Classical pivot. Exits would be at the next level lower(cone or pivot) from the entry, or at least the stop would be moved there if price falls through.

The XAU and its components recently made a double downside non-confirmation at the lower 3.5% band of price{see XAU charts at left on the sidebar,up arrows on far right of charts}.Long term players should accumulate small HL or ABX stock positions{not option positions} as a perpetual call on the sector.

In the past,FNM has retreated short term whenever STOCHASTIC 5 reached present levels.Longer term STOCHASTIC 20 {seen on sidebar}is not yet overbought.