MomentumCycles

To quote from the Momentum Cycles Update for the open of Friday, January 9, 1998:

" Unless we are setting up for a crash,Friday may be a setup for the pre-expiration long OEX trade we have employed so effectively here before.Crashes often are prepared by the big money with a downside acceleration in price into Friday close, followed by an intraday Monday or Tuesday spike low and reversal.These patterns always involve the breaking of a key price support level.Presently the key support is 7556-7600.Please refer back to the pitch frequency page for the 1997 market for the next 2 lower support levels.

Shorter term RSI and STOCHASTICS are not as oversold as we like to see for oversold bounces, and we are not yet at the lower 3.5% trading band, where support often almost magically appears.Longer term cumulative breadth and volume have not yet turned up from downtrends,from the 1 day to the 9 day cycle.The 5 day rate of change is in the -3 region, not the extremely oversold -5 region.

At the time of this p.m. post, Asian markets are acting poorly, with some indexes down 5%.Key support in Japan is 14000,and heroic efforts will be made to hold that level.Below that level,many Japanese banks and corporations have some serious liquidity problems,which would have global implications.

Nevertheless, adventuresome traders may wish to make a small long bet on Friday, perhaps near Friday's close, in OEX long calls{hoping to liquidate early in expiration week,starting with Monday} with 2 considerations in mind.1} If key support of 7556-7600 is broken, all long positions are at risk. 2}If the market takes off strongly from tomorrow's open,you will be buying at the end of a day of rally, which is where premium is too expensive.

Remember that we called for weakness into Friday a full week ago,after seasonal strength would end, and this weakness was preceded by CODI in the sell alert region.Statistically,Monday has a good probability of being an up day from several of the cycles we study UNLESS KEY SUPPORT IS BROKEN.Remember, with options, to trade with no more than 10% of risk capital, and to keep losses less than 50% of the initial price."

Momentum Cycles Update for Monday,January 12,1998 open:

Well,that was pretty accurate.The only thing we didn't anticipate was the slight breaking of support at 7600 intraday on Friday ,January 9 before the close.Adventuresome traders were instructed to make a small bet in OEX long calls near the close, unless key support of 7560-7600 was violated,which it marginally was with a print low near the close of 7515.31.Those that chose to enter got prices very near the exact low of the week.More conservative traders were instructed to wait for the CODI buy pivot.

You may ask, why didn't we go short Friday?Why no intraday Friday instructions to go short? Why did we advise covering remaining shorts Thursday at the latest?We have learned through bitter experience that staying short when CODI enters the buy zone is risky.The market is prone to extremely violent countertrend rallies in this region.For every single time the market will penetrate the buy zone without immediate whipsaws, 5 more times it will destroy your position with a countertrend rally.Those fearless traders that bought OEX long calls near the close in spite of the support break should be prepared for Monday morning weakness at a minimum.There is high probability of a rally sometime Monday {or Tuesday at the latest}, even if it is from much lower levels.Longer term repeated price "hits" occur at 7300-7400, then 6900-7100, then 6350.

Now on to the technicals.Shorter term oscillators are calling for an oversold bounce by Tuesday at the latest.5 day rate of change is -5%, very oversold.The option premium ratio was .38, a reading that usually leads to a rally within 1 or 2 days.Shorter term RSI is calling for an oversold countertrend bounce Monday or Tuesday.

In longer term measures,the IBD mutual fund index broke the 200 day moving average,and longer term cumulative price and volume measures are still falling.When these measures finally turn up, a sustainable multimonth rally will occur.

Breadth:

Friday was a gonzo day by any standards. Five to one NYA declines to advances, 17 to one downside volume to up volume and a total volume of 752 million make for a crash mode climax. With the weekly trends down, there has to be additional selling on Monday morning from weekend analysts in the first half to one hour. OEX plunged through the 453 magic level as the issue and volume McOsc dropped to April and August '97 lows. This is a very oversold level. Pessimism was so rampant that divergences between TICK and the OEX did not resolve into rallies. CODI was accelerated high into the Buy Alert Region. The megabuck question is if this is the end or beginning of something bigger. Mechanical Expiration week traders bought calls on Friday's close. Prudent ones went a month out to February and bought a strike or two above the market near the close. Conservative ones want to see a CODI and Z Timer pivot before committing themselves.

Volatility:

VIX(the OEX implied volatility index) peaked at 34.46 before backing off to close at 31.24. Markets bottom with a peaking VIX. This isn't to say that it is over, only that there was some fear and stress release on Friday. Modified Volatility Indexes dropped through zero with no pause for support. We could get a reflex rally up to the underside of the zero line. Z Score Z Timer

Cone Charts:

Please read the commentary on the charts. Cone1 Cone2

RSI, SMI:

Gold stocks down, yields down, stocks down, not much else to say about these.

Fibonacci Zones:

Last week the commentary said the weekly zones would be challenged. See individual charts for commentary. Adventuresome traders here were instructed to wait for Friday's close to make a small bet on the long side. Conservative ones were instructed to wait for the CODI pivot. DJI NDX OEX SPX TYX XAU

Stock of Interest:

A weekly chart of CMR is presented showing resistance at 1.5c for four weeks now. When projected earnings materialize, value will manifest itself.

Stat Pivots:

There are two very significant points to be aware of on the pivots for Monday. One is that they are shifted down again from Friday and the indexes closed below their keylines. This obviously represents a weak market and could induce more selling. A reflex rally attempt towards the keyline is definitely not out of the question to enable those who did not get short on Friday to join in. The second and perhaps more important point is the spread between the support and resistance zones on the Classical Pivots. When the spread is narrow it is easier to engineer a breakout, up or down. When they are far apart, price has to move further before support or resistance is hit and is thus trend facilitating. The statistical pivots might be more applicable on Monday than the Classical ones. There is a wide following of daytraders that are accustomed to the classical pivots and they are taught at numerous seminars. DJI OEX SPX

Sherman McClellan is the authority on the the McClellan Oscillator. If you interviewed him today, this is probably what he would say. " The McClellan oscillator is oversold now that it is below -100 and I would be looking for a low as the advance /decline breadth reverses. I would also give an analysis using the summation index which is a running sum of the McOsc. That gives a longer term view and it is bearish. It shows we hit a bull market top last June and are now testing the lows. A break below -4350 would be a continuation of the bear."

930 a.m. update for Tuesday: Global markets were strong as predicted last night.This should give some opening strength.In case this is merely a dead cat bounce, January call holders should exit into any strength this a.m. due to premium erosion, and keep tight stops.February call holders should maintain close stops on their positions and monitor their positions intraday with as close to live feed as possible.

Momentum Cycles update for Tuesday, January 13, 1998 open:

Adventuresome traders that bought calls near the close Friday got OEX long call prices very near the lows of Friday and Monday.Those that entered this a.m. on the predicted first hour weakness because both Zscore and ZTimer were in the buy calls zone got prices at the lows of the day.Remember we indicated on Thursday's p.m. update the high probability of Monday winding up an up day because of several of the cycles we use.We also recommended closing short positions last Thursday at the latest because CODI was deep in the buy zone and was prone to violent countertrend rallies.Well, with a little help from Asia this p.m., traders should be scaling out of those long January call positions on Tuesday.If they are holding February calls and the market is in a strong advance they should hold.Friday saw extreme over-1000 downticks, and Monday at the lows had similar -1000 tick readings. A -750 tick was recorded later on Monday intraday.Over -1000 downticks for multiple days often imply excess negative short term sentiment.The over +1000 closing tick on Friday ,January 2 GUARANTEED a correction within 2 days- excessive short term optimism, as we noted that weekend.

Our favorite short term contrary indicator,Michael Metz,was quoted on National Public Radio as looking for a wipeout before trading started this Monday.He was also quoted on Yahoo in the market news section as very negative on all world markets short term.His quote appeared in time to mark the intraday bottom.Remember "fade the talking heads"?

12:30 today marked the exact" equilibrium point" in today's action where the short term countertrend bounce paused before resuming its upward motion in late pre-close trading to the 7650's.That equilibrium point coincided exactly with 7600 which is the lower 3.5% band.A close below 7556 on a closing basisnear term would imply further retesting and/or further weakness to the next price levels shown on the pitch chart.This market lost heart when 7800 was violated, so 7556-7600 was the next target.7556-7600 on a closing basis has now held for many times this year, except during the October lows, when it then became resistance.So 7556-7600 on a closing basis has great significance as a price "pitch", either as a floor or ceiling.If it is violated on a closing basis again, the market will likely retest the October lows.

The long calls trade that is taken near the close on Friday of the week before expiration{this last Friday} is called a mechanical trade.{That is, you take it regardless of market action, because cyclically , it has a high probability of success into the first part of expiration week}.Sometimes this trade will not work, just as sometimes our overbought/oversold proprietary cycles and indicators will not work.The truth is that we have found no other indicators that come close to working as well.

One of our readers complained we didn't have them short into Monday, and that there was no mid-day Friday" hand-holding" update.We try to measure risk here, and regardless of Friday's price action, CODI said there was extreme short term risk being short{2 days in the buy zone, intraday Friday DEEP in the buy zone}. The best indicators MUST contradict price at the extremes.

Swing Machine:

Here are the Swing Machine's price probability patterns for Tuesday.

Breadth:

The NYA advances improved somewhat today with a close over 1200. Declines are still holding back the market from making a screaming advance. Declines were in a downtrend all day after making the opening sell. Flow Rate pattern was back to the typical heavy morning period, light mid day and increase in the PM. This time the "mid-day" price breadth divergence did result in a price trend reversal, unlike Friday. As you would expect the issue and volume McOsc stopped their downward momentum. Breadth is so important that we need to see continued improvement for the price advance to continue. A typical expiration week does have its ups and downs. It might just be that this week we will see delayed concentrated buying due to the buyers strike last week following the long holiday season.CODI made a buy pivot,but has not yet crossed above the declining trendline on the chart.

Volatility:

No surprise that the Z Timer and Z score made buy pivots. The MVI is reaching for the underside of the zero line. This is important because the MVI has a tendency to pause, reverse, test, retest, various support/resistance lines. The zero line is one of the three important ones. Watching what it does here helps gain perspective and formulate strategy. Cone 1 shows Friday's support and resistance expectations for Monday nailing down a -1,+1 std dev swing. Cone 2 show the price expectations for S&R for Tuesday.

RSI, SMI:

See charts for brief commentary.

Fibonacci Update:

All equity indexes except the XAU found intraday support at their respective lower weekly Fibonacci support zone and then rallied strongly to close near their weekly balance line. T Bond yields remained near their weekly support zone. XAU closed within its lower Fib zone. DJI, NDX, OEX, SPX, TYX, XAU

Stock of Interest:

cmrstill working its lows.A small bet a la Sears and Roebuck in 1929{yesterday's commentary!}

Pivot Update:

Important points are that the pivots are shifted down slightly from Monday and the indexes closed above their respective key lines. This means the indexes closed stronger than they opened. Even more important is which zone the open occurs in on Tuesday with respect to the zone it closed in on Monday. This relationship determines the probabilities of support and resistance as well as which zones are reached during the day. At some point in the future we may have a post- opening update with the classical zones and the probabilities for the day. DJI SPX OEX

Wednesday 1021 a.m. update:

On stops,the same stop loss technique should be used for Feb long calls as the Jans up until Friday close. In fact it would be adviseable to exit the Febs at the very latest by or on the close on Friday. The Febs will get hit on Monday by the deep pocket naked spread traders. Friday often sees a pop on the open for the S&P expiration, then a dip mid day and then a rally into the close. Thursday is shakeout day, so Feb types might want to exit late Wednesday and reenter late Thursday, but it is not really possible to fortell this now, it is just an expected roadmap from previous experience.

Momentum Cycles update for the open of Wednesday, January 14, 1998:

Traders were instructed during yesterday's and this morning's updates to close out January OEX long call positions into early morning strength.Premium decay increases exponentially till Friday.Even if we have a gonzo last 3 days, the time risk in the January series is too great.Traders that entered in the Januarys near the close of Friday or on Monday's open got prices near the lows of the drop.Exiting the Januarys today at 10 a.m., or again later in the day was about a double in most strikes.Last night, it appeared that Asia {and therefore Europe}was going to have a gonzo oversold rally.This led to a psychologically strong opening that by 10a.m. eastern reached 7700 .The close today was 7732, so what was gained in points by the close in the January series could have been lost in time premium.When you take the mechanical pre-ex Friday close long trade, you exit into strength the beginning of expiration week.Tuesday's opening 50 point gain was a logical point to exit those expiring Januarys.

In the event the recovery since the Friday-Monday lows is a dead cat bounce, we recommended that February call traders hold their long positions if the market had good upward momentum and breadth and to watch carefully during the day with as close to live feed as possible , and to maintain stops close under the price initially taken.Breadth was about 2 to 1 all day.Remember we OFTEN mention to risk less than 1/2 of the initial purchase price of the option as one measure to decide when to exit a position.On the February long calls that are being held, traders should now follow their positions with their favorite stop loss techniques, like a percentage stop or a moving price stop a set number of points below the immediate high. That way traders are covered no matter what happens. You don't want to let profits turn into losses- first rule-and second rule- stay with the trend.Fortuitously, the market on Tuesday was never in negative{stop loss} territory all day, and in fact made an upward channel from the open into the close.

After the close, Intel announced earnings 8 cents above Street estimates.Today was the first day in a while that the NASDAQ was stronger than the DJIA.This usually reveals increasing confidence.Longer term breadth and volume measures up to the 3 day cycle are now rising.This Friday-Monday cycle,another of a long repeated series of tests of 7556-7600{see our pitch frequency page if you have not done so}seems to be successful.A close below 7556-7600 on a closing basis implies 7400- 7300, then if broken,the October lows.

The last series of numbers for the option premium ratio-.53,.38,.57 is a reversal pattern that often occurs at spike lows.Remember we explained that readings in the .30's usually lead to a rally within a day or so.The .38 reading accompanied Friday's trading.

Shorter term oscillator readings on Friday also got to levels that produce oversold rallies within a day.The January 2nd emotional high broke psychological support when it closed below 7800 during the ensuing decline.Remember "broken support becomes resistance"?

7800 is also the 21 day moving average, in between the lower band recently tested and the upper 3.5% band where rallies have failed all year.It would be expected to see resistance therefore at 7800,if reached.

The 10 day moving average of up volume has today broken a long term downtrend, and the 10 day moving average of down volume is apparently peaking.As we write the commentary this p.m.,Asia is rallying on the back of Wall Street's gain Tuesday.If this continues in Europe Wednesday a.m.,confidence could receive another short term boost.

Breadth:

You can't really argue with the NYA numbers of 2082 up and 885 down, or 492 million up and 131 million down. Those are the final numbers that turned the McOsc up and gave the Flow Rate a positive bias all day. They also kept CODI treking downward in its buy trend. Imagine you are a manager of a large blue chip portfolio and you have stocks to sell and stocks you have to buy because your prospectus says you must be 80 to 90% invested. What are you going to do first knowing full well that liquidation of some issues could drop the DJIA by a few hundred points if you and other managers have the same idea? Don't you think you might sell first to create sympathy selling in the stocks you intend to buy? Then, after a week of liquidation you decide to begin purchasing the replacements at prices much lower than a week before. This is of course oversimplification. In addition, as a portfolio manager you might buy some stock index futures at the same time you are rebuilding the stock portion of the portfolio. You may have even been short the futures during the selling phase. This argument favors an upside for Wednesday, Thursday and expiration this Friday.

Volatility:

The above breadth accompanied a declining VIX and rising OEX which pushed the MVI up to its center line. We have to admit that this line does provide resistance in weak markets. The market will get a name on Wednesday. The Z Timer made it back to the neutral zone and until it pivots downward the market should resume moving upward, perhaps at a different speed. Z Score expresses the confidence in the rally and until that weakens, the upward move should continue. Cone1 shows Monday's forecast for Tuesday and the resulting price movement. Cone 2 shows the price probabilities for movement either direction. The Projection oscillator is pointing upward after reversing slightly below the 50% retracement level.

RSI, SMI:

Gold stocks joined in the rally with other equities. T Bond yields have fallen asleep. Equities are beginning the rally that everyone expected last week.

Fibonacci Zones:

Daily trends have changed to up on several of the charts. See charts for details. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMRhad a spike low to 1.15 and closed at 1.35 on good volume.Drilling is starting at BINCO.It is rumored that some of the other majors are drilling the Thompson belt south of the Canmine claims,perhaps north of where they've looked before.An area play may be in the works.

Pivot Update:

DJI OEX SPX

The Classical and Statistical Pivots have an exciting day in store for traders on Wednesday. They are are all stepped upward and Tuesday's price closes are above Wednesday's keylines. What is more important is the price distance between the keyline and the upper pivots. Their closeness makes for the possiblity of engineering a gonzo move on the upside when the resistance levels are penetrated or downwards when support is broken. Tuesday the close was in zone 5 and if we assume an open tomorrow at the same price, then the open will be in zone 4. The probabilities for Wednesday are:

Resistance: Z6 46%
            Z5 52%
            Z4 47%

Support:    Z4 37%
            Z3 57%
            Z2 70%
            Z1 53%

Zone Reached: Z6 25%
              Z5 53%
              Z4 100%
              Z3 63%
              Z2 27%
              Z1  8%

The zone numbers and probabilities are for the Classical Pivots only and apply only to the zone 5 close zone 4 open. Z1<S2A, S2A<Z2<S1A, S1A<Z3<Key, Key<Z4<R1A, R1A<Z5<R2A, Z6>R2A.

There was a misprint on the Classical Pivot Update for 01/15/98. The probabilities for Zone 1 were mistakenly printed as "85 Reached" when it should have read "8% Reached". Apparently the shift key was not fully pressed when hitting the 5% key.

To quote from the Wednesday 1021 a.m. update:

"On stops,the same stop loss technique should be used for Feb long calls as the Jans up until Friday close. In fact it would be adviseable to exit the Febs at the very latest by or on the close on Friday. The Febs will get hit on Monday by the deep pocket naked spread traders. Friday often sees a pop on the open for the S&P expiration, then a dip mid day and then a rally into the close. Thursday is shakeout day, so Feb types might want to exit late Wednesday and reenter late Thursday, but it is not really possible to fortell this now, it is just an expected roadmap from previous experience."

To quote from the Momentum Cycles update for the open of Wednesday, January 14, 1998:

"Traders were instructed during yesterday's and this morning's updates to close out January OEX long call positions into early morning strength.Premium decay increases exponentially till Friday.Even if we have a gonzo last 3 days, the time risk in the January series is too great.Traders that entered in the Januarys near the close of Friday or on Monday's open got prices near the lows of the drop.Exiting the Januarys today at 10 a.m., or again later in the day was about a double in most strikes.Last night, it appeared that Asia {and therefore Europe}was going to have a gonzo oversold rally.This led to a psychologically strong opening that by 10a.m. eastern reached 7700 .The close today was 7732, so what was gained in points by the close in the January series could have been lost in time premium.When you take the mechanical pre-ex Friday close long trade, you exit into strength the beginning of expiration week.Tuesday's opening 50 point gain was a logical point to exit those expiring Januarys.

In the event the recovery since the Friday-Monday lows is a dead cat bounce, we recommended that February call traders hold their long positions if the market had good upward momentum and breadth and to watch carefully during the day with as close to live feed as possible , and to maintain stops close under the price initially taken.Breadth was about 2 to 1 all day.Remember we OFTEN mention to risk less than 1/2 of the initial purchase price of the option as one measure to decide when to exit a position.On the February long calls that are being held, traders should now follow their positions with their favorite stop loss techniques, like a percentage stop or a moving price stop a set number of points below the immediate high. That way traders are covered no matter what happens. You don't want to let profits turn into losses- first rule-and second rule- stay with the trend.Fortuitously, the market on Tuesday was never in negative{stop loss} territory all day, and in fact made an upward channel from the open into the close.

After the close, Intel announced earnings 8 cents above Street estimates.Today was the first day in a while that the NASDAQ was stronger than the DJIA.This usually reveals increasing confidence.Longer term breadth and volume measures up to the 3 day cycle are now rising.This Friday-Monday cycle,another of a long repeated series of tests of 7556-7600{see our pitch frequency page if you have not done so}seems to be successful.A close below 7556-7600 on a closing basis implies 7400- 7300, then if broken,the October lows.

The last series of numbers for the option premium ratio-.53,.38,.57 is a reversal pattern that often occurs at spike lows.Remember we explained that readings in the .30's usually lead to a rally within a day or so.The .38 reading accompanied Friday's trading.

Shorter term oscillator readings on Friday also got to levels that produce oversold rallies within a day.The January 2nd emotional high broke psychological support when it closed below 7800 during the ensuing decline.Remember "broken support becomes resistance"?

7800 is also the 21 day moving average, in between the lower band recently tested and the upper 3.5% band where rallies have failed all year.It would be expected to see resistance therefore at 7800,if reached.

The 10 day moving average of up volume has today broken a long term downtrend, and the 10 day moving average of down volume is apparently peaking.As we write the commentary this p.m.,Asia is rallying on the back of Wall Street's gain Tuesday.If this continues in Europe Wednesday a.m.,confidence could receive another short term boost."

Momentum Cycles Update for the open of Thursday, January 15, 1998:

The print high Wednesday was 7788.92, close to the projected resistance at 7800 {see above commentary}.Near that area at least 3 times a plus 700 or so uptick was recorded, including a + 798 at 3:05 p.m.NASDAQ relative strength versus DJIA today was.46 versus .68,unlike Tuesday's action.Hints of profit taking in Asia Wednesday early p.m.,lead one to believe the down Thursday,up expiration Friday, and post expiration weakness into the following week cycle is a likely roadmap.Traders who sensibly took profits in long February OEX calls near the close nailed down good returns.

Trading is like taking the bus.It doesn't make sense to agonize over moves that you don't trade.Another bus {a long or short trade} comes along soon enough.One bus is just as good as another if it gets you where you want to go.Some readers complain because we don't have a bullish or bearish bias.Others because we find the indicators not lined up to our liking for a trade, and the market goes up{or down} without them on board.You don't have to trade all the time!Leave some money for someone else,take the trades at the extremes, nail down profits,scale in, scale out.The next bus will be here soon enough!

Breadth:

NYA A/D line slowed its rapid accent from Tuesday as advance decline breadth narrowed. OEX ran into resistance at the long term 453 level just as the McOsc issue and volume oscillators closed within points of the zero line. This breadth balance is also reflected in the price Fib Zones below that have the indexes closing near the weekly balance lines. CODI paused in its buy trend as breadth narrowed. Tomorrow watch the race between advances and declines in the first fifteen minutes to half hour to see which reach the 1200 level first, if in fact either does. The Thursday weakness syndrome has to be given consideration. Net Flow Rate became very cyclical in the last few hours as shares changed hands with significant differences of opinion about pre and post 453 level. CODI is no longer in the low risk hugely oversold area where Michael Metz told us the sky was falling.

Volatility:

Zone Timer and Z Score are advising caution for long call positions just as the MVI has crossed above its zero line. %b is nearing its 0.5 line with some trepidation. The odds are for a minor setback on Thursday intraday. The close could be another matter. { If we can allow some intuition here following the special update about exiting calls by Wednesday's close with the expectation of possibly re-entering at better prices late Thursday. } Having multiple positions enables you to manage position risk.

Cones:

Here are the Cone price projections. Cone 1 Cone 2

RSI, SMI:

See charts for commentary.

Fibonacci Zones:

Weekly balance and daily Triple Switch trendlines are in vogue on these charts. Equity indexes are dead center. Yields are inching up. XAU refuses to give up, i.e. looks like the stocks are under accumulation at lower support zones. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMRwas at 1.14, the low for the year yesterday.Wednesday it traded up to 1.50 before settling at 1.40.Is that the faint odor of a bottom ?Could it be the supply down at these prices is drying up?Note the rumor is the majors are drilling the Thompson belt south of the BINCO claims.Do the majors waste money on dry holes without doing their research?Is this an area play I smell?We'll see.

Pivot Update:

Pivot configuration for Thursday is the nearly the same as for Wednesday. The zone spread narrowed again, making for the potential of breakout moves when stops are triggered near the zone boundaries. All three indexes closed in Zone 5 with an expected openin in Zone 4 unless there is a huge disparity between the cash and futures at the open and a gap occurs. This disparity can be monitored by watching the PREM on the TV ticker or your quote screen. The probabilities on the INDU chart are the same for the OEX and SPX since they also closed in zone 5. If there is a retrenchment, zone 3 has 70% probability of support but only 27% probability of being reached. Zone 3 has 57% probability of support and 63% probability of being reached. So the bets on the table would be for the indexes to drop to between the keyline and S1A, if there is infact a pullback. Some shorts would be covered in Zone 3 and the rest in Zone 2. Those are also the zones you would expect to go long if your indicators suggest a reversal to the upside after the pullback.

To quote from the Wednesday 1021 a.m. update:

"On stops,the same stop loss technique should be used for Feb long calls as the Jans up until Friday close. In fact it would be adviseable to exit the Febs at the very latest by or on the close on Friday. The Febs will get hit on Monday by the deep pocket naked spread traders. Friday often sees a pop on the open for the S&P expiration, then a dip mid day and then a rally into the close. Thursday is shakeout day, so Feb types might want to exit late Wednesday and reenter late Thursday, but it is not really possible to foretell this now, it is just an expected roadmap from previous experience."

To quote from the Momentum Cycles Update for the open of Thursday, January 15, 1998:

"The print high Wednesday was 7788.92, close to the projected resistance at 7800 {see above commentary}.Near that area at least 3 times a plus 700 or so uptick was recorded, including a + 798 at 3:05 p.m.NASDAQ relative strength versus DJIA today was.46 versus .68,unlike Tuesday's action.Hints of profit taking in Asia Wednesday early p.m.,lead one to believe the down Thursday,up expiration Friday, and post expiration weakness into the following week cycle is a likely roadmap.Traders who sensibly took profits in long February OEX calls near the close nailed down good returns.

Trading is like taking the bus.It doesn't make sense to agonize over moves that you don't trade.Another bus {a long or short trade} comes along soon enough.One bus is just as good as another if it gets you where you want to go.Some readers complain because we don't have a bullish or bearish bias.Others because we find the indicators not lined up to our liking for a trade, and the market goes up{or down} without them on board.You don't have to trade all the time!Leave some money for someone else,take the trades at the extremes, nail down profits,scale in, scale out.The next bus will be here soon enough!"

Momentum Cycles Update for the open of Friday,January 16,1998:

Here is the XAU chart from yesterday, showing the close above the green line and the upward pointing ratio oscillator 2 days ago.Here is the XAU performance today, 2 days later.It seems apparent that XAU traders are primarily trend followers, and that a close above the green line on this index, with the ratio oscillator crossing and pointing up from oversold are FOLLOWED by a stampeding bunch of gold bugs in a day or so.Enough said.Let's keep an eye on this index for a similar pattern in the future, and sell to those guys at overbought!

We sold most FEB OEX long calls Wednesday close for a double,expecting Thursday weakness, maybe{just maybe!} thinking to buy a few back Thursday close to exit Friday into hoped for strength during expiration.Sounds good from here, as we lost about 100 DJIA Thursday from Wednesday's close.We wouldn't hold any few remaining OEX longs past Friday, not that CODI is overbought, but we want to see Friday's action before deciding the trades for post expiration week.

7556 -7600 on a closing basis is still key support- see our pitch frequencies page.

Breadth:

NYA Let's review the breadth guidelines. The key level for advances and declines is 1200. Years back it was 1000 and then 1100. These lower levels and the 1200 form a critical band about which market price trend is determined. Let's keep it real simple and summarize as follows:

Advances > 1200 and Declines < 1100 equates to a rising index = a trend day
1100 < Advances and Declines < 1200 equates to a flat or sideways index = a
nontrend day
Advances < 1100 and Declines > 1200 equates to a declining index = a trend day

The first fifteen minutes of each trading day determines the bias for a few hours to the entire day if it is a trend day with a strong breadth difference.

McOsc is still in the neutral region as the OEX battles on the 453 resistance line. Expiration can have a dramatic effect on the resolution of the battle. Flow Rate Net had an unusually large negative spike in the last hour that has to be expiration related. Even so, the TICK was not forewarning of anything serious to worry about. CODI is hanging around in the buy alert zone as though it wants to spike up again. It just might if the breadth trend of Thursday continues.

Volatility:

Z Timer dipped back towards the neutral line relieving some of the built up pressure from Monday. Z Score manifested some fear by the green/red line crossover although it was not a significant trend inducing fear. Probably just some pre-expiration positioning as evidenced by the large negative Net Flow Rate in the last hour. The MVI chart shows the possibility of a down Thursday and an up Friday expiration. Cone 1 only had a half std dev move today. Quiet days are like that. Busy days can expect as much as one std dev move. Crash mode (up or down) tends to have 2 standard deviation moves. Cone 2 shows the price expectations for Friday.

RSI, SMI:

XAU accumulation continues on the dips. Yields ticked up and SPX ticked down. See charts for pictorials.

Fibonacci Zones:

What was of significance today was the performance by the XAU and TYX. The others are still mired in neutrality about the weekly balance point. DJI NDX OEX SPX TYX XAU

Stock Of Interest:

CMRhad some profit taking from buyers at 1.14 two days ago .It seems from recent action that selling may be drying up at these prices.

Pivot Update:

Once again we have the classical pivots pinching in tighter about the Keyline. This has the makings of a Gonzo Friday with large price swings as buy and sell stops are placed within ticks of either side of the pivot lines. The Stat Pivots have all shifted down a tad. Thursday saw a close in Zone 2 and we have assumed an open in zone 3. The Support, Resistance and Zone Reached probabilities are posted on the INDU chart. They are the same for the SPX and OEX although the Closes are a toss up for zone 2 or 3 which makes minor changes in the probabilities but does not change the relative magnitude distribution.