MomentumCycles

Momentum Cycles Update for the open of Tuesday, January 20, 1998:

To review the action and advice of last week: CODI was in the buy zone Friday, January 9 and Monday, January 12.ZTimer and Zscore was in the rare buy calls zone as well that Friday and Monday. .Subscribers who went long OEX calls at the lows, or shortly thereafter, sold accumulated January OEX long calls for a double on Tuesday ,January13.They sold February long OEX calls Wednesday,January 14 close for a double, looking for predicted Thursday weakness.They bought some OEX long calls back near Thursday,January 15 close , looking to sell the remainder on Friday,January 16 into previously described resistance near 7800 intraday, all of them to be sold by Friday close.

Whoa! What a week! Not to mention our fib and pivot charts correctly looking for a short term rally in XAU and rise in TYX{rise in yields, decline in bond prices} the past week.It might be high time to take short term profits early Tuesday in all those indexes as well if you haven't done so on Friday.A quadruple play during one week...well, nature has a way of punishing extreme outperformance or underperformance by an index{or a trader!} during one week by giving it back or taking it away the next.So let's be on the lookout for that.

It is always best to try to initiate a short position when we are near the upper 3.5% trading band accompanied by a CODI sell pivot, and ZTimer and Z Score in the buy puts zone.We are not there now, being only at the 21 day moving average, so price isn't as overbought as is ideal for a large price movement.So buying puts this week is not as perfect a situation as other opportunities we have traded, such as the short during the first week of August 1997. However,when we examine recent history for similar chart and monthly patterns for the action this January, the chart and date patterns match up closely to the patterns seen in August of 1997.At the start of both last August and this January, the OEX was near the upper 3.5% trading band.There was then a fall climaxing in midmonth to a target price below the 3.5% lower trading band, followed by a 3 day rally to the 21 day moving average.The 4th day, the market fell, and on the 5th day it rallied again, before starting a decline back to test the lower 3.5% trading band towards the end of the month.The 5 day rate of change in mid-August was 1 ,now in mid-January it is 2 1/4.The shorter term oscillators showed a similar short term overbought position before the retest of the lower band in mid-August as is occuring presently.The angle of the daily A/D line from the August,1997 peak to the mid-month low and bounce to the 21 day moving average is the same as the action this January.The fall in the daily breadth numbers from the start of last October intersects at a point that peaks in date and angle close to Tuesday ,January 20.The monthly pattern of money flow argues for a drying up of cash flow into the period of Thursday, January 22 through Monday,January 26.This Thursday to Monday period would also agree with the present alternating weekly oscillation between exilaration and depression.

On a shorter term basis, Friday had an uptick of +1053 in the first 1/2 hour accompanied by a very low trin of .14, another set of upticks of+750 at about 11 a.m., and another at 1230.

Traders who have learned to watch tick intraday by reading our site faithfully knew to sell any remaining long calls after the high upticks intraday any time the DJIA tagged the resistance previously mentioned here at 7800, twice tested on a daily basis last week.{Broken support becomes resistance}. CODI is tagging the sell zone,although it has not penetrated it, so on that basis alone, therefore,we should see weakness some time during this week. The period of January 22-26 is the most likely time for the target of that weakness. It would be better if we could try to buy the puts from a more severely overbought CODI position. Perhaps they will try to run in some shorts early in the week to achieve that more overbought position.

It is interesting when looking at other markets we examine{since everything is related} to track the footprints of the big money . Big money is often patient in accumulating value.It has a long time frame.It is not hurried.It abhors the consensus view expressed in large circulation financial publications.It can take a paper loss for a long time knowing eventually value will be recognized.The following musings are not trading recomendations- just examining the tracks of big money accumulation.1} Sir John Templeton is buying South Korean mutual funds with his personal money -he says it is the point of maximum pessimism 2}Soros's brother is buying silver mining claims at cents on the dollar with a company called Apex Silver 3} Big banks such as Citicorp are buying stakes in the very highest quality Asian company debt and equity 4}a column in Barron's this week mentioned those words that strike fear in contrarian hearts-"the best of all possible worlds"- referring to"the lowest inflation and unemployment in 30 years,rising incomes,climbing values for stocks and residential real estate."Something in that mix is about to change, and fast!5} lower oil prices are being predicted by the International Energy Agency, which has for years underestimated demand and overestimated supply.It is to be noted that rising markets in oil have often started from the 16$ level.A close above 17$ or so in February crude might signal higher prices,longer term.No Wall Street analysts are looking for higher oil or gold prices, so it is the ultimate contrarian view,for the slow ,big money.It may be that we will see February reversals in the consensus view.

Breadth:

Down one day and up the next. What is to be made of it? Two words, Asia and expiration. The Friday, January 16 intraday pattern was not one that builds confidence. Up strongly on the open with an uptrend until mid-day and then churning the remainder of the day. End of day statistics looked good as though salvation was granted to the geriatric market. McOsc did make it across the zero line where the volume and issue oscillators are facing downtrend lines. Flow was steadily above zero throughout the day except for the dip in the last hour. Take a look at the Flow chart to see the flatness throughout the day. By the close CODI was snoozing on the SELL ALERT line with a lot of complacent investors going home feeling secure for the weekend. This is what options trading is about folks. As you know by now you have to be one step ahead of the crowd and think in a contrarian fashion.

Volatility:

Z Timer and Z score are suggesting that exiting February calls on Friday was the risk adjusted thing to do by their zone location. They can extend further but risk is increasing for longs. MVIs are somewhat subdued about the recent action and suggest a continued trading range with their horizontal channels. %b is stalling at the 50% line as though we might see some selling next week. Classical Pivot probabilities with a zone 6 close on Friday and an assumed zone 4 open on Tuesday are pointing to a move below the keyline and as far as support between S1A and S2a. See individual OEX, OEXcp, SPX, DJIA charts for zone levels.

Cones:

Cone 1 Cone 2

RSI, SMI:

Options expiration has a way of creating trend deception. It is best to wait until next week when true trend shows itself. XAU and TYX are showing vital signs and the spx bull aged a bit more.

Of special Interest:

CMR drilling more targets at Maskwa and Binco.Mining still out of favor with the consensus deflationary scenario.

Fibonacci Zones:

See charts for commentary. DJI NDX OEX SPX TYX XAU

Pivot Zones:

Pivot zones are shifted upward for Tuesday 01/20/98, however the statistical probabilities for a zone 6 close on Friday and zone 4 open(assumed)on Tuesday are for a move below the keyline to S1A or between S1A and S2A. See the OEX classical pivot chart for specific probabilities. The probabilities also hold for the SPX and DJIA.

Momentum Cycles Update for the open of Wednesday, January 21, 1998:

Our commentary of yesterday made the point that we prefer to exit longs into strength.Today was another day to scale out of remaining OEX longs at more than a double from the CODI and ZTimer buy signals of Friday, January 9, and Monday,January 12.Short term traders of long XAU positions and TYX exited at good profits also from the ratio oscillator signals of early last week.

We are now in between the 21 day moving average and the 3.5% upper trading band,even more short term overbought.5 day rate of change is +3,not quite +5, but other shorter term oscillators are stretched.

If this OEX move is a new bull leg of many months duration, and not just a probing of the upper area of the trading zone leading to a near term tradeable short,we will see a pattern of riding the area between the upper 3.5% band and the 21 day moving average.That has not been the pattern for many months, during which we have traded profitably both short and long from the bottom and top of the trading range.Non-subscriber traders looking for a break to the upside or the downside of the trading range{trending mode}for months have lost their shirts to greed and fear by staying too long into the whipsaw trend reversals.The market will, if in trend mode, shortly cut through 8080, then attempt 8259.Above that, Katy bar the door, it's buy the dips and bust the shorts.If so, the overbought conditions will persist for an extended period of time.

We stated that the most likely time for weakness this week would be in the period Thursday , January 22 to Monday ,January 26. An intraday pullback Wednesday is probable.

If we have entered trend mode, the end of week weakness will be intraday or fleeting.If traders wish to nibble at puts this week, they should draw intraday trendlines on price charts at this link if they don't have live feed.

Breadth:

Well now, Tuesday saw a 120 pt DJIA move and Friday had a 57 point move. What was wrong with Tuesday? Tuesday only had NYA 1981 advances,and Friday had 2120. Tuesday had 1031 declines,and Friday had 818. The same reverse relationship exists for volume. Nevertheless, the McOsc issue and volume oscillators are now in the stratosphere and the OEX is bumping up against the 465 resistance line. Flow was strong all day as was TICK except for some distribution late in the afternoon. CODI made a Sell pivot in the Sell Alert Area. It has not crossed back above the Alert line which tells conservative traders to wait until it becomes a actual sell line on the upside crossing.

Volatility:

Z Timer is entering that extreme risk zone. Z score actually made a sell pivot. Modified Volatility indexes are tagging the +2 bands. To trend or not to trend is the question. Wednesday should have the answer. According to the Virtual Mirror, puts could have been justifiably purchased late in the day. Cone 1 has Friday's projection and results. The high was at the dashed red cone line. Cone 2 has Wednesday's projections. Note the location of the Projection oscillator at overbought.

Fibonacci Zones:

Equity indexes are starting the week in the upper Fib Zone resistance levels. Some retracement back towards the weekly balance line is fully justified. Yields were the surprise to many with their move towards 6%. XAU pulled back from upper Fib Resistance. DJI NDX OEX SPX TYX XAU

Stock Of Interest:

CMRis presently drlling both Maskwa and Binco.They plan this winter to use the autoclave at Werner Lake to process high quality cobalt concentrate , which is much in demand for specialized industrial products.

Pivot Zones:

The zones are shifted upward again tomorrow. Tuesday saw a Zone 6 close and Wednesday expects a zone 4 open unless there is a gap opening. Probabilities are on the OEX classical pivot chart. The implications are for stiff resistance in zone 5, a good place to take daytrading profits, go short providing other technicals confirm, zone 3 would see partial short covering which would be finished in zone 2 for the daytrade. OEX SPX DJI

To quote from the Momentum Cycles Update for the open of Wednesday, January 21, 1998:

"Our commentary of yesterday made the point that we prefer to exit longs into strength.Tuesday was another day to scale out of remaining OEX longs at more than a double from the CODI and ZTimer buy signals of Friday, January 9, and Monday,January 12.Short term traders of long XAU positions and TYX exited at good profits also from the ratio oscillator signals of early last week.

We stated that the most likely time for weakness this week would be in the period Thursday , January 22 to Monday ,January 26. An intraday pullback Wednesday is probable."

Momentum Cycles Update for the open of Thursday, January 22, 1998:

Scale in, scale out.Remaining OEX longs sold the rest of their position on the upspike Tuesday, January 20 before Wednesday's predicted weakness.Traders who used TYX as a vehicle from Friday, January 9 or Monday January 12 sold into strength Tuesday before a slight whiff of fear Wednesday gave renewed legs to bond prices.Remember we figured the large moves of January 12-20 would lead to some retracements in most indexes the middle or second half of this present week.If Thursday lives up to its typical behavior,with help from the return of the Asian "chicken flu" this p.m.,we could see some more downside OEX action.Traders that decided to nibble at puts{ from the CODI sell pivot yesterday }could have had a nice day trade from the open to the break of the downtrend in the mid- afternoon{see today's flow chart for the exact time.}

The best trades often come from the top or bottom of the 7-8% trading range, similar to the position of January 9-12.However,today here we are at the 21 day moving average again, right smack in the middle between the top of the 3.5% trading band and the bottom 3.5% band.At this point, the market can whipsaw you around like crazy,which is what it will probably do.Traders should draw intraday trendlines when in this region using this link, if they don't have live feed.

Breadth:

There is no question that today's NYA breadth was of the negative trend inducing variety. McOsc issue and volume oscillators produced distinctive peaks as the OEX found resistance at 465 level. Flow and TICK also were reflective of the underlying reason for price deflation. Remember that word from last week? CODI added another day to its sell pivot.

Volatility:

Z Timer and Z Score joined the MVI in the price drop today. They all remain overbought. Interesting that VIX did not run up to the 30 level and remained in a 1.79 range. This must reflect the fact that half the DJIA drop was due to a handful of stocks. Now if the selling continued for a few days,and broadened to include more optionable issues and ended in a panic climax, VIX should run up to higher levels and we should get a 2 std dev move in index prices. Late Tuesday there were indications that puts should be nibbled at. Traders also could have traded them intraday Wednesday.

Cone 1 Cone 2

RSI, SMI:

Yields and gold stocks still have life and only a week or two ago they were declared a reflection of a deflationary economy. Remember- yields were going to 5% and gold to the low two hundreds?And the press kept repeating it?Fade the talking heads!

Fibonacci Zones:

Weekly Fib zones provided resistance for a second day. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMR is flat in the 1.25 region, waiting for winter drill results.

Stat Pivots:

Zone 3 close and zone 3 open(assumed) has the probabilities of crossing the keyline to the upside on Thursday and finding resistance in zone 4. A near equal probability is dropping to zone 2. If zone 2 is reached first, puts and shorts could be closed and if technicals favor a stop and reverse then, longs could be added for a trip up to zone 4. If zone 4 is reached first then additional puts or shorts may be added when technicals indicate a reversal. OEX SPX DJI

Here are the OEX classical pivots.

Momentum Cycles Update for the open of Friday, January 23, 1998:

To quote from the Momentum Cycles update of Tuesday, January 20 before the open:

"Whoa! What a week! Not to mention our fib and pivot charts correctly looking for a short term rally in XAU and rise in TYX{rise in yields, decline in bond prices} the past week.It might be high time to take short term profits early Tuesday in all those indexes as well if you haven't done so on Friday.A quadruple play during one week...well, nature has a way of punishing extreme outperformance or underperformance by an index{or a trader!} during one week by giving it back or taking it away the next.So let's be on the lookout for that."

"It is always best to try to initiate a short position when we are near the upper 3.5% trading band accompanied by a CODI sell pivot, and ZTimer and Z Score in the buy puts zone.We are not there now, being only at the 21 day moving average, so price isn't as overbought as is ideal for a large price movement.So buying puts this week is not as perfect a situation as other opportunities we have traded, such as the short during the first week of August 1997. However,when we examine recent history for similar chart and monthly patterns for the action this January, the chart and date patterns match up closely to the patterns seen in August of 1997.At the start of both last August and this January, the OEX was near the upper 3.5% trading band.There was then a fall climaxing in midmonth to a target price below the 3.5% lower trading band, followed by a 3 day rally to the 21 day moving average.The 4th day, the market fell, and on the 5th day it rallied again, before starting a decline back to test the lower 3.5% trading band towards the end of the month.The 5 day rate of change in mid-August was 1 ,now in mid-January it is 2 1/4.The shorter term oscillators showed a similar short term overbought position before the retest of the lower band in mid-August as is occuring presently.The angle of the daily A/D line from the August,1997 peak to the mid-month low and bounce to the 21 day moving average is the same as the action this January.The fall in the daily breadth numbers from the start of last October intersects at a point that peaks in date and angle close to Tuesday, January 20.The monthly pattern of money flow argues for a drying up of cash flow into the period of Thursday, January 22 through Monday,January 26.This Thursday to Monday period would also agree with the present alternating weekly oscillation between exhilaration and depression."

Update for the open of Friday, January 23, 1998:

The above,written for Tuesday's open, seems fairly accurate.Shorter term oscillators are in no man's land presently,neither in extreme overbought or oversold.5 day rate of change ,for example, is-1, not the -5 we saw on Friday ,January 9.No large series of plus 1000 negative ticks have been recorded which we saw revealing the bottom on January 9 and 12.Wednesday actually ended with a fairly high POSITIVE tick, which is short term bearish.That closing tick, plus the return of the Asian chicken flu Wednesday p.m. overseas, and likely Thursday cyclical weakness and the Codi position{still bearish}led to more profits in puts today for even late acting traders taking advantage of Tuesday's short term sell alert.{Click here to see sample put prices from the Tuesday spike high to Thursday's close.}If Asia has a bad trading session into Friday a.m., and more revelations from Bill Clinton's latest escapade come out tomorrow{can you whisper resignation?}we could get some more downside into a Friday, Monday or Tuesday intraday spike low and short term reversal.As usual, traders without live feed should draw intraday trendlines and use trailing stops.This link with the large 1 day chart is convenient.Press reload frequently to get prices with a 3 minute delay.

Breadth:

NYA breadth was in a bearish mode all day. Tonight's Flow chart shows the simple breadth and volume relationship to index price. The result of Thursday's action is to drop the issue McOsc to the zero line just as many of the indexes on the Fib charts are about to generate sell signals by crossing the daily Triple Switch stop loss and by closing below the weekly balance levels. There are three clear choices for Friday...sideways, a bounce, a sell and downward acceleration in prices. CODI has been and still is on a sell trend. With yields rising and breadth running negative all week, Friday has the potential to be disastrous.

Volatility:

MVIs are not to be outdone by residing on the midway point. VIX has been running in the low 20's and has generated a sell signal by its small move upward today. Z Timer and Z Score continue their sell trends from a few days ago. Cone 1 and Cone 2 show the implied volatility price projections for today and tomorrow. Their projection oscillators are also rolling over into a sell mode.

RSI, SMI:

T Bond yields are the standout here with their relentless trek to 6.0. Not there yet, but could be in two days. The longer the XAU builds a momentum base, the more sustained will be its rise when it occurs. Don't get the impression that this is expected anytime soon. The golden rule is to buy them in the winter and sell in the summer. There is good reason for this. It dates back to the days when the frozen tundra of the north was the only time many areas could be reached. Drilling commenced all winter and analysis was released in the spring/summer. With no news released in the winter the gold stocks languish. Then with the release of the new reserve enhancements, the stocks are revalued. The modus operandi for buying the gold stocks is to patiently wait until the RSI is "oversold", Ratio oscillator is oversold and the XAU index is at lower weekly Fib zones.

Fibonacci Zones:

See commentary on the charts. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMRis suffering from stop loss sellers and the general perception of weakness in Canadian and U.S. mining issues.The Binco area has 1 drill from Canmine on the property, and to the south ,5 drill rigs on the same geological feature on the Falconbridge property.Looks like an area play to me.High quality cobalt prices are strong, and stocks of the % quality Canmine can soon supply is fairly low.Cobalt sales are where Canmine's most immediate income stream will come.The possibility of exciting drill results in the next 2 weeks from both Binco and Maskwa may change present perceptions of this stock.It is still seeking its lows.

Stat Pivots:

Classical Pivot pattern for Friday is an anticipated Zone 3 open after a Zone 2 close on Thursday. Zone 2 has provided support 71% of the time and is reached 46% of the time. Zone 4 is reached 65% of the time but only provides resistance 46% of the time. Zone 5 has provided resistance 75% of the time. One conclusion is more selling on Friday that takes the indexes into zone 2 on the Classical Pivots. If support is found there and breadth technicals approve, then a move up to zone 4 has above average of being reached. Conversely the mkt could move up to zone 4 where it would find resistance before dropping to zone 2. DJI OEX SPX

To quote from the Momentum Cycles Update for the open of Tuesday, January 20:

"A column in Barron's this week mentioned those words that strike fear in contrarian hearts-"the best of all possible worlds"- referring to"the lowest inflation and unemployment in 30 years,rising incomes,climbing values for stocks and residential real estate."Something in that mix is about to change, and fast! Lower oil prices are being predicted by the International Energy Agency, which has for years underestimated demand and overestimated supply.It is to be noted that rising markets in oil have often started from the 16$ level.A close above 17$ or so in February crude might signal higher prices,longer term.No Wall Street analysts are looking for higher oil or gold prices, so it is the ultimate contrarian view,for the slow ,big money.It may be that we will see February reversals in the consensus view."

Momentum Cycles Update for the open of Monday, January 26:

What a difference a week makes! On Tuesday,January 20th, as you can see from the Barron's quote above, it was" the best of all possible worlds", both politically and psychologically.Clinton had approval ratings rivaling Johnson and Nixon at their peaks before their inevitable fall.The dollar, bonds and U.S. equities seemed likely to extend their endless bull trends into the stratosphere.Stock buyers were in a good mood.The IMF deal to bail out Asia seemed a done deal.The Republicans were making noise about "wasting U.S. taxpayer money" ,but Clinton's popularity seemed likely to make an eventual IMF deal inevitable. U.S.Bonds were the "safe haven" for fearful investors world wide. The dollar was king.Gold was not making new lows, but was being ignored by the crowd.Saddam was making noises, but no one cared.

On Tuesday ,January 20, prior to the open, we advised closing all OEX remaining long positions that day.The CODI, Z Timer, and Z Score led us to advise nibbling at puts.Our cycle work said the Thursday through Monday area was likely to be weak . Our target of 453 OEX on Friday was reached and exceeded.Traders should have taken partial OEX put position profits when that target was reached.Click here to see put prices since the sell alert.Click here to see futures prices for Friday, when the investing world turned upside down on the possibility of the resignation of the President.

For the remaining OEX put positions, traders should watch early Monday pre-opening prices for Asian stock markets and the U.S. dollar.If both are weak, Monday will likely see more downside action.These charts show where trendlines can be drawn intraday to determine if and where the downtrend will be broken.Don't lose those OEX put profits if a strong countertrend rally starts Monday or Tuesday, so use trailing stops to protect your profits! Even late comers to the short side Wednesday or Thursday last week had a chance on rallies to establish good short positions.

Technically, Friday's combination of a very weak bond market, and DJIA intraday prices down over 1% , closing next to unchanged that same day on a Friday cycle,historically has led to more intraday selling the following Monday.

The weekend news about Monica Lewinski's forthcoming testimony in exchange for immunity may increase the short term bearish tendency of the interrelated markets of bonds, the dollar, and U.S. equities.

Both the 5 and 15 day cycle are not yet in extreme oversold position. Even in a poor market environment, when these converge at extreme oversold, a tradeable bounce occurs.

Even though SPX prices have not fallen very far from the highs, relative strength on a longer cycle seems to be making successively lower peaks.

The uncertainty in the U.S. political arena may strongly distort the normal monthly money flow patterns next week.Normally we would see some weakness Monday intraday, with Tuesday stronger.Wednesday- to early Thursday would normally be the end of the weak part of the cycle, with the end of the week beginning to pick up monthly reinvestment money.With the wild card of a possible Presidential resignation, normal money flow patterns may be thrown off somewhat, with a possibility of an emotional spike low to 940 in the March S and P 500 futures next week.At any rate, traders should maintain a trailing stop on remaining OEX put positions to keep those paper profits.

Gold and silver were exceptionally strong last week, so a pullback after the next several days should be looked for.

Breadth:

NYA breadth has been running pretty much the same for three days now with declines close to 1800 and advances close to 1100. This imbalance produces a downtrend in prices and declining volume and issue McOsc. Flow rate and TICK on Friday were decidedly negative. Each time TICK rallied back to the zero line it was met with more selling. This reflects planned liquidation into strength. CODI is now in the indeterminate region and the OEX survived a test of the critical 453 level. Monday is another matter with so many unknowns to impact the trend. We need to be prepared for a low on Monday or Tuesday and look for a call option trade mid- week.

Volatility:

Modified Volatility Indexes closed below their zero lines reflecting the sell mode. Ideally we would like to see a trip down to the -2 band or even -1.618 band on Monday and Tuesday so the odds for a long side trade are better going into the payroll cycle later in the week. Z Timer and Z Score continued their sell trends. Z Timer is holding in the neutral zone on the bullish side. Perhaps we will see a basing here on Monday and Tuesday and then another push up into overbought later in the week and into the first week of February.

Here is the Cone chart for Monday.

RSI, SMI:

Two very big surprises on these charts. Take a look at the XAU and TYX. Political events are given credit for their rise. Remember our currency is backed by the faith in{ and credit of} the government. When faith wanes yields rise and metal becomes a preference over paper.

Fibonacci Zones:

Again, take a look at the XAU and TYX charts. This is unusual behavior for these two. Also note how relatively strong the NDX has been. Also, a crossing of its weekly and daily Triple Switch lines should result in some action next week. See charts for additional commentary. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMRis apparently seeing buying, and a relatively lessened selling pressure, in advance of what we speculate is likely to be some measure of favorable drill results in the next 2 weeks.

Pivot Update:

Zone 3 close, Zone 3 open probabilities are on the OEX Classical pivot chart. Support has above average probability of being found in zone 2. Resistance is likely to be found in zone 4 or 5 on a rally. I.E., daytrade shorts should be covered in zone 2 and longs closed in zone 4 or 5. By the same token. Longs are best entered in zone 2 with breadth confirmation and shorts are best opened on a rally to zone 4 or 5 as the rally fails. SPX and DJIA have the same zone open/close relationship for Monday. OEX

Momentum Cycles Update for the open of Tuesday, January 27:

To quote from the update for Monday, January 26 open:

"Our cycle work said the Thursday through Monday area was likely to be weak . Our target of 453 OEX on Friday was reached and exceeded.Traders should have taken partial OEX put position profits when that target was reached.

For the remaining OEX put positions, traders should watch early Monday pre-opening prices for Asian stock markets and the U.S. dollar.If both are weak, Monday will likely see more downside action.

Technically, Friday's combination of a very weak bond market, and DJIA intraday prices down over 1% , closing next to unchanged that same day on a Friday cycle,historically has led to more intraday selling the following Monday.

Normally we would see some weakness Monday intraday.

Gold and silver were exceptionally strong last week, so a pullback after the next several days should be looked for."

Comments for Tuesday's open:

Pretty accurate so far.Monday did see intraday weakness, especially in Nasdaq,down 1%, the equivalent of 77 DJIA points.Large caps were stronger than the general market.The high of the day on OEX at 458 was during Clinton's"I didn't do it" mid-morning.The risk in holding puts should have been obvious pre-opening from the strong Asian markets, the recovering dollar, the strong London market, and later , with predicted XAU momentum waning{ spike high 78.53, close 76.26}, and the lack of strong downside equity followthrough.

An over 900 negative tick, similar to other high negative ticks over the past several sessions, is another clue a short position is increasingly risky in time duration presently.Traders had another chance to exit remaining OEX put positions, or were stopped out by trailing stops Monday on the opening rally, at a profit from last Tuesday's, Wednesday's, or even Thursday's entrance.

Admittedly this trade hasn't been as profitable as the doubles we've come to expect and love here at this site, and cycles still admit for weakness into as late as Wednesday{or Thursday a.m.}, but let's clean any small remaining put positions out Tuesday early.We reached our 453 OEX target Friday and Monday's closest attempt was 454 at 3 p.m.

The probability of a long position being profitable into early February increases greatly after the 19th business day of January.

Breadth:

NYA breadth continues to narrowly improve each day as we coast into the end of month seasonality. The last week of the month is generally not a good time to be holding puts. End of quarter months can be an exception to this rule. The last week of the month is a time to position yourself in calls for the end of month beginning of month seasonality. Front runners start bidding stocks up, within the last three days of the month. Flow Rate chart shows a couple of divergences that resulted in OEX trend changes while TICK cruised along in negative territory. It appears there is some base building occurring in the breadth numbers that can support a price rise later this week and part of next week. CODI is stalling out in the middle of the Indeterminate region. There is a seasonal probability that CODI will make another trip down into the sell alert area late this week and next week where we can dump the calls and look for another put trade. We are speaking of holding times in terms of days here, not weeks. OEX options are not designed for you to make money by buying and holding them until expiration. They are insurance- like products that have a "amortization" schedule that is derived from time to expiration, volatilitiy(mortality rate),and interest rates(cost of money). Finishing off the breadth reading we see the McOsc issue has made a minor day to day change on the lower side of the Neutral region. This action has been known to be followed by a "Gonzo" move within 4 days.

Volatility:

Z Timer and Z score are reversing their sell pivot/trends in advance of the end of month/beginning of month seasonality. On a short term basis measured in days to a week, the trends of these two indicators is more important than the zone levels. MVIs are reversing under the zero line, so we have to give some credance to the fact they may cross above the zero line in the next few days. If it were not for the end of month seasonality they would be expected to drift on down to a lower band. The Cone chart shows probable price reversal points for Tuesday.

RSI, SMI:

XAU ran up pretty fast amidst the war rumblings and currency confidence factors. T Bond yields had a proponent on TV today that is a long term bull on bonds and foresees 4.75 % yields within two years. Of course, the real factor this week in bonds is purported to be a restoration of confidence.

Fibonacci Zones:

See charts. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMRis waiting on drill results.

Stat Pivots:

Tuesday sees the Classical pivots narrowing about the Keyline for Tuesday. This reflects the narrow range day in price on Monday. The reason narrow range days can produce price breakouts in following days is the buy/sell order placement mechanical strategies many pros use with the pivot lines. The Stat Pivots have shifted upward a tiny bit so the bias should be for buy orders on Tuesday but not in a big way. The Classical Zone Probability analysis says support will be found in zone 2 and resistance in zone 4 or 5. If seasonal probabilities work out again zone 2 is where you would look to purchase call options. The plan is to hold them into the momentum run that should start any day. Tuesday might be a nonevent because of the state of the union message putting trading on hold. Wednesday fits the profile for a stronger up day{or at least the end of selling pressure}DJI OEX SPX

Momentum Cycles Update for the open of Wednesday, January 28, 1998:

To quote from the update for the open of Monday, January 26:

"Normally we would see some weakness Monday intraday, with Tuesday stronger.Wednesday- to early Thursday would normally be the end of the weak part of the cycle, with the end of the week beginning to pick up monthly reinvestment money. At any rate, traders should maintain a trailing stop on remaining OEX put positions to keep those paper profits."

Weak Monday with intraday selling, stronger Tuesday-correct.

To quote from the update of Tuesday,January 27 before the open:

"An over 900 negative tick, similar to other high negative ticks over the past several sessions, is another clue a short position is increasingly risky in time duration presently.Traders had another chance to exit remaining OEX put positions, or were stopped out by trailing stops Monday on the opening rally, at a profit from last Tuesday's, Wednesday's, or even Thursday's entrance. Admittedly this trade hasn't been as profitable as the doubles we've come to expect and love here at this site, and cycles still admit for weakness into as late as Wednesday{or Thursday a.m.}, but let's clean any small remaining put positions out Tuesday early.We reached our 453 OEX target Friday and Monday's closest attempt was 454 at 3 p.m. The probability of a long position being profitable into early February increases greatly after the 19th business day of January."

Well, we're glad we closed the small remaining put position from early last week on Tuesday's open,after realizing most of those put paper profits Friday and Monday, and at worst getting the small remainder out at breakeven Tuesday. Those who began to buy calls at the open Tuesday had a nice day trade that could have been closed at the uptrend intraday trendline violation that occurred at 464 OEX at about 3:10 p.m.Those who bought OEX long calls near the open and held are presently ahead about 6 OEX points.As always, maintain trailing stops to protect your paper profits, and draw trendlines intraday.

We were glad to see no large upticks or closing ticks Tuesday.We are at {our old friend} the 21 day moving average again. Last week we warned you the market would oscillate above and below this area and drive traders crazy.

The shorter term oscillators are in the middle again, neither extreme overbought or oversold.As an example, the 5 day rate of change is exactly 0.

With a 102 point DJIA gain Tuesday, some weakness{possibly just intraday} Wednesday would be logical.

Breadth:

NYA breadth made another improvement on Tuesday. Declines running near 1200 is a bit bothersome. Had they been under 1000, say 600 with the advances at 1732, the DJIA might have been up 200 points. That potential still exists as the end of the month approaches. { That is not a forecast, by the way. } CODI is hanging around the Indeterminate mid-zone as though it might do a flipflop after the pres. state of the union message. Some years the market makes a rather emphatic vote of approval or disapproval with its direction the following day. Should it react negatively it would give those who missed the OEXBK or OEXBL calls today another chance to play going into Thursday and Friday or early next week. The McOsc issues is sitting right on the zero line with plenty of room to advance out of the neutral zone and up into overbought. The UC payroll indicator should kick in Thursday or Friday. Flow Rate and TICK were positive until the last hour when the OEX hit our 465 resistance level. Note the TICK divergence at that time.

Volatility:

MVIs are reaching for the +2 band, which they should easily reach in the next 8 trading days. Z Timer and Z Score are behaving as they should. As the market moves into overbought/resistance areas those two indicators indicate higher risk, and at that time they advise on option strategies. They are best used by taking trades in the indicated trend direction until a pivot is made and then the zone labels indicate strategies to take on a reversion to the mean. For example, the Z Timer is working the overbought side of neutral during a positive seasonality period of the month so we are playing calls, but are prepared for this move to become exhausted next week, when there might be a put trade. These indicators, like other oscillators, can enter a saturation mode where they remain in a zone for a protracted time. Once they come out of that zone things get rather dynamic. Cone chart has the implied price projections for an average day, a strong day, and a crash mode day. Those are the small cone, midsize cone and large cone respectively.

RSI, SMI:

XAU looks like it wants to enter the trend mode on the RSI and SMI. T Bond yields are within striking distance of 6% and the SPX is not coming through with much improvment on these charts.

Fibonacci Zones:

It is exciting to see the weekly Fib Zones do their stuff. See individual charts for commentary. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMR has another test of the lows in the making.Inco and Falconbridge are improving in price, and they are drilling South of Canmine's claims with at least 5 rigs.The majors generally don't waste lots of time or money on dry holes.News on the Canmine sites is expected soon.

Statistical and Classical Pivots:

The rally to zone 6 on Tuesday's pivots produced the anticipated "gonzo" move. The important points to remember here are that a narrow price range one day produces pivot zones that are close to the Keyline on the following day. Close pivots are subject to stop running by the power players producing an avalanche of buying or selling. Obviously Tuesday was a wide range day so the pivots for Wednesday are spread apart and shifted upward in price. We had a zone 6 close today and have an anticipated zone 4 open for Wednesday. This produces zone 5 as probable resistance(high of the price bar) and zone 3 as support(low of the price bar). Adding zone 4 for the open tick only leaves the close to construct tomorrows OHLC price bar. OEX DJI SPX