MomentumCycles

MomentumCycles commentary for the open of Wednesday, January 26, 2000:

Tuesday was day two for a close under the 50 day moving average. Technically that begins a markdown phase in stocks. Recall that last September the INDU closed under the 50 day MA, and there was quite a markdown into September with a bounce up to the 50 day, and then another markdown into October. The market usually gets a repeat performance in the springtime. Whether we are into the initial stages of one of these asset reallocation cycles will be proven out, or dispelled as events unfold. One thing seems certain, and that is T bonds have been a favorite of late, representing perceived total return value. Market charts are looking a little bit better as we work into the end-of- month positive seasonality. The INDU found support at the 200 day MA, and closed near the -3.5% band as its on balance volume found support at its mid band. Cone Projection Oscillator has turned up as have the Modified Option Strategy Spectrum and AMOSS. CODIoex gave a buy alert(green dot) as well, as the Mom and Mkt_Thrust are in buy alert areas. SuperT turned up near the correction level. Unfortunately you just don't know if you are going to get slammed again as on Monday. Monday still hints of post expiration unwinding of stock positions no longer needed as a hedge {thus, it was excess inventory}. That's correct, not all stock is bought for investment purposes! AdvDecl and Flow Rate were still net negative, but not as much as on Monday. Price can rush ahead as short sellers cover and risk takers go long. Out of the money calls, OEZBS, OEZBR, and now at the money call OEZBN are being tracked for edification purposes. They are also paired with their put brethren and a time decay line. We will follow these through to February expiration to see how buying a call during end-of-month seasonality pays off into the first week of the month, and then gives some coin back prior to expiration, and then runs up again into expiration. It will also show how much time value options lose, and how their delta improves as the 770 goes deep in the money, if it in fact does. Another thing it will show is that money can be made buying out of the money calls providing a sustained trend develops, or if holding periods are kept short. One thing that was apparent by Tuesday close is that if you bought the 770 at its low you had a 50% gain at one point. All of this will be modified by the FOMC and other government reports, of course, and the usual February profit taking. It will also be modified by those money managers and private investors who don't care about such things, and use them to their advantage for buying and selling as opportunities arise. We expected a low in here during the 3 to 5 trading days before the end of the month, and so far the technicals appear to be accomodating this. Rumors of hedge funds being short could spark another memorable rally.

One big mistake of novice investors/traders is to expect the run from October to January to continue. It just doesn't happen that way, except once a year. The market always goes into extended consolidation periods after extended runs. Horizontal consolidation channels are great for traders looking to buy support and sell resistance. We may have a channel being established in the OEX between 755 and 800, a twenty five point spread. That is sufficient to make some money as the OEX bounces between the floor and ceiling. The EquityCP and Sentiment charts only have one of four indicators in the buy mode, and that is the 3INDX, which is the first one to flip. The C/P ratio is at the call buying level that existed throughout the uptrend, but it isn't at the best call buying level near the green Call Alert line. The cyan line at 771.14 is Wednesday's resistance. The trend really is still down at this point, and needs to prove it has turned up by having the OEX close above 771.14 on Wednesday. During the bull trend that close was done by a wide ranging day, i.e. large green candle, as everyone sees the same thing at the same time. That double looking top just may keep some participants out of the game until a better looking base has been put in. The PCratios are rising off the super dangerous levels, but are nowhere near a really safe level to buy calls. Nimble traders may want to test the waters with a 1/4th position if they get a chance to enter Wednesday without Globex having messed things up by the opening. Finally, the PutVolume indicator has flashed a buy, but not one of the 100% guarantee variety as it does when it turns at the Deep Threshold.

We should also note that the VIXpnf is not at super good call buying levels either. It is in the indeterminate zone, just as CODIoex is in the whipsaw zone. The market could bounce here, you could make money on calls, but the risk is higher than if VIX were nearer to 30 and CODI were nearer to the Buy Alert line and the McOsc had turned up. For the technically astute, you would want the 10% component of the daily McOsc to cross above a downtrend line before going long futures or call options. It hasn't done that yet, and it could do it on Wednesday. With some potentially negative reports ahead on Thursday and a Greenspan visit next week, calls are just a very risky proposition at this time. You have to assess your own risk level here, and if you trade calls based on what you are reading here today, you might just want to daytrade them so you can sleep at night.

This XAU CHART shows that short term XAU risk is most likely 57.The XAU tends to obey the 14% bands,and when the last tag of the lower 14% band brought only a tag of the midband {50 day moving average},another lower tag became possible.We still feel that the index and its components are quite oversold,and another rally attempt from here or 57 is likely.Longer term,XAU component sentiment is so extremely bearish that a good rally this year is probable.Please remember that being long the XAU components presently is a long term call on the sector,not a quick trade.

Although FNM is at the lower 3.5% band,no nonconfirmation of the recent lows has been given{see sidebar}.look especially at the FNM OBV,which is making new lows in conjunction with FNM price.No T bond trade is recommended presently.Remember,that we rarely recommend these short term T bond correlation trades,but they have been extremely accurate.

MomentumCycles commentary for the open of Thursday, January 27, 2000:

"Ho Hum Wednesday". Internals looked fine, but price reflected the sector "musical chairs" ganes and Greenspeak fears. AdvDecl and FlowRate were both positive after a week and a half of markdowns. This makes the third day for the INDU under the 50 day moving averge. However, what really matters is what the NYA and its legions of troops are doing. Late in the day the NYA and the ADV looked like they were poised for a breakout mode to the upside. Even the declines dropped. Remember that selling should peak three settlement days before the end of the month, right about where we are now. A vacuum of selling could by default provide some upside direction. Then we would normally expect the window dressing to pick up with purchases of what is now the "new vogue". It also appears that sensibility may be returning to earnings- oriented stocks such as the banking index financials. A declining TYX,thus rising T bonds definitely helps that sector, and it helps the entire market from a comparative valuation standpoint. Cone Projection oscillator is working the oversold levels. Adaptive Modified Option Strategy Spectrum made a zone crossing from oversold to neutral. That's a positive. The INDU %b is coming off of oversold and the INDU has had two closes back inside its lower 2 std dev band. That's a positive and considered a buy signal by some. The Trend Exhaustion index indicates the market has been topping; at least it has run out of steam short term, and has given back most of January's gains. Easy come easy go, and some may even follow the adage, "as goes January, so goes the year." That doesn't speak well of February. The market has been through much rougher times than this, and the reallocation of assets back to the NYSE stocks from the NDASDAQ stocks may provide some unexpected challenges on old highs. Technology will be out of favor until a meaningful correction occurs.

Cumulative volume could turn up on Thursday barring any negative news. NYA closed above its pivot and on R1, which is a sign of strength. End of day cumulative volume still paints a bleaker picture longer term.

The McOsc is only 12.3 points below the zero line. A cross back above this line is expected during this positive seasonality play and it should bring in some bigger breadth players. 5Advol declining volume has peaked. PCratio has backed off its blistering overbought level. PutVolume indicates we have seen an intermediate term low. Sentiment is working on the Call Alert level. It would be rather easy for the OEX DoTrend to generate a buy on Thursday by closing above 765.55. The Stochastic Momentum, SMI is close to turning up also.

One would expect to see a formal buy "up" arrow on the FNM charts{thus T bonds},but although we apparently have a double bottom on price,no signal has been seen{see sidebar}.We will be on the alert for one.

XAU is apparently heading towards the lower 14% band at 57, where rallies have often occurred.We are admittedly disappointed with the failure of this index to respond to the recent "up" arrows on the XAU charts{see sidebar}.

MomentumCycles commentary for the open of Monday, January 31, 2000:

We regret the inability to update for Friday.The mail server for the ISP did not work for two days.Needless to say,a new ISP was gotten by Friday evening.This was the first missed commentary in over a year.

Friday made day five with an INDU close under the 50 day moving average, reflecting a continuation of the markdown phase in prices. In fact, the INDU closed under the 200 day MA. The reason this is important is that many mechanical systems change buy/sell modes above and below the 50 day and 200 day averages. When price is above a specific average, the systems go long and flat and not short. When below the average, they only go short and flat and not long. Therefore, the mode all last week was to sell the rallies and go flat on the dips. In contrast, when price was above the average last year, the mode was to buy the dips and go flat on the rallies. The PCratio is still working its way out of the danger zone. Put Volume is always a day or two early, and has indicated the market is in the process of making a near term low. Sentiment, as measured by a modified Hines ratio of volume and open interest, is on the Buy Call level. For this to pay off, however, it is necessary for the 3INDX, the SMI, and the cyan line to cross and trend above the yellow dot indicator on the Sentiment and EquityCP charts. CODIoex has moved into the Buy Alert area as has the MOMentum and Mkt Thrust, and the RSI. SuperT oscillator has made it to the Correction level. Even VIXpnf is hitting the Call Alert levels. MOSS hit extremely oversold. McOsc is still only on the lower side of neutral. Trend Exhaustion is still dropping. TYX is still dropping. OEX on the long term Volatility chart is still establishing its winter consolidation range. Friday was one of those Crash down grey cone type days with an oversold Projection oscillator. The Risk Monitor is now getting back to the lower risk side of things. However, after two down weeks, the weekend analysts may hit the sell button on Monday, driving all indicators further into oversold. It looks like the CODIndx has a bit further to go. The DoTrend on many of our charts is a fairly reliable indicator to follow, in that if the Cyan line is above the yellow dot the trend is up, and if the cyan line is below the yellow dot the trend is down. Beyond that the oscillators and channels give clues about overbought and oversold, but in the final analysis it is price that determines the trade. Because of the monthly cycles, we always look for a call trade at the end of the month, and so far this week has been anything but accomodating for that. The divergence on the End of Day Cumulative Volume has finally taken its toll and sucked price into a correction. Naturally the RSI's of the INDU and EODCV are under 20 where some decent rallies have begun. The 200 day MA of price is also a decent place to expect a bounce to occur.

The XAU has recently completed a series of 5 consecutive days closing near the low of the day. This condition has preceeded previous rallies.The XAU is approaching the lower 14 % band of price,which usually supports the index.We have recommended holding a small amount of the equity components as a long term call on the sector.

Tu quote from the MomentumCycles commentary for the open of Monday, January 31, 2000:

"We regret the inability to update for Friday.The mail server for the ISP did not work for two days.Needless to say,a new ISP was gotten by Friday evening.This was the first missed commentary in over a year.

Friday made day five with an INDU close under the 50 day moving average, reflecting a continuation of the markdown phase in prices. In fact, the INDU closed under the 200 day MA. The reason this is important is that many mechanical systems change buy/sell modes above and below the 50 day and 200 day averages. When price is above a specific average, the systems go long and flat and not short. When below the average, they only go short and flat and not long. Therefore, the mode all last week was to sell the rallies and go flat on the dips. In contrast, when price was above the average last year, the mode was to buy the dips and go flat on the rallies. The PCRatio is still working its way out of the danger zone. Put Volume is always a day or two early, and has indicated the market is in the process of making a near term low. Sentiment, as measured by a modified Hines ratio of volume and open interest, is on the Buy Call level. For this to pay off, however, it is necessary for the 3INDX, the SMI, and the cyan line to cross and trend above the yellow dot indicator on the Sentiment and EquityCP charts. CODIoex has moved into the Buy Alert area as has the MOMentum and Mkt Thrust, and the RSI. SuperT oscillator has made it to the Correction level. Even VIXpnf is hitting the Call Alert levels. MOSS hit extremely oversold. McOsc is still only on the lower side of neutral. Trend Exhaustion is still dropping. TYX is still dropping. OEX on the long term Volatility chart is still establishing its winter consolidation range. Friday was one of those Crash down grey cone type days with an oversold Projection oscillator. The Risk Monitor is now getting back to the lower risk side of things. However, after two down weeks, the weekend analysts may hit the sell button on Monday, driving all indicators further into oversold. It looks like the CODIndx has a bit further to go. The DoTrend on many of our charts is a fairly reliable indicator to follow, in that if the Cyan line is above the yellow dot the trend is up, and if the cyan line is below the yellow dot the trend is down. Beyond that the oscillators and channels give clues about overbought and oversold, but in the final analysis it is price that determines the trade. Because of the monthly cycles, we always look for a call trade at the end of the month, and so far this week has been anything but accomodating for that. The divergence on the End of Day Cumulative Volume has finally taken its toll and sucked price into a correction. Naturally the RSI's of the INDU and EODCV are under 20 where some decent rallies have begun. The 200 day MA of price is also a decent place to expect a bounce to occur.

The XAU has recently completed a series of 5 consecutive days closing near the low of the day. This condition has preceeded previous rallies.The XAU is approaching the lower 14 % band of price,which usually supports the index.We have recommended holding a small amount of the equity components as a long term call on the sector."

MomentumCycles commentary for the open of Tuesday, February 1, 2000:

It never rains but it pours...readers were informed by www e mail that we had isp/mail server problems for Friday's commentary.The weekend commentary was posted as normal,on Sunday p.m. Bob informed me that he is having some trouble with BMI intraday data feed,so temporarily we have to resort to end-of-day charts.Please bear with us.

Well,the expected and discussed bounce{see last sentence of quoted weekend commentary,above} showed Monday,with DJIA theoretical low to high approximately 10660 to 10986{preliminary numbers}.Likely scenario would be to see another try to the downside sometime Tuesday or Wednesday,most likely with early Tuesday seeing some price weakness,due to latent and late sellers.If breadth improves,and strengthens the admittedly crummy longer term market internals,we will see a rally into the end of the week pension reinvestment money flow area{Thursday,Friday,Monday area}.{We must say it might just be a countertrend bounce here.}

The recent 30 year T bond action,including Monday's poor bond price showing,seems to be suggesting that flight to quality bond buying may be temporarily ending,and money may be flowing back into equities.Under current conditions,a weak 30 year T bond means continued money into stocks.Best look at support and resistance suggests a near term retest of 1390 March S and P futures and a try for 1403;succeeding above that 1417,which seems secondary resistance.Brave traders could try a long OEX entry at the likely retracement level{I'm using S and P numbers,but am thinking the OEX as the trading vehicle},with appropriate stop losses,and a partial exit near projected primary resistance,and a complete exit into continued strength towards secondary resistance.

Recent CBOE official equity call/put data for the last 5 days gives 2.2 for the 25th,2.22 for the 26th,2.35 for the 27th,2.243 for the 28th,and 2.24 for the 31st,close to the level of 5 consecutive days at a value of 2 that often mark good bottoms.We had two days with VIX readings above 30,with the high value Monday at 31.7 and an intraday reversal to lower{under 30}values.DJIA RSI 5 hit extremely oversold readings and reversed,suggesting a rally to the midband at least,or 2 to 3% higher.5 day moving average of up volume has stopped falling,and 5 day moving average of down volume appears to have peaked and reversed.5 day arms,the indicator that CODI is massaged and derived from,appears to have reversed.DJIA price oscillator is now rising {and has been in advance of price},as well as the 21 day moving average of adjusted volume.5 day rate of change of price did not confirm Friday/Monday's lows.

Additional suggestions that bonds are soon due for price retracement are due to the present FNM STOCHASTIC 5 reading,which is extremely short term overbought.{No short term bond trade is currently recommended,due to impending FED action-inspired volatility.}

XAU STOCHASTIC 20 has shown similar durations in past basing periods{see chart},and suggests a rally to the upper band is in the works shortly.We are holding a small position in some of the equity components themselves as a long term perpetual call on the sector.