MomentumCycles

To quote from Momentumcycles commentary for the open of Monday, January 25,1999: "Time to front run the Barron's readers? It was pointed out in this week's Barron's that an OEX long seasonality trade that has worked in 12 of the last 13 years with no drawdown {with the exception of 1992} is to buy calls on Wednesday,January 27 near the close and sell into strength Tuesday February 2nd {or earlier if profits warrant}.Knowing Barron's has a national readership, some front running on both the buy and sell dates may be warranted,along with our discussion below{that is, an entrance and exit one or two days prior to the seasonal dates}. Try for an entrance at S1 or S2 on the OEX pivot charts.The suggested trade was to try for one strike price in the money. Some history...On October 8,1998, the OEX and DJIA were near the lower 3.5% trading band,and cumulative breadth was positive.A huge rally followed after 7 days of basing equity put call ratios.On January 11,1999,the DJIA tagged the upper 3.5% band with cumulative breadth negative.A violent decline followed after 5 days of equity put call topping ratios,similar to the top in 1987.On Wednesday,January 20,1999,the DJIA came close to the upper 3.5% band with two days of topping ratios.A good decline followed. On this last Friday,January 22,the DJIA tagged the lower THEORETICAL 3.5% band,but cumulative breadth was negative,which allows for further weakness.Equity put call ratios were at median levels for 2 days,not at basing levels.Other indicators{see below}are marginally oversold.So maybe the high probability seasonals discussed above will allow this short term long trade in spite of the less than perfect technical setup,or the setup will be clearer in a day or so. In summary,lets try for an OEX long trade one strike in the money at S1 or S2 on the OEX pivot chart on Monday or preferably Tuesday. On to further analysis... The Intermediate system, ADHL, remains flat to short as the NHNL percent turns negative. CODI Dynamic is at the Buy Alert level while the OEX works the lower side of the regression channel. Most other short term indicators are working the neutral to oversold levels. This is looking more consolidative/corrective than the start of anything significant on the downside. Another day or two on the downside to flat would be encouraging for the "Payroll" indicator to strike in the middle of this week. Sometimes buy programs start this particular week off after weekend analysts finish their selling Monday morning. As the week progresses buying overcomes selling and the next uptrend is in progress. So the plan next week is to find an entry on the long side that might last about about a week. Ideally we would see more of a washout taking the INDU to its actual-3.5% band{we tagged the DJIA theoretical lower band intraday Friday} and the OBV to its lower band and the MOSS into oversold on Monday and Tuesday. Volatility cycles and levels can tell us something about price trends and inflection points in trend. Most importantly the immediate question is where are we now in the scheme of things. The Volatility chart has the plots for OEX implied and the 5 day, 20, day, 90 day historical volatilities. It is pretty obvious that the Implied and 5 day Vol peaks nail the lows in price trend each September/October as well as at other minor lows. The Fall double bottom shifts a bit each year as does the time between the first and last low. January also has peaks in Implied and 5 day after which they drift lower below the 90 day along with the 20 day into the spring. January '99 volatility is very similar to Jan '98 in terms of vol trend and level. The surprising thing is that this similarity is happening amidst significant political and economic events. Such events would be expected to induce higher levels of volatility. Either the effect is yet to occur or we are having a normal volatility cycle wherein the levels will drift lower again into the spring. The most promoted fear has been the expectations of lowered earnings and yet they are coming in better than expected so far. The impeachment issue is about to become a nonevent in the weeks ahead. This would suggest that market levels will hold their valuations and perhaps even inch up to the DOW 10,000 sometime this year. A spring consolidation/correction should be expected as occurs every year, i.e. 'In by Thanksgiving, out by Easter.'" MomentumCycles commentary for the open of Tuesday, January 26, 1999: We had indicated early last week that January 19-21 was indicated to be a low using a time series analysis of the Nasdaq 10 day rate of change.Indeed,among all the hoopla of the last 3 trading days revisiting DJIA 9060,the Nasdaq low price occurred near the open of "curse Thursday",and since has rallied,albeit weakly,to fill the gap.Important support numbers therefore occur at NASDAQ 2300,DJIA 9060 and OEX 607.Monday saw an inverted traders index reversal from near the lower 3.5% DJIA band of price,usually good for a move to 1/3 above the 21 day moving average,historically accurate 80% of the time.The fly in the ointment,as Travis has pointed out,is the rally is starting from terrible sentiment numbers,and equity option ratios that are far from the basing levels normally seen at oversold bottoms. But Monday went pretty much as laid out on the weekend update. Moontide appears to have troughed and is rising now. The advice was to go long calls at S1 or S2. S1 provided an entry of 16 for the Feb 615 calls. NYA breadth was not anything to get excited about. Most of the indicators are still neutral to oversold. Tuesday may provide another chance to get long below Monday's close yet above Monday's low. Early AM weakness might test the pivot and /or S1 for an entry. Tuesday should end the day strongly unless there is some earthshaking news. So the plan would be to enter calls again once any pullback ends and turns up. We did say buy S1 or S2 and now have a 25% gain from 16 to 19 7/8. Set the stop loss for break even from the entry point. XAU momentum of price of 7 versus 35 days and 5 versus 21 days is still falling.No trade recommended for XAU presently. Here are more charts: ADHL CHART. AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. DSP9H CHART. OEX FIBRET CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX TRADES CHART. OEYBC CHART. OEYNB CHART. PITCHFORK CHART. SUPERT CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Wednesday,January 27,1999:

We are watching the breadth divergences on this rally closely,especially since our minimum target from just one indicator{the inverted traders index reversal}to one 1/3 of the way above the 21 day moving average is close by in price.Others,however, project further price momentum.We have had 1 topping day on the equity put call volume ratio,and 2 consecutive days{ when price was near the upper band} recently brought a price retracement on weak breadth similar to now{this occurred on January 20th}.That's why we are saying...

Hold the long position, OEX Feb 615 entered at S1 on the OEX pivots on Monday at 16+.But the stop should be moved up now that a 50% gain is in hand. The best stops are ones set by the market such as previous pivots and support and resistance. In this case 23 3/4 looks like a good one. Support below that is 20 to 21. If you get taken out you can always re-enter if the signal is still active. This trade historically has lasted ,and is expected to last into next week and get stronger as time progresses except for a possible high Wednesday and some minor retracement on Thursday. We want to exit when the strength wanes. Wednesdays are usually pretty strong, especially this month-end week, and Thursdays generally weak as we have all experienced. BUT we don't want to get mentally locked into cliches and would rather have the market speak to us. Tuesday's PRICE strength was indicated by no retracement into Monday's range. Breadth strength is still skeptical of the move, but this is expected to improve into early next week. We do expect there to be a glaring divergence in breadth from price next week and will exit before the price peak and look for a put entry. The McOsc might only make it up to the zero line at which time a failure will bring in massive selling. There is something about a Valentine's Day Massacre that is seasonally often seen in the markets this time of year. 635 is the first target for this upmove and then a probing of the 640 level as suggested by the Point and Figure chart and the OEX Fib Ret chart. There should be enough money in the seasonal moneyflow to push the index up that far. Institutional sellers should let the market float up in the above discussed area to take advantage of the better seasonality prices. The longer the swing from the previous pivot the greater the risk of entry. Since there is still $ left in this move new entries could be made on pullbacks. Some traders, futures types for instance, like to be pulled in on a stop on a breakout. The problem with that method in short term options trading, is that it is in the nature of options premium to jump ahead of the index and anticipate the magnitude of a move and wait for the index to catch up before moving again. That is sort of what happened in the early hours of Tuesday's trading. With a delta of 61 the 615 call should have been up 3 points when it was only up 2 or less. Monday's demand for calls pumped up the premium. This is a major reason why options are priced best during the contrary move, i.e. S1 on Monday. Of course this requires a correct determination of the ultimate trend, which in this case is given the odds by the month end seasonality.

Our suspicion that we would see more recent XAU weakness proved correct as today saw 63.14.Now XAU STO 5 is near 10,quite oversold,but STO 20 is still at 30.Best oversold XAU bottoms have both STO 5 and 20 near 10,with a rally crossover signalled by high volume days at consecutive high prices of the day.Momentum of price is still dropping.

Here are all of today's charts:

XAUDAY chart

OEYBC option chart

OEYBD option chart

Andrews pitchfork chart

RSI STO chart

VIX chart

XAU 30 minute chart

OEXFDAY chart

OEX 30 minute chart

AMOSS chart

CODI chart

Cone chart

DSPH9 chart

DJIA chart

MCOSC chart

Momentum cycles chart

Moontide chart

NYA chart

ADHL chart

SPX target chart

OEX FIB RT chart

OEX pivot chart

Point and figure chart

DJIA target chart

SENTIMENT Chart

EQUITY call/put chart

MomentumCycles commentary for the open of Thursday, January 28, 1999:

After today we all know what stops are for, and why it is important to have a complete plan of action. Starting last weekend, relative entry points were set and on the update for Wednesday suggested targets, stop losses,and profit stops were discussed.In fact, the minimum DJIA Wednesday target of 1/3 of the way above the 21 day moving average after an inverted traders index reversal near the lower 3.5% trading band was almost perfectly achieved. Wednesday saw a three day high on the open after the equity call/put topping ratio Tuesday,and weakness into the close, and this weakness will likely continue into Thursday opening. The OEX Feb 615 callthat was entered on Monday at 16 was stopped out at 23 3/4 per the plan for Wednesday. We will look for another entry on Thursday, perhaps in the post NY lunch period. The OEX closed Wednesday below the Keyline so we should expect a failing test of the keyline or a drop to S1 in the first half hour. In either case S1 or S2 should be tagged sometime Thursday morning, perhaps an hour into the day. Likewise on the Cone, the green cone should be tested and if it is a really strong down day then the red cone. It would help if there were confirmation from the NYA numbers. Without it the next price rally will fail just like the recent one. This does not mean it shouldn't be traded. It just means to be extra careful and to have lower expectations for gains. { S1=617, S2=614, C1=615, C2=610 }. The best estimate from the realtime neuralnet is between 610 and 615. We now know the Senate doesn't have the votes to be meanies, good thing for them. What we don't know is Greenspan's disposition for next week, and unfortunately this could put things on hold until he passes judgment. So if we do get another entry use a 1.5 point initial stop below the entry price of the option and move it up to break even when it is a few points ahead and then follow with a trailing stop of a few points. The OEX has been making a lot of ten point swings. If you can get 5 of them that should put food on the table. The reason the short side is not being played here is the potential for an upside surprise could leave you with a 50% loss in minutes. And the long side is only being considered when downside momentum is spent on about a 30 to 60 minute basis. Option Sentiment and Equity C/P reached excessive levels on Tuesday,as discussed, and pulled back a bit on Wednesday with the commensurate drop in the major averages. This is contrary to the seasonality trend coming up, so maybe it is going to take another day or two to bring these levels down to where a multiday uptrend can exist. The excessive sentiment is fine in uptrends....until it changes and then you don't want to be caught holding calls.

XAU broke the previous 63 low,now at 61.66,with STO 5 in extreme oversold,but STO 20 at 18.Best XAU rallies come from both STO readings in the most oversold position, followed by successive closes at the high of the day on increasing volume on a crossover above 20 on STO 5 and STO 20.We are getting close to that condition.Momentum of price 7 versus 35 and 5 versus 21 still dropping.

Here are the other charts:

ADHL CHART. AMOSS CHART. CODI CHART. CYCLE CHART. DSP9H CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. MOONTIDE CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEXPF CHART. OEYBD CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Friday, January 29, 1999:

Positive seasonality is still in effect. Calls should be entered on pullbacks to pivot and cone support if it occurs in the AM. Don't chase the market on rallies. Use one strike in the money and take profits on 5 point or greater move in the OEX after entry. Breadth divergences still abound, however the "Payroll indicator" is being front run,as we had indicated last Sunday, and may still have a push up to old highs on Friday and Monday. The OEYBC or higher strike could have been re-entered on the first pullback after the gap opening. NYA breadth did confirm and was supportive of today's action. Scary part is the New Lows continue to increase. Wednesday's weakness disappeared on Globex and changed the scenario for Thursday. Rather than a test of S1 or Green Cone the market blasted up through the keylines and never came back, just like on Monday and Tuesday. This is end of month behavior and is why only calls have been recommended and why it was cautioned this Thursday might just have a different scenario than the typical down Thursday. Sentiment and Equity C/P ratios are what you would expect in rally mode into resistance. Ideally they would peak and turn again at the next put trade. The mechanical OEYBC trade entered from the canned package will exit tomorrow. Discretionary trades can still be made as indicated above.

XAU is so oversold that a bounce here on STO 5 and STO 20 levels from the cellar is due any time.Momentum of price still dropping.

Here are more charts.

ADHL CHART. CODI CHART. DSP9H CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. MOONTIDE CHART. NHNL CHART. OEX FIB CHART. OEX FIBRET CHART. OEXPF CHART. OEXTRADE CHART. PITCHFORK CHART. RSISTO CHART. VIX CHART. XAU CHART.