MomentumCycles

Momentum Cycles Update for the open of Thursday, January 29, 1998:

Predicted monthly money flow hit the equity market Wednesday,moving some shorter term 5 and 15 day cycles to more overbought levels.We closed between the 21 day moving average and the upper 3.5% trading band.That upper trading band is an area where profit taking often occurs, especially in trading markets rather than strongly uptrending markets.The upper band is at about 8080 DJIA theoretical {or slightly above DJIA 8000 actual}.A potential attempt to trade up in that area intraday between now and next Tuesday may be a good place to exit remaining longs and begin to look for a short entry.We will look for confirmation from our other indicators.

It would take a strong close above 8300 intraday with good breadth and rising volume to officially move this market back to longer term uptrending mode rather than trading mode.When and if that happens, we will buy all dips and bust the shorts.

Some signs of a potential short term top are already occuring.The 10 day moving average of up volume is peaking, and the 10 day moving average of down volume is no longer dropping. We have done well shorting the upper band and buying the lower since the trading range began.

Traders were advised to buy long OEX calls starting with Tuesday's open.Another entry point for latecomers occured near Wednesday's open at OEX 463 ,during the first half hour, and again an hour after the plus 700 uptick of 10:30. That second entry would have been during the previously predicted intraday selling that occured into 11:45-11:55 when the low was only 10 DJIA points higher than Tuesday's close.At no time Wednesday were dailyuptrends violated. The market did not stop any longs out with negative action.Closing tick was+34.Traders from Tuesday's open are ahead 13 OEX points.Those from Wednesday's low are ahead 6 OEX points.Don't forget to keep those trailing stops operative.Some retracement Thursday should be expected,so watch the breadth numbers and draw intraday trendlines carefully.See trading zone expectations at the very bottom of this page.

Breadth:

Take a look at this NYA classic textbook case of a price trend reversing upon constantly improving breadth. Also note what the advance/ decline numbers were during the time the NYA reversed trend from down to up, which was the same time as when the A/D line turned up. For our readers there was a little bit of prescience here knowing what would happen when the advances went above 1200 and declines dropped below 1200. You also know by now what risk means when it comes to holding puts in the last week of the month.{you passed most of that risk on to the non-subscribers by Monday,January 26!} Sometimes,in a similar manner to end of quarter window dressing, puts will work during the last week of the month, but as a general rule you do not want to be a victim. Even if breadth had been pointing to buying puts here, seasonality generally would have overruled the trade. And, if you recall, on Monday night's update it was advised to buy calls on Tuesday(OEXBK or OEXBL). Gains of 70% have now been made in two days and the UC payroll indicator has not even kicked in. This is a tongue in cheek indicator based on when the UC California payroll system dumps E-cash into the pension plans. It should be deposited Thursday night since Feb 1 is on a weekend. Although Thursdays are usually not kind to bullish inclinations, this time of month is likely to be an exception as fund managers play catch up with investment plans. Of most significant note was the reassessment of 1998 earnings expectations upwards by a percent or two. This changes the valuation of the indexes and can lead to a breakout above overhead resistance(as in the 509 on the NYA chart). McOsc looks like the issue oscillator is going higher and the OEX is going to break out above 473. CODI

Volatility:

Zone Timer is pushing up into the overbought, higher risk zones, but puts are not in order until further into the seasonality cycle and we get a pivot towards the neutral zones. MVIs are reaching the +2 band. With the breadth continuing to improve it looks like the MVI will cross above the +2 band and trend for a few days into next week. This could set us up for an equally good put trade in February. Cone chart has intraday price projections for Thursday. The red line is what many savvy pros expect the maximum move to be on a strong day. It correlates to the R3 Pivot line on the Stat Pivots.

RSI, SMI:

Everything is going up on these charts.

Fibonacci Zones:

Looks like zone and Triple Switch breakouts on all charts. DJI NDX OEX SPX TYX XAU

Stock of Interest:

Now we should take note of the volatility indicator on CMR. We know the drill rigs are in the ground. We know the big companies have joined in drilling the area. We know commodity chart prices(commodity like stocks also) take a dip before they take off and trend upwards in a rapid fashion. No predictions here as to when this little stock is going to move, but the added volatility can look like a flag waving in retrospect a few weeks downstream.

Statistical Pivots:

All the zones are again shifted upward. Classical Pivots had a zone 5 close on Wed. and zone 4 anticipated open for Thursday. Support should be found in zones 3 and 2 if there is any kind of retrenchment on Thursday. This is the kind of pullback you pray for and the prayers are never answered. But if they are then that is where additional calls could be purchased. Keep in mind when we entered this trading period the holding time was expected to be measured in days and we are looking for and getting a momentum peak in prices. Price has not peaked yet. DJI OEX SPX

To quote from the Momentum Cycles Update for the open of Thursday, January 29, 1998:

"Predicted monthly money flow hit the equity market Wednesday,moving some shorter term 5 and 15 day cycles to more overbought levels.We closed between the 21 day moving average and the upper 3.5% trading band.That upper trading band is an area where profit taking often occurs, especially in trading markets rather than strongly uptrending markets.The upper band is at about 8080 DJIA theoretical {or slightly above DJIA 8000 actual}.A potential attempt to trade up in that area intraday between now and next Tuesday may be a good place to exit remaining longs and begin to look for a short entry.We will look for confirmation from our other indicators.

It would take a strong close above 8300 intraday with good breadth and rising volume to officially move this market back to longer term uptrending mode rather than trading mode.When and if that happens, we will buy all dips and bust the shorts.

Some signs of a potential short term top are already occuring.The 10 day moving average of up volume is peaking, and the 10 day moving average of down volume is no longer dropping. We have done well shorting the upper band and buying the lower since the trading range began.

Traders were advised to buy long OEX calls starting with Tuesday's open.Another entry point for latecomers occured near Wednesday's open at OEX 463 ,during the first half hour, and again an hour after the plus 700 uptick of 10:30. That second entry would have been during the previously predicted intraday selling that occured into 11:45-11:55 when the low was only 10 DJIA points higher than Tuesday's close.At no time Wednesday were dailyuptrends violated. The market did not stop any longs out with negative action.Closing tick was+34.Traders from Tuesday's open are ahead 13 OEX points.Those from Wednesday's low are ahead 6 OEX points.Don't forget to keep those trailing stops operative.Some retracement Thursday should be expected,so watch the breadth numbers and draw intraday trendlines carefully.See trading zone expectations at the very bottom of this page."

Momentum Cycles Update for the open of Friday, January 30:

The predicted retracement low came very near the open-DJIA open 7916.72,low 7883.09, high 8014.87{predicted target area}, close 7973.02.Holders of OEX long calls from Tuesday's open are ahead 16 OEX points.Those from Wednesday's open or the retest at 3 p.m. are ahead 8 OEX points.The early a.m. low did not stop traders out, since Wednesday's close was 467.23 and Thursday's low was 466.48.Since we have about a double or more on this trade in 3 days, we should already have been scaling out of OEX longs.Seasonality argues for more time before selling, but note that some oscillators are now highly stretched.

The market very nearly tagged the upper 3.5% trading band today at 8062.94 DJIA theoretical{8014.87 actual}.Prices normally find resistance in that upper trading band area.Wednesday there was an uptick of +700, and Thursday there was a +808 uptick and a closing tick of+531.This normally implies a correction within 2-3 days.

Shorter term 5 and 15 day oscillators are in an extremely overbought position, and the 5 day rate of change is +3, overbought.The 21 day A/D moving average is turning down,ahead of price.We had previously indicated the possibility of a short term top between Friday and Tuesday,due to the ZTimer,CODI and ZScore positions.Other proprietary indicators we do not display show that any rally up to the upper 3.5% trading band near term which is followed by a succeeding day with more declines than advances will likely turn short term momentum to down.It's often wise to leave the last few dollars for someone else.

Concerning XAU and precious metals, on Monday's update, we warned of a pullback in several days.Today XAU was down 4.5%.

Breadth:

NYA advances ended Thursday about where they ended on Wednesday, but were higher during the day than on Wednesday. Declines had a straightline rampup after price peaked. This doesn't mean the rally is over. It means there is some selling as longterm overhead resistance is tagged on the McOsc chart at 473. Friday 1/30 marks the official first day of seasonality. UC indicator struck Thursday with electronic deposits from Wednesday night, so Friday could see another test of Thursday's high. Fund managers might just wait until some of the steam is dissipated and wait until next week to do their buying, if those truly in control permit them. Consecutive days of heavy volume and expanding breadth have been characteristic of breakouts to new highs. Volume oscillator has reached previous highs and the issue oscillator is just now closing above the neutral region. CODI is trending down to the sell alert line. New CODI closed on the sell alert line today. These two need close watching the next few trading days. There is some talk that the January effect has been delayed by one month because of incorrect advice from former fed governors and others promoting the idea of deflation and lower earnings expectations in 1998. Both those ideas are now dead.

Volatility:

MVI has moved above its +2 band and is now in sell alert mode. A close back under is a sell. It has to be pointed out that MVI can trend outside for a few days before pulling back inside. Z Timer is expected to move a little higher before pivoting downward in sell mode. Z Score is slightly different and is moving sideways. Both are on the verge of giving a sell signal and may hang in at current levels for a few more trading days. Cone chart has Friday's price probabilities.

RSI, SMI:

XAU and TYX faltered today. SPX is pushing the overbought level.

Fibonacci Zones:

Higher fib levels were tested with some closes above and some below. Only yields and XAU showed signs of retreating. That is actually positive since gold stocks have an inverse correlation as do yields to non gold and non interest related equities and indexes. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMRis marking time before drill results are announced.

Statistical Pivots:

Friday has the same zone close open probabilities as Thursday. This does not mean it has the same price pattern probabilities since Thursday ran up to zone 6 which only had a 20% chance of being reached. I would not expect a repeat of Thursday. Support should be found in zone 3 with a 75% chance of being reached and 55% probability of finding support. OEX OEX Classical SPX DJI

To quote from the Momentum Cycles Update for the open of Friday, January 30:

"The predicted retracement low came very near the open-DJIA open 7916.72,low 7883.09, high 8014.87{predicted target area}, close 7973.02.Holders of OEX long calls from Tuesday's open are ahead 16 OEX points.Those from Wednesday's open or the retest at 3 p.m. are ahead 8 OEX points.The early a.m. low did not stop traders out, since Wednesday's close was 467.23 and Thursday's low was 466.48.Since we have about a double or more on this trade in 3 days, we should already have been scaling out of OEX longs.Seasonality argues for more time before selling, but note that some oscillators are now highly stretched.

The market very nearly tagged the upper 3.5% trading band today at 8062.94 DJIA theoretical{8014.87 actual}.Prices normally find resistance in that upper trading band area.Wednesday there was an uptick of +700, and Thursday there was a +808 uptick and a closing tick of+531.This normally implies a correction within 2-3 days.

Shorter term 5 and 15 day oscillators are in an extremely overbought position, and the 5 day rate of change is +3, overbought.The 21 day A/D moving average is turning down,ahead of price.We had previously indicated the possibility of a short term top between Friday and Tuesday,due to the Z Timer, CODI and Z Score positions.Other proprietary indicators we do not display show that any rally up to the upper 3.5% trading band near term which is followed by a succeeding day with more declines than advances will likely turn short term momentum to down.It's often wise to leave the last few dollars for someone else.

Concerning XAU and precious metals, on Monday's update, we warned of a pullback in several days.Today XAU was down 4.5%."

Momentum Cycles Update for the open of Monday, February 2, 1998:

Traders closed out remaining OEX longs Friday for more than a double, or slightly less for late entries on Wednesday,January 28. Click here to see how a moving stop would have mechanically closed the position for traders on Friday. Does that mean we are recommending a short position early Monday? No. It is true the oscillators {such as CODI, and the 5 day cycle} are almost all in extremely overbought position, and any other time of the month, we would be short from 8020 or so. However, until about Wednesday, February 4, positive monthly and weekly reinvestment money flow will likely fight with the overbought oscillators, so that the most probable time for weakness succeeding is approximately the end of Thursday, February 5 through Monday, February 9.

We prefer to trade the extremes at the times money flow is weakest or strongest, so that any remaining OEX longs should be sold into strength on Monday. We will possibly look to place a short trade into projected weakness from mid-week after seeing Monday's {or Tuesday's} trading.

The danger in a short position here is that we are close to all time highs on some of the indexes. Above all time highs, traders cannot find a precise price level to concentrate their selling or shorting, so the easiest direction becomes up. In addition, many short sellers place buy stops at some predictable level above all time highs. The specialists have these price levels on their books,and can easily run these buy stops and cause a contagious buying panic. Once the buy stops are all run in, the specialists cause prices to collapse, because then they become the short sellers.

The best trades occur when cycles and overbought/oversold parameters align simultaneously.

Breadth:

Narrowing breadth is not conducive to strong trends. With NYA advances and declines nearly equal the indexes did not move much in price. Because of the summing and averaging functions in the McOsc, the issue and volume oscillators rolled over on Friday. Thursdays and Fridays have been end of week liquidation days as of late and especially at the end of the month. Positive seasonality runs all of next week. With war waves, social rumblings in Washington, and a big runup last week into resistance, it isn't too surprising that Friday gave a little of the gains back. Technically the charts do look like Thursday was the high for this move, but it just does not fit with the momentum cycle which should peak about Wednesday of next week. CODI Even Old CODI has not reached the Sell Alert line yet, whereas the more sensitive New CODI did dip into Sell Alert and pivoted up. OEX is still above its trendline and support at 465.

Volatility:

Z Timer made a sell pivot and Z Score is somewhat undecided about what it saw on Friday. It looks more like a consolidation of the previous 4 days than a trend reversal just yet. MVI closed below its +2 band after only one day above it. Again, seasonality is preventing the indicator changes on Friday from being accepted at face value. It just isn't wise to jump on the short side at this time. At the least we should expect a retest of last week's high. Perhaps this sounds like wishful thinking, it is more so one of experience derived from having been on the wrong side of trends on occasion. Cone chart is forward looking and the price projections are derived from volatility of option premiums. The most price movement that a trader should expect is a move to between the two red lines sometime during the day. If you are in profits, that is a decent place to take some off the table. The red lines on the cone chart are comparable to R3 and R4 on the OEX Statistical Pivot chart. The difference between the Classical and Statistical pivots is one of looking in the rear view mirror vs looking out the front window, i.e. historical vs implied. The reason both are looked at is because both have ardent fans in the trading arena.

RSI, SMI:

XAU and TYX lost a little strength while SPX gained on Friday. See charts.

Fibonacci Zones:

Daily and weekly trends are up for equity indexes with Friday closes in the mid to upper side of the weekly Balance(red dashed line). Yields were weaker with next weeks Fib support nearby. Gold stocks consolidated more of their move from early January. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMR is drilling in an area that more and more companies are starting to pay attention to.First Canmine, then Falconbridge and Inco, and now, rumor has it the smaller players smell an area play and are staking.

Classical and Statistical Pivots:

Additional support and resistance lines have been added to the Classical Pivots to provide some insight into moves into zones 1 and 6. With a zone 3 close and zone 3 open anticipated on Monday, we have zone 2 as support and zone 4 as resistance. The classical pivots have a tight range for Monday on the OEX which could make for another large move if the pit is of a mind to do so. OEX SPX DJI

To quote from the Momentum Cycles Update for the open of Monday, February 2, 1998:

"Traders closed out remaining OEX longs Friday for more than a double, or slightly less for late entries on Wednesday,January 28. Click here to see how a moving stop would have mechanically closed the position for traders on Friday. Does that mean we are recommending a short position early Monday? No. It is true the oscillators {such as CODI, and the 5 day cycle} are almost all in extremely overbought position, and any other time of the month, we would be short from 8020 or so. However, until about Wednesday, February 4, positive monthly and weekly reinvestment money flow will likely fight with the overbought oscillators, so that the most probable time for weakness succeeding is approximately the end of Thursday, February 5 through Monday, February 9.

We prefer to trade the extremes at the times money flow is weakest or strongest, so that any remaining OEX longs should be sold into strength on Monday. We will possibly look to place a short trade into projected weakness from mid-week after seeing Monday's {or Tuesday's} trading.

The danger in a short position here is that we are close to all time highs on some of the indexes. Above all time highs, traders cannot find a precise price level to concentrate their selling or shorting, so the easiest direction becomes up. In addition, many short sellers place buy stops at some predictable level above all time highs. The specialists have these price levels on their books,and can easily run these buy stops and cause a contagious buying panic. Once the buy stops are all run in, the specialists cause prices to collapse, because then they become the short sellers.

The best trades occur when cycles and overbought/oversold parameters align simultaneously."

Momentum Cycles Update for the open of Tuesday, February 3:

Traders had another opportunity to sell {for a triple}remaining OEX long calls Monday from the buy signal of last Tuesday and Wednesday.5 day rate of change is now +5%-extreme overbought,the reverse mirror image of the -5%-extreme oversold at the October lows.Shorter term 5 and 15 day oscillators are highly overbought.An uptick of +1055 was recorded near the open,and another +730-+750 at 10:45, a +500 at 2:30 and a +387 closing tick.We are above the upper 3.5% trading band with some longer term cumulative volume measures not confirming the new highs in SPX.

Taking remaining long profits Monday fits the trading style of this end of day site, in that we try to scale you in near bottoms and scale you out near tops, and vice versa.As most readers know, it's easier to sell calls into a buying panic than during a profit taking phase.

Yesterday we explained how the specialists would run the buy stops on a close above all time highs on some of the indexes, and how we wouldn't go short Monday even though the indicators were very overbought.At mimimum, however,we might normally expect to see a test of the breakout unless this is to be an unusual vertical move.

Breadth:

NYA breadth could not have been better. McOsc issue and volume oscillator confirmed the price move. Even the longer term Summation index is shaping up. CODI is now in the Sell Alert area.

Volatility:

MVIs are back above the +2 band. Remember only 5% of the prices occur outside these bands. Z Timer is reaching for the upper sell zone and Z score does not believe what it is seeing and remains poised for a sell pivot.

RSI, SMI:

SPX is now back above the RSI overbought line. XAU and TYX are holding their own rather than continuing to weaken.

Fibonacci Zones:

See charts for commentary. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMRstill waiting for drill results.

Pivot Zones and Momentum Cycles cone:

Zone 6 close and zone 4 open give odds that support will be found in zones 3 & 2 and resistance will be found in zone 5. Zone 5 is where additional profits could be take if you are still long. Momentum Cycles Cone has price projections for Tuesday along with the same Keyline as on the OEX pivot chart. OEX OEX Classical SPX DJI