MomentumCycles

Momentumcycles commentary for the open of Monday, January 4, 1999:

Using the daily advance decline line for the NYSE and drawing a trendline connecting the tops from last July till Thursday,a descending pattern can be seen.That daily a/d line descending trendline was violated marginally Wednesday and Thursday.Normally the violation of a 6 month a/d line trend is significant.Next week,as discussed below,is therefore do or die for the a/d line trend change.

We had posited a retracement once the theoretical DJIA tagged the upper 3.5% trading band last week, and at least for the DJIA,a move was made correctly towards the 21 day moving average to partially correct the overbought position.

XAU moving off the STO 5 level of 10,now at 77,almost short term overbought.Momentum of price 7 versus 35 and 5 versus 21 is moving up.Only kicker is volume,that is,we would like to see successive closes at the highs of the day on higher volume.Volume in this index has been anemic.

On to Thursday's OEX action and the first week of '99...

What a day....one in which the foundation moved but the building didn't budge. Recapping, three to one advances over declines, 2.8 to one up volume over down volume, 146 new highs vs 31 new lows, 750 million volume and yet the DOW cratered under a full moon and the OEX was off 3 points. Now you figure that one out. Can't recall ever seeing a day like this New Year's Eve market where NYA breadth was sufficiently strong to jumpstart the indexes through the roof into the new year. Well, we suggested a year end Call entry between 600 and 605. The OEYAA was available at $10 several times during the day when the OEX dipped to the lower green cones, or between S1 and S2 on the OEX pivots and it ended the day with a 10% gain. Now if we get a breadth followthrough on the upside again on Monday it is more likely the DOW will be up 100+ points with a commensurate rise in the OEX, i.e. tax selling is finished. There is a full moon outside by the way. The coyotes love it here in the desert as they can see their prey better. Reviewing a few charts we see that the Intermediate ADHL system strengthened further with the new lows dropping away from the danger level and the new highs reasserting their strength. So the ADHL remains on a Buy. NHNL is in an uptrend, McOsc moved further above zero bringing in more buying. CODI pulled away from the Sell Alert. MOSS and AMOSS are back inside the neutral zones. EquityCP and Sentiment have backed away from extreme levels. Implied Volatility(VIX) was thrown a curve ball today and stalled at its mid band with an accompanying zero RSI of VIX. This might just presage a resumption of price uptrend on Monday. A view of various price oscillators would give the impression that a correction is just beginning and not a resumption of upward price movement. There is just no way that the indexes can continue down if breadth makes a repeat performance next week. Happy New Year.

This "Moontide" breadth chart illustrates just how strong the tidal wave of positive breadth was on Thursday. Waves of this type are rarely seen. Price must come in with this tide, otherwise it is telling us a top is at hand.

Here are some charts:

CYCLE CHART. FIBRET CHART. INDU CHART. OEX DAILY CHART. OEXPF CHART. OEX WEEKLY CHART. OEXWM CHART. OEYMA CHART. PITCHFORK CHART. RSISTO CHART. XAU CHART. XAU DAILY CHART.

To quote from the Intraday update 10:40 am Monday,January 4,1999:

" Trail with a stop loss, or sell here. Probably not much more upside today. Use a 1.5 trailing profit stop on OEX calls or better yet you could convert to a calendar spread by selling the Feb 605 call for 23 5/8 against the Jan 605 bought at 10. That would lock in a 13 point gain instead of just a 50% profit."

To quote from the Momentumcycles commentary for the open of Monday, January 4, 1999:

"Using the daily advance decline line for the NYSE and drawing a trendline connecting the tops from last July till Thursday,a descending pattern can be seen.That daily a/d line descending trendline was violated marginally Wednesday and Thursday.Normally the violation of a 6 month a/d line trend is significant.Next week,as discussed below,is therefore do or die for the a/d line trend change.

We had posited a retracement once the theoretical DJIA tagged the upper 3.5% trading band last week, and at least for the DJIA,a move was made correctly towards the 21 day moving average to partially correct the overbought position.

XAU moving off the STO 5 level of 10,now at 77,almost short term overbought.Momentum of price 7 versus 35 and 5 versus 21 is moving up.Only kicker is volume,that is,we would like to see successive closes at the highs of the day on higher volume.Volume in this index has been anemic.

On to Thursday's OEX action and the first week of '99...

What a day....one in which the foundation moved but the building didn't budge. Recapping, three to one advances over declines, 2.8 to one up volume over down volume, 146 new highs vs 31 new lows, 750 million volume and yet the DOW cratered under a full moon and the OEX was off 3 points. Now you figure that one out. Can't recall ever seeing a day like this New Year's Eve market where NYA breadth was sufficiently strong to jumpstart the indexes through the roof into the new year. Well, we suggested a year end Call entry between 600 and 605. The OEYAA was available at $10 several times during the day when the OEX dipped to the lower green cones, or between S1 and S2 on the OEX pivots and it ended the day with a 10% gain. Now if we get a breadth followthrough on the upside again on Monday it is more likely the DOW will be up 100+ points with a commensurate rise in the OEX, i.e. tax selling is finished. There is a full moon outside by the way. The coyotes love it here in the desert as they can see their prey better. Reviewing a few charts we see that the Intermediate ADHL system strengthened further with the new lows dropping away from the danger level and the new highs reasserting their strength. So the ADHL remains on a Buy. NHNL is in an uptrend, McOsc moved further above zero bringing in more buying. CODI pulled away from the Sell Alert. MOSS and AMOSS are back inside the neutral zones. EquityCP and Sentiment have backed away from extreme levels. Implied VolatilityVIX) was thrown a curve ball today and stalled at its mid band with an accompanying zero RSI of VIX. This might just presage a resumption of price uptrend on Monday. A view of various price oscillators would give the impression that a correction is just beginning and not a resumption of upward price movement. There is just no way that the indexes can continue down if breadth makes a repeat performance next week. Happy New Year.

This "Moontide" breadth chart illustrates just how strong the tidal wave of positive breadth was on Thursday. Waves of this type are rarely seen. Price must come in with this tide, otherwise it is telling us a top is at hand."

Momentumcycles commentary for the open of Tuesday, January 5, 1999:

The year started with a late holiday celebration here for readers with the precisely timed intraday advice above,20 minutes before the high of the day.Those who used the oft-mentioned 1.50 trailing profit stop on OEX long positions mechanically also did well.The upper 3.5% DJIA theoretical band offers strong resistance to price,and it must be mentioned that presently cumulative volume is marginally negative,which gives a mechanical sell on some systems{that is,from the upper band of price at 9350 or above,if it remains cumulatively negative here}.

XAU grinding its way higher on disappointing volume.Momentum of price 7 versus 35 and 5 versus 21 still rising, but the explosive volume associated with previous XAU blastoffs is not seen here.That factor makes us question this XAU rally.

Moontide chart tells the story for Monday. No sooner had the party started than it was over, or is it? No sooner had the tidal wave hit shore than it dissipated. Once again, even though the NYA breadth numbers looked healthy as did the NHNL, the DOW just could not hold its gains. This trader is not big on trading astrology, except for the Lunar aspects and full moons, and seasonality for days of week and days of month. A week ago we said to look for a low into the last week of the year and a quick trade into the first week of the year followed by a swing low put trade. The first half of the sequence was fulfilled today. The second half has not been entered yet. The Sentiment and Equity C/P and HROEX are not really partial to either a put or call trade as of the close on Monday. They are actually closer to another call trade. MOSS and AMOSS are closer to oversold than overbought, CODI is at the Whipsaw level, ADHL is still looking quite strong. The feeling is that Monday like Thursday was a victim of DOW Trust adjustments and traders should give more weight to broader measures. The players are definitely back after the holidays as option volume swelled from last week. Since the first week of the year has such a strong upward bias you might want to look for another Jan 605 or 600 OEX call entry on further weakness Tuesday morning in the 597 to 600 fib zone or S1 on the OEX pivots for a ride up into a Wednesday intraweek high, sort of a repeat of Monday, take profits on a 50% move.

Here are some charts:

CONE CHART. CYCLE CHART. FIBRET CHART. INDU CHART. ANOTHER INDU CHART. INDU FR CHART. MCOSC CHART. OEX FIB CHART. OEXPF CHART. OEYAA CHART. OEYMA CHART. PITCHFORK CHART. RSISTO CHART. VIX CHART. XAU CHART.

Intraday update Wednesday, 10:12 am:

AM buying the OEYMC at 10:12 am under 5.

Momentumcycles commentary for the open of Wednesday,January 6,1999:

XAU moving near the 68 level which seems to be the target for this low volume rally,somewhat overbought short term with STOCHASTIC 5 near 90.DJIA resistance was 9338,close enough to the 9350 we mentioned yesterday as previous resistance near the upper 3.5% band of price.

The call for Tuesday was too conservative. It did call for a repeat OEX Call trade using Jan 600 or 605 but the AM market was not weak enough to take the OEX down to S1 for a lower entry. Yet the OEYAA still went from 9 3/4 to 16, which was the Monday exit for the Thursday trade. Again the advice was to exit on a 50% gain which was available. No one here is taking any credit for a trade done today so if you did it, Bravo. Now things are getting really dicey. The sensitive NHNL has given a short term sell signal as the new highs have dropped back from 137 on Monday to 86 on Tuesday. This is a very sensitive and short term indicator. Since various other breadth and price oscillators are banging on the ceiling we need to think about entering a put trade on Wednesday for a hold into Thursday PM or Friday, too early to tell yet how long to hold. OEYMC is posted tonight as a suggestion since it is an at the money put and there is only a week and a half until expiration. The suggestion here is to enter this at a failure(rise and then fall) of R1 or upper green cone or 617.85 to 619.16 fib resistance zone. If the market moves up then move the entry strike up so that the put is one strike below the market. It just depends on how strong Wednesday is. It isn't expected to have much fire power left with bonds tanking{notice that we are near the dropping trendline of yields for 30 year T bonds for the last 2 years,a violation of which would be quite significant} and respectable Mr. Big saying to short US blue chips and go to secure cash until value returns. Option Sentiment and EquityCP have reached that blistering level of time to buy some puts. This fits in with the above overbought price and breadth indicators. These two are adjusted for the very short term trade.

Here are some charts:

ADHL CHART. CODI CHART. CYCLE CHART. DOW FIBRET CHART. INDU CHART. MCOSC CHART. MOSS CHART. NYA CHART. OEXFIB CHART. OEX 3 MINUTE CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEXPF CHART. OEYAA CHART. OEYMC CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

Momentumcycles commentary for the open of Thursday, January 7, 1998:

A little history is useful at this point...in the past, OEX declines of 20% or larger have often led to rallies of approximately 65 days ,followed by 14 day declines of about 6%.We are in the 65 day rally window here after a 20% decline.In 1987,5 consecutive days of equity put /call ratios at topping levels led to a large decline.We have had 2 consecutive topping days in a row here,with a high probability of more in this sentiment environment.The present rally is being funded by holiday and year end bonuses worldwide,yearly and quarterly pension reinvestment,as evidenced by the second day this week of a one tier market{equities,XAU,and bonds all up today again}.That torrent of money will likely exhaust momentum or diminish at some point soon.

XAU hit the 68 target with more respectable volume.The declining tops target 78.5 to 80,a close above which breaks the multiyear downtrend.If XAU can continue up once the OEX starts down,that would bring much more money into the index.

30 year T bonds still found support at the declining trendline of yields,so that is still intact for now.

Well, we got the penetration of the pivot resistance, fib resistance and upper Cones, but we did not get the failing retracement that was the trigger for the put trade as laid out on the previous update. Also the instructions were to follow the index up with a put one strike below the OEX. With the OEX at 631, the 625 or 630 are game. They are well within average true range and probability of going in the money. If you want a higher theoretical delta, then of course you have to take an "in the money" strike. The intraday update was premature on all accounts. The original put trade plan is still in effect. Breakouts have a way of retesting to make sure, so a pullback in the DOW to 9400 or lower is fair game. We are still in the beginning of month seasonality that ends on Friday,yet Thursdays have a negative bias, and Wednesday held true to form with a strong upward bias. Pre Expiration week tends to have the opposite bias as expiration week so we might just see a downside expiration this time. Option Sentiment and EquityCP are representing the strong desire to own stocks so we have the C/P setup for the put trade. We just need for the EquityCP to turn down to reflect the change in sentiment.

Here are some charts:

ADHL CHART. CODI CHART. CYCLE CHART. INDU CHART. MCOSC CHART. MOONTIDE CHART. MOSS CHART. NHNL CHART. NYA CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEXPF CHART. OEYAA CHART. OEYMC CHART. OEYME CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

Momentumcycles commentary for the open of Friday, January 8, 1999:

XAU passed the first target of 68,and is within reach of 74.5,closing at 72.19.A near term daily close above 74.5 would place this index above the upper 12.5% band of price.In the past, a close by the XAU above the upper 12.5% band of price has been followed by a retracement, then always by at least one higher high.XAU STO 5 is at 100,and STO 20 at 85,so we are overbought short term.

The most significant event on the charts today is the two red sell arrows on the ADHL chart. All it needs is a pick up in the new lows to generate an intermediate term sell signal. The second most significant event is the peaking of the McOsc. Third is the cresting of the Moontide. Fourth is the nesting of cycles on the Momentum Cycle chart. Fifth are the overbought RSI and Stochastics. Sixth is the continuing XAU rally. Seventh are the Sentiment and Equity CP charts. This graphic collage depicts a pattern similar to that found just ahead of a market correction. This week and next there are advertised asset reallocations from stocks to bonds and cash by a few major brokerage firms and money managers. Perhaps they are looking towards a better buying period in the spring and want to avoid the upcoming and uncertain earnings reports.

CBOE equity and index Call to Put ratios are urging caution and are at levels where corrections have been experienced in the past.

Another method of calculating a possible short term top is to keep track of the number of CONSECUTIVE equity call/put topping days.As noted yesterday,we have had 2 consecutive topping days, and Thursday makes 3 in a row.It is to be noted that the 87 top was signaled by 5 consecutive topping days.Additional topping days in this excited environment are likely regardless of near term price behavior.In addition,as noted yesterday,rallies after 20% or more declines often top out at 65 days after the bottom.We are in the 65 day window within the next several days.The declines after the 65 day rallies often last 2 weeks and measure 6%.It is to be noted that some of the other analysts at OEXTRADER have noted important date clusters on Jan 7 and Jan 12.

Here is an item of special interest:

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Here are some charts:

CODI CHART. CONE CHART. HROEX CHART. INDU CHART. ANOTHER INDU CHART. MOSS CHART. NYA CHART. OEXFIB CHART. OEX PIVOT CHART. OEYAE CHART. OEYME CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.