MomentumCycles

Momentum Cycles Update for the open on Monday, January 5, 1998:

Traders sold half their call positions bought on Friday, December 26 or the open of Monday, December 29 on Wednesday, December 31.Another chance to exit occurred at the close on Friday ,January 2.The remainder should be sold into strength at the start of the coming week.Note the sentiment positions of CODI,ZTimer,and ZScore. It is to be noted that bullish sentiment dropped in most surveys on the market rise last week.This could possibly imply more length to the rally after a pullback.5 day rate of change at +4 1/2 is overbought.Shorter term rsi and stochastics are overbought,longer term not yet.The last two readings on the option premium ratio were .53 and .68.No large number of sell signals were generated with those readings. Most good declines after rallies of 200 points or more come with readings between .71 and 1.08. Generally, the ending +1000 tick as seen Friday implies a retracement within 2 days.The highest probability for a down move is into Friday, January 9.

Please look at the rainbow page for the longer term charts.

Swing Machine Update:

Caution, the Swing Machine is experimental and presented as a unique way to forecast the market on a short term basis. History never repeats exactly the same way, thus, the future is an issue of probabilities, both historical(from data) and implied(from options). Swing Machine only uses historical data.

Using an hourly set of data (relatively short data set) and a 5 bar smoothing we got a total of 12 patterns coming out of the '94' pattern setup. I averaged these to 3 projections.

It is obvious that the highest probability (66%) lies with the less aggressive set of swings:

Green:  4 hours up      to  466   then
           9 hours down to  457   then
          16 hours up   to  469   .

However, there is a 33% probability of something like

Red:    18 hours up      to  474  then
        13 hours down to  460  then
        12 hours up      to  487   .

Clyde Lee

Breadth:

NYA issue and volume breadth narrowed again for most of Friday until late in the afternoon when the delayed payroll cycle kicked in. The UC indicator triggered with electronic deposits on 01/02/98. The UC indicator normally triggers two to three days before the end of the month. Dec/Jan is the one exception when accounting regualtions don't permit two January checks in the same tax year. The narrow breadth produced a continued rollover in the McOsc issue and volume oscillators. We will have to wait until Monday to see if the late day improvement in breadth continues. Odds are that it will, with accompanying higher level oscillators. Flow Rate shows a typical fakeout hook pattern that occurs frequently in commodities prior to a strong reversal trend. Note how the TICK, FlowRateNet and OEX price all made an afternoon dip and then reversed strongly to the upside. This reflects a strong professional trading influence (see pivots below for more on this) to shake out weak longs and then run with the mkt. CODI is in the Sell Alert region. This does not mean to buy puts or sell calls immediately. In fact if you are still holding half your calls from the trade last week, you should have a good opportunity to cash in with more profits next week. CODI can and most likely will penetrate further into the Sell Alert region. What we are looking for next week is a Sell Pivot and some indicator confirmation before executing a short trade. Don't be greedy. Try to take the middle 80% of a move and leave the rest for the pigeons.

Volatility:

Z Timer and Z Score both indicate higher prices by making appropriate zone crossings. We need to keep an eye on the levels they reach and be prepared for a peakout in index price in anticipation of an upcoming put trade. No doubt more $ could be pulled out of calls in the next few days. The preferred call trade from the contrary view has already occurred last week. The trend is now in place and profits are not as easy and risk is higher. The Modified Volatility Indexes are reaching for the +2 bands where you would expect the January effect to take them beyond. So, let's anticipate a move beyond the +2 on both the MVI and MVIa and a %b move above its upper alert level. If the mkt enters a sustained trending mode, then the MVIs will trend above the band and we look for a pullback inside to trigger put commitments. The Cone chart will be a regular addition to the volatility section. We are just becoming familiar with it and adding our own special twist and interpretations so some patience is needed here.

RSI, SMI:

It is hard to say if the XAU uptrend is going to continue, stall out, or reverse at this point. It appears to want to work higher against a skeptical wind. T bond yields were dropped by an infusion of reallocated cash from the payroll cycle. Equity indexes are struggling to keep the bull in reproductive status.

Fibonacci Zones:

Basically the daily trends are up for equities and weekly trends will be challenged next week. The weekly equity fib zones are shifted higher. See charts for commentary, DJIA, NDX, OEX, SPX, TYX, XAU.

Of Special Interest:

The AAPL chart is presented as a pattern comparison to what we expect CMR to do sometime in 1998 when its fundamentals become more widely recognized. Generally a close above the upper of the three trading bands is considered bullish. We await this patiently. For detailed company information log into http://www.canmine.com.

Swing Machine:

Here is a followup chart from C. Lee on the Swing Machine showing the forecast of 459 low and 463 high and the time frames in which they would occur on Friday.

Pivot Update:

Significant point to note on the pivot charts for Friday is how the Classical pivots provided the major support and resistance and the Key line provided central tendancy. What this reflects is the professionals in control of a market with little public participation. When the NYSE volume swells to 500+ million compared to the 300+ million for Friday the indexes are more likely to trade within/around the stat pivots. Also note that on Friday near the close there was a breakout above R1A on the OEX and DJIA. Buy and sell orders are typically left standing around the R&S levels waiting for intraday breakouts. Sometimes the pit will hit the stops near these levels and then run with the market in the direction they want control of. This provided the hook mentioned above on the Flow chart in the Breadth section. All the pivots have a minor shift upwards for Monday. Here is the pivot chart for the SPX.

Momentum Cycles Update for the open of Tuesday, January 6, 1998:

Traders could sell more long calls again today at 466.30 OEX when resistance was hit in the predicted 8030 area from yesterday's pivot and fib charts.The triple switch sell alert from late last week and yesterday was realized in a big way today on XAU.The buy alert on TYX also came to fruition with a huge decrease in yields.This is why traders working without these nightly pivot charts have a huge disadvantage compared with readers of this site.We measure risk nightly,and provide support and resistance.Since OEX,XAU and TYX are interrelated, action in one index often impacts the others.Short term traders seeing the sell alert in XAU and the buy alert in TYX should have changed their positions accordingly to reduce risk.

Breadth:

NYA issue and volume breadth was unchanged from Friday for all practical purposes. Volume was significantly heavier at almost twice as much total volume on Monday as Friday. Yet the uvol/dvol difference was almost unchanged. This information is reflected on the McOsc chart with a rollover in the vol. osc. and a flat issue osc. The OEX P/C ratio is neutral at 1.1. Net Flow Rate was positive up until lunch time, then as the afternoon wore on all the morning gains were evaporated. This would be cause for serious concern if it were any other month of the year. A few days like this in the first week of January may be acceptable, but if it goes on for a week then there is trouble ahead. CODI gave a sell pivot in the sell alert region, but did not yet cross the yellow trendline. Enough reason to have sold more calls on Monday's spike up to 8035. We are approaching the all-time highs of the Dow near the upper 3.5% trading band.

Volatility:

Z Timer and Z Score also show some consolidation and lack of direction. The year end rally brought the indexes right up into resistance areas with overbought oscillators so it is expected that price advances would slow down some. The Modified Volatility Indexes are pushing on the +2 bands after the strong holiday cheer. We just have to be aware that oscillators can be deceiving and just when we think they are about to turn down, the price enters a trend mode and the oscillator saturates in overbought. That is why we use regression channels on the OEX in the McOsc chart for perspective. RSI and %b are in between overbought and oversold levels. The MVIs and these two indicators have room for some upward bias. With all the TV promo on earnings downgrades, the crystal ball just does not see a major breakout of any kind here unless it is a matador's trap for his foe. A stab at resistance this month would be a good short for the rest of the quarter.

The Cone chart represents several alternatives for the near term trend of the OEX.

RSI, SMI:

Gold is heavy with the fear of deflation being promoted. Stocks are claimed to be overvalued and earnings downgrades are threatening to topple the indexes. Money seeking an illusory safe harbor simply produced a paper exchange and drove T bond yields lower still. Yields have been known to make lows in the first quarter of the year and then pick up again as the demand for money picks up in the spring for construction, mortgages etc.

Fibonacci Zones:

Yes, weekly zones are being challenged. Yields are dropping on the charts just like they were heavy as gold. Equity indexes ran into stiff upper Fib Zone resistance early in the week. A poor place to start the week off unless they are going to be broken to the upside. DJI, OEX, SPX, NDX, TYX, XAU

Special Interest:

CMR.Canmine fell victim to the panic in other Canadian mining issues today,even though their properties consist of nickel and cobalt, not precious metals.Sellers came out at 1.52.Many traders are just returning from vacation so it is possible buyers will return as before to bid at the 1.35-1.40 area.This still appears to be informed accumulation.

Swing Machine Update:(This is a continuation of yesterday's chart, as more than one day is displayed.)

Caution, the Swing Machine is experimental and presented as a unique way to forecast the market on a short term basis. History never repeats exactly the same way, thus, the future is an issue of probabilities, both historical(from data) and implied(from options). Swing Machine only uses historical data.

Using an hourly set of data (relatively short data set) and a 5 bar smoothing we got a total of 12 patterns coming out of the '94' pattern setup. I averaged these to 3 projections.

It is obvious that the highest probability (66%) lies with the less aggressive set of swings:

Green:  4 hours up      to  466   then
           9 hours down to  457   then
          16 hours up   to  469   .

However, there is a 33% probability of something like

Red:    18 hours up      to  474  then
        13 hours down to  460  then
        12 hours up      to  487   .

Clyde Lee

Stat Pivots:

The Stat Pivots have a narrow range for Tuesday and are pulled in tighter around the Keyline. The Classical Pivots have an upward bias for Tuesday. Note that today's close was near tomorrow's keyline. Sometimes the last hour rally will pull the indexes towards that level as the pros come in and clean up when their cash has more leverage than during the first hour when the public is a dominant participant. DJI, OEX, SPX

2 pm Wednesday update:

Traders who went short on the CODI sell pivot should cover. Here is the flow rate chart real time.

Momentum Cycles Update for the open of Wednesday, January 7, 1998:

A while back,a very clever entrepreneur placed an advertisement in a national publication for a market timing system based on trading in a contrary manner to the news headlines in Barron's ,the Wall Street Journal, or Business Week.{Actually, in a very crude way, it sort of worked.}Traders were supposed to fade the headlines a certain number of days after a certain proportion of them appeared with certain key words-waterfall, despair, the best of all possible worlds,etc.

Remember the worst of all possible worlds for XAU traders?Gold fell to 280 the ounce,yet our indicators called for accumulation in this index while the Merrill Lynch expert was looking for 250.We sold into { and after} the 9% one day rally, and last week-surprise-a mutual fund guy and metals analyst calls for a $100 gold rally while our XAU fib zones were bumping against daily and weekly resistance and we had a sell alert. Fade the talking heads!

Remember the predicted rally for December 23? Admittedly, Santa was late into the rally by a few days, but only by 4 OEX points in price.CODI went into the buy zone, MVI's and Zone score and Z Timer in low risk for buy calls area Zone 1, we tag the lower 3.5% trading band ,and the father of seasonality comes on the news and mourns Santa's untimely demise. Fade the talking heads!

So, the rally appears with us happily long OEX calls, and as it rolls upward with the obvious power of +100 daily gains, we say "sell 1/2" for a double.The next several days "CODI no longer in the low risk zone", "take more profits at the upper R levels shown on the pivot charts", "we are approaching the upper 3.5% trading band", +1000 closing tick, correction within 2 days"{this was Monday}.

Now this may be the pause at the 21 day moving average that refreshes on the way to close at the upper 3.5% band, but that's not the point. IBD quotes were getting giddy, and Norman Yu was looking for 9500. He could be right, and 3 successive closes above 7960 or so would give him greater evidence,but short term... fade the talking heads. So you have a double on OEX AGAIN in less than a week. Let's trade at the extremes, and leave the last few points for someone else. Here's where OEX calls ended today.

Breadth:

With two to one declines over advances into the third day of the new year, this market does not have the same macho tone it had last summer. Expectations are being tempered early on as the liquidation phase of stocks continues. The McOsc of issue and volume has a breakup romance in face of it tomorrow as the zero line is approached. Down volume to up volume really picked up today adding a dark cloud to the two to one issue ratio. Not surprisingly, the Flow Rate Net and TICK traveled the low road below the zero line all day. The mid- day divergence could not budge stocks from their downtrend.

Volatility:

If anything positive can be said about today's action, it is the narrow range on the VIX volatility index. It is running at elevated levels in the mid twenties, but during the selloff it did not rise to panic levels. You could say this was a "disbelief" selloff. Maybe it is just a correction of the gains from 12/26 lows. And, just maybe it is the pre- expiration week rock-n-roll. Well, what do the MVIs and Zone indicators (Z score and Z timer) say about it all? MVI regular is testing the zero line from above. That agrees with a Z Timer in neutral near the centroid of distribution. A continuation of the 12/26 rally could start here. Implied volatility cones are containing prices within the one std dev from the 12/26 low. A one std dev move on the oex tomorrow could take the oex up to 465 or down to 450 based on the red implied volatilty cone.

RSI, SMI:

Gold stocks, yields, generic stocks all look weak on these charts.

Fibonacci Zones: DJI, OEX, SPX, NDX, TYX, XAU

Special Interest:

CMR may be possibly headed for more lows.Traders are still selling the top of the trendline and buying the bottom.The downtrend is not yet over, and this may take some time.We are removing a suggested stop on this stock, and also counseling patience. Earnings of 77 cents a share by 1999 still looks probable, in our opinion.The world still needs high grade cobalt.Nickel is still an indispensible industrial metal.If Binco hits nickel this winter, the weakness of the entire sector may not matter.Smart money is buying weakness, in our opinion.

Stat Pivots:

All zones are shifted downward tomorrow. Index prices closed below keylines which will provide first level of resistance. DJI OEX SPX

2 pm Wednesday update:

Traders who went short on the CODI sell pivot should cover. Here is the flow rate chart real time.

Momentum Cycles Update for Thursday, January 8, 1998 open:

We made another intraday update Wednesday at 2p.m.{see above} to nail down some profits for those who went short in the CODI sell zone.January is difficult to trade because of all the whipsaws in asset reallocation.Buy bonds, sell bonds, buy XAU , sell XAU, buy small stocks ,sell banks,sell utilities,sell those losers,buy some oversold issues.Musical chairs! Its human nature {from the littlest of little guy investors to the bigfoots who run billions on Wall Street} to make important decisions for the year at its start.New Year's resolutions include what to throw out of your portfolio the first week of January.

We sit again at the 21 day moving average, having tested resistance near 8030 and support under 7800.Since we are literally in between the upper and lower 3.5% bands, no trade is recommended for tomorrow.Traders who sold long calls from the end of Christmas week had a double before the last 2 days' trouble, and those that went short on the CODI sell zone spike and covered today at 2p.m.made money.

Please remember to check back during the day in case an intraday update is made in red at the top of the page.We won't be always able to do this, so remember, the market isn't end-of -day, so be alert for reversals intraday that may trip your own mental stops. Here is where January calls ended up after Wednesday's trading.

Breadth:

That was a close call with disaster today. NYA advance/ decline breadth had been quite negative early in the day driving prices to a -1 standard deviation extreme. McOsc would have closed below zero in sell mode and nullified the uptrend from 12/26/97 low. With the bounce at the zero line and the rock-n-roll pre-expiration dance still playing the market had taken on a neutral appearance by the end of the day. The net effect has been to scare remaining holders of all those calls bought at the end of December. There was no way the market was going to advance and satisfy all those greedy little hands. You may have heard the expression, "the market has to go down before it can go up". Now you may be witnessing it. CODI, true to form gave us a whipsaw in the indeterminate region. Just got to be real careful when it is between the buy and sell alert levels. Note the 453 level was penetrated but held again. Flow Rate Net and TICK were setting up a divergence all morning with the index. Finally after NY lunchtime the mid-day trend change took effect in a choppy manner. The last hour trend witnessed the familiar cleanup by the pros. Could be they had some company today producing a 100 point rally compressed in time.

Volatility:

MVI charts had a longer term periodicity the last few days. It is now reset to the dominant mkt cycle. Z Timer reflects the end of day neutrality. Intraday it dropped to the oversold zone and then snapped back disguising the intraday selloff. Z Score ended the day with much less fear than earlier in the day when the DJIA was down a century mark. Cone 1 and Cone 2 show today's expectations and tomorrow's. Quiet days will see a +,- 0.5 standard deviation move, and a strong day{either up or down} will see a one standard deviation move.

RSI, SMI:

Yields are working on that low. One rumor says pensions are buying bonds because total return for them is expected to exceed that for stocks. Another rumor says Asians are selling the government's paper to save their own paper. Gold just sits there with a reflection on its surface reminding the world where value is. Note XAU RSI pivoted upward at the 40% level. Uptrends are still intact if RSI does not drop below 40%.

Fibonacci Zones:

See charts for commentary. DJI, NDX, OEX, SPX, TYX, XAU

Special Interest:

CMR has more work to do. What isn't seen on the chart is what the artificial intelligence engine says about it. An expert rating of 100 up and zero down is what it says. There are lots of nonconfirmations between price phase and other indicators. Admittedly low priced stocks are not timed as well in the artificial intelligence engine, but in essence it says that CMR is under accumulation. This can go on a long time for patient accumulators.

Stat Pivots:

Pivots are again shifted down due primarily to the -1 std dev drop on 01/07. The afternoon recovery in the indexes, if continued on Thursday, will run into resistance levels after only a small price movement. Buy orders sitting above resistance could conceivably cause a perpetuation of the rally. In fact the first five, ten fifteen minutes of action could produce a rather dramatic move leaving little time for a good entry for those who did not enter at Wednesday's lows. This is of course all hypothetical. Thursdays have not been known to be kind to bulls. But, as has been stated elsewhere in this update, the momentum cycle is inverted so just maybe Thursday will stay with the inverted trend and end on the upside. DJI OEX SPX

Momentum Cycles Update for the open of Friday, January 9, 1998:

Unless we are setting up for a crash,Friday may be a setup for the pre-expiration long OEX trade we have employed so effectively here before.Crashes often are prepared by the big money with a downside acceleration in price into Friday close, followed by an intraday Monday or Tuesday spike low and reversal.These patterns always involve the breaking of a key price support level.Presently the key support is 7556-7600.Please refer back to the pitch frequency page for the 1997 market for the next 2 lower support levels.

Shorter term RSI and STOCHASTICS are not as oversold as we like to see for oversold bounces, and we are not yet at the lower 3.5% trading band, where support often almost magically appears.Longer term cumulative breadth and volume have not yet turned up from downtrends,from the 1 day to the 9 day cycle.The 5 day rate of change is in the -3 region, not the extremely oversold -5 region.

At the time of this p.m. post, Asian markets are acting poorly, with some indexes down 5%.Key support in Japan is 14000,and heroic efforts will be made to hold that level.Below that level,many Japanese banks and corporations have some serious liquidity problems,which would have global implications.

Nevertheless, adventuresome traders may wish to make a small long bet on Friday, perhaps near Friday's close, in OEX long calls{hoping to liquidate early in expiration week,starting with Monday} with 2 considerations in mind.1} If key support of 7556-7600 is broken, all long positions are at risk.2}If the market takes off strongly from tomorrow's open,you will be buying at the end of a day of rally, which is where premium is too expensive.

Remember that we called for weakness into Friday a full week ago,after seasonal strength would end, and this weakness was preceded by CODI in the sell alert region.Statistically,Monday has a good probability of being an up day from several of the cycles we study UNLESS KEY SUPPORT IS BROKEN.Remember, with options, to trade with no more than 10% of risk capital, and to keep losses less than 50% of the initial price.

Breadth:

In spite of the -100 points in the big 30 stocks the Issue McOsc is just on the lower side of the neutral region, a level where reality strikes either in the form of a bounce or else like a hot air balloon that is punctured and falls to earth. OEX just loves the 453 level. Oh, and by the way, CODI is now in the Buy Alert Region. Didn't want you to miss that. Remember our experience has been to expect a rally within a day or two of crossing the alert region, which means probably Friday or Monday.More conservative types wait for a buy pivot,which can roughly be confirmed by more advances than declines. NYA breadth shows signs of improvement if you look closely at the advances and declines for the last three days. Maybe we are getting close to the bottom of the ski run after coming off the jump,{ which only has meaning to those who have read this update the last few weeks). Flow Rate Net and TICK kept pressure on prices all day.

Volatility:

We at least have to give some possibility to a bounce tomorrow and/ or Monday as the MVI is on the zero line now that we have the dominant cycle inserted into the calculations. MVI adaptive is a hair below its bounce line. Z Timer is hanging tight in dead center neutral. Z Score expresses little fear about what has been going on. We really could have another push up from here into overbought as the OEX P/C ratio is more conducive to this than it was in the last week of December. If you recall, optimism amongst call holders was way, way overdone and the casino simply cannot stay in business with a preponderance of winners. Some of them had to be persuaded to sell their positions by index level changes and time erosion. The Cones continue to add daily perspective for price targets as do the Stat Pivots below. See Cone1 and Cone2 for explanation and perspective.

RSI, SMI:

Comments from former Fed Governors and TV media can bury tons of gold back in the ground. Keep an eye on the RSI chart and the xauF chart for a chance to add to core holdings or for another trading rally off the annual lows. Yields were not affected much by the gov's prognostications of 5% by the end of the year. After all that is only 3/4 of a point away. What a boring year that would be if it took twelve months to go 3/4 point! Don't believe it for a nanosecond that it will happen in a straight line. Any bets for 6% before 5%?Its interesting that Yahoo interviews of bulls and bears among bond traders today yielded not one comment allowing for the possibility of higher rates. Stocks were not given an enthusiastic send off either. The former Fed governor said stocks would end the year +,-10% from the first of the year. Well, we could trade a 20% range.

Fibonacci Zones:

DJI, NDX, OEX, SPX, TYX, XAU

Special Interest:

Remember CMR is not a gold stock, but mining stocks are a sector, and especially in Canada they all get hit at the same time because they are at the same party{that is, the same investors tend to buy stocks in the sector}. They are represented by paper with a price and it can be exchanged. CMR had some panicky sellers today. Must have been market orders and they hit someone's ridiculous bid. Or...someone who wanted a bigger position let a few shares go at lower levels to trip some stops, who knows. Like some commodities,a little stock like this might have a quick dip just before important news is released and the stock begins an accent.

Stat Pivot Update:

All pivot zones are shifted lower once again. Index close was below the respective keyline. SPX and DJIA spent the day cycling between the Keyline and S1A whereas the OEX cycled about its Keyline. The pivot zones are closing in on the Keyline meaning it would be easy for a breakout to be engineered.

Momentum Cycles Update for Monday, January 12, 1998:

There is a great deal of information here this weekend.Please be patient while it loads.It would be adviseable to monitor positions this week with as close to live feed as possible.By reloading the link often , you can get about a 3 minute delay from real time price.

Our best estimate of a significant turn on Monday in terms of time is approximately 12:30 eastern. Be alert for a trend change in this time period.

George Soros is one of the greatest traders of all time.Recently{before the Asian bear arrived with a vengeance} he made a statement that all traders and investors should engrave in stone.MARKETS ARE INHERENTLY UNSTABLE SYSTEMS.Naive middle class investors ignore this at their peril.No one, not even Alan Greenspan,can control the mob behavior of a crowd,which is what a market is in total.Crashes and buying panics can occur at any time.Eventually, over the VERY long run, value is recognized.In the short term,Mr.Market can be a raving lunatic! In fact, attempts to control unstable systems may actually increase systemic risk, much like a boiler with pent- up pressure.Letting off a little steam prevents an explosion.

The idea that has been prevalent for years of"too big to fail" and "bailouts" has increased systemic risk geometrically.The market that was MOST manipulated and controlled since the start of the Asian "miracle" was Japan.It went from 4000 to 40000.The Japanese then inflated markets in the Pacific region{many of which are also tightly controlled and manipulated}.Now the sick chickens have come home to roost.

Over the VERY long term, probably Asia is a buying opportunity.When?Draw trendlines on multi-year charts and wait for the upside breakout.

Over the VERY long term,for longer term investors, precious metals are a buy.Draw trendlines on multiyear charts and wait for a breakout.

Over the VERY long term,considering political instability in the Mid-East,oil is a buy.Wait for the inevitable crisis,draw trendlines on multiyear charts, and wait for the breakout.

Will interest rates go to zero?Probably not.Draw trendlines on multiyear charts and wait for the breakout.

All individual stocks, from ATT to Canmine, are lottery tickets.The question that has to be asked is -what is the potential risk versus the potential reward ? Can ATT go up 10 times within 2 years? Unlikely.Can Canmine,regardless of its present action? Possibly.Our philosophy is a SMALL bet with a high probablity of large returns.

In 1929,a stock analyst published a report comparing an industrial giant and little Sears and Roebuck.His conclusion?Sears at 10 cents was an unsuitable speculation.The industrial giant at $150 a share was an investment.The giant disappeared in 1932.Sears returned 20000% over the next 30 years.Today, for money managers, it was understandable {and excusable} to lose lots of money in Yamaichi Securities.After all,wasn't it too big to fail?This is called the "prudent man rule".Options are considered imprudent.Yet end-of-day buy and hold mutual fund owners can lose MORE money in bear markets, being totally exposed throughout the decline, than option traders risking only 10% of their capital in any one trade, with a stop loss less than 50% of the initial purchase price.

MARKETS ARE INHERENTLY UNSTABLE.IN THE SHORT RUN,ANYTHING CAN HAPPEN.

So ,can the U.S. market crash on Monday?If Asian markets drop in double digits,its possible.Note that anyone using our strategy for trading global equities{mutual funds, end of day traders} would have been comfortably in money market from the FIRST DAY that decliners led advancers 4 days ago in the U.S. market.So, by following the ultimate trend anticipating strategy that we backtested 20 years in all sorts of unstable markets,even end-of -day mutual fund holders would now be unexposed to systemic risk.

When markets crash,the BEGINNING of the motion always starts with a day of miniscule price action and more decliners than advancers.The END of the motion occurs with maximum price motion.It's too late to sell then.Our global end -of -day fund switching strategy,by NEVER being long during the END of large declines or crashes,avoids ever taking a bullish or bearish bias.So if the market crashes Monday{or any other time} you can truthfully tell your buy and hold mutual fund friends we were not exposed.This strategy also sidestepped the 1987 crash.

At this web site, we attempt to "game" the system.

PLEASE read the following carefully:

To quote from the Momentum Cycles Update for Friday,January 2,1998.:

" Traders sold 1/2 their OEX long call position on the Wednesday early a.m. update.Since most traders entered on Friday December 26, or at the latest on the open on Monday, December 29, they have a double on their initial investment.Taking half off the table at that point was simply good money management.We had noted that there would be some oscillation around the 21 day DJIA moving average, which is what we got.Also, we saw CODI entering the sell zone Wednesday, and some hesitation at the previously posted resistance levels at DJIA 7956.Traders had an a.m. exit point, and an early afternoon exit point as well,at these levels.

Early January has some of the crosscurrents seen in December.Floor traders will tell you this time of year is often difficult to trade.Accountants will often advise their clients to postpone wanted 1997 selling until January 2,1998 since taxes on these gains will not have to be paid until April 15,1999.Traders often rebalance their asset allocations near the beginning of the year,and those who use the Dow"dogs" method will be selling their gainers and buying the losers.In addition,monthly,quarterly, and yearly reinvestment money will seek new homes at the start of the year.

Seasonally, after the monthly money flow ends, there is often a selloff in January.From the position of our CODI chart, which has entered the high risk for longs area,our best guess at this point for weakness would be January 7 to January 9 close. We will monitor the indicators daily as usual to try to time risk as accurately as possible.

Please continue, as previously advised, to check back during the day if intraday updates are made.We post them in red if an addition is made from the previous p.m.Remember, the market at these levels is showing increasing intraday volatility.Moves that would in previous years take a week are compressed into hours.This tendency will increase.We will eventually get ,in our lifetimes, entire bull and bear moves within a single day.The more traders that have live feed, the faster the markets will get.

1998 will see an increase in volatility.In Chinese, the character for crisis is the same as opportunity.