MomentumCycles

Newest commentary at the bottom of this page- be patient and scroll down- it's worth the wait! By accessing this page, you acknowledge that this information is merely personal opinion and does not constitute investment advice. The writer of this page assumes no responsibility for your actions based on this information. This page is to be used for entertainment purposes only. The information on this page is based on data reported by newswire services. The writer of this page is not responsible for the accuracy of that data. All efforts are made to keep the price data on this page as accurate as possible.

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To quote from the various updates from the past 3 or 4 days:

"P/C ratio has slipped into the sell area."

"We have had 2 back to back option premium levels of .85, usually a bearish level."

"Our call for a midmonth turn in oil and silver seems to have been correct.The "feel" of many more markets seems to be leaning to the sell side- possibly an instinct for liquidity?"

"Longer term players wondering about position trades should use our proprietary CODI chart to gauge risk and reward to enter long positions or scale out of them appropriately.We feel that chart best enables longer term or position traders to have a feel for overbought or oversold parameters. Presently CODI is still in the high risk zone for longs, so a good decline is probably close in time.The VIX ,AMOSS, and other charts are necessary for shorter term trades."

"Longer term position traders, and those who are not able to quickly scale out of long positions should be unusually careful when CODI is in the vicinity of the sell alert line!Note that Monday's AND Tuesday's option premium ratio were both .85 where long risk increases."

"The OEX breadth reading remains on the last consolidation/sell signal from Friday."

"Again breadth measures are not precise timing devices as it takes investor/trader consensus to bring price to its feet. Price/breadth divergences can go on for days, weeks or months before price yields. This is similar to the current net short position of the commercial hedgers listed in Barron's every 2 weeks{ currently they are net short the S&P and T bonds}which is a longer term cautionary signal. "

So you can't say you didn't have plenty of warning about today's action. Now, what's next?

VIX update before the open of trading on October 17, 1997:

Breadth:

McOsc of issue and volume dropped to further levels today as price dropped back inside the horizontal regression channel dating back to August and it came close to the lower side of its more recent blue regression channel. The combination of the issue and volume oscillator levels and the position of the price in its regression channels suggest a pause in downward momentum here barring interest rate hikes and international conflicts. Advance decline details are on the NYA chart (not available) which includes a flat A/D line. CODI wins the praise of the week for its sell alert five days ago and its pivot sell three days ago, not including the current day. As noted here REPEATEDLY this chart is an essential tool for slower moving traders in judging risk! No one else has it!

Volatility:

AMOSS VIX Z score also deserves some credit for its sell on 10/8 and again on 10/15. P/C volume ratio gave a sell yesterday and remains on a sell today as does the VIX Z score. MVIs have been stretched beyond -2 standard deviations. This is an extreme move. What we are looking for here is a close above those lines for a buy signal. There is always that possibility that they will trend outside the line for a day or two.

RSI and SMI:

The hedge using gold stocks worked to a degree. Recall that profits in hedges are to be taken when needed and they were advised to be taken at the 107 XAU level a few days back. Gold stocks are stocks and behave like other stocks when the need for the hedge passes. The RSI 50% line is pretty critical to keep the faith. At least one bounce is looked for here. Yield RSI is hanging right under the 50% line and who knows, they might just pull back or break through. It is a fifty fifty proposition here. There is a rumor on the street today that short term rates may be inched up tomorrow or in the very near future. Here is an SMI chart of the OEX and the OEWVF October 925 put option showing intraday what the possibilities are with options.

Of Special Interest:

Last week we focused on the short term wedge shaped formation on the NDX and indicated that these wedges typically fail to the downside.It fell. Today reality hit the NDX market bigtime. Is it over? The NDXc cycle chart thinks a reversal is imminent as does the OEXc chart. Cautions are in order here as the cycle forecast changes as the cycle length varies and price varies and this is a short term approach. In fact the artificial intelligence breadth Sell readings last week for the OEX and NDX have come to pass but still remain in effect. The OEX generated a repeated sell today with 96% probability of more down. The NDX has a 86% probability of further down which just reinforces its earlier sell. What is needed here to turn things around is for both price and breadth to base and turn. For longer term investors it is premature to jump on board and think you are going to catch a quick rebound. Buying in here is like trying to catch a falling knife or jumping over a waterfall. Some profits for those who are short or holding puts might well be taken, since the cycle work and AI projections are somewhat in conflict.

Don't go long in here!

VIX update for the open of trading on October 20, 1997:

To summarize, we're looking for a long entry. Some of our indicators are on subtle buy alerts. We expect some movement back and forth in the lower 3.5% band. This may be a V shaped bottom with a blastoff, but a W shaped bottom along with a retest is more probable. We feel the smart money may want to see if the selling has dried up. Key support is 7731, 7600 and 6900.

Volatility:

Modified Volatility Indices closed outside their lower bands for the second consecutive day. They need to close inside the bands for a buy signal and even then a retag or attempted tag of the band may occur. The MVI needs to trend up in addition to crossing the band. The AMOSS chart had a lot of movement today. The 5 and 20 day components are oversold and the 90 day is dead center neutral. All three are in downtrends. VIX Z score is still climbing and by the trend measure is still on a sell, however by the fear comparison measure on the Five Day AMOSS chart it has crossed the Red line which is a subtle buy signal alert. It really should pivot down for an oficial buy signal. The P/C ratio is nearing the Buy line. The option volume figures for today are suspect because of the expiration. Monday will produce a clearer picture on the P/C ratio.

Breadth:

The McOsc of issue and volume look like they are in crash mode and are nearing the April lows. Coming out of these lows might be different than in April. On Monday there were 222 new highs and 13 new lows. Thursday there were 185 new highs and 30 new lows. On Friday there were 57 new highs and 60 new lows. The double top appears to be firmly in place in price. NYA chart has a multiday view of the breadth that illustrates just how bad is was on Friday. Another view of breadth is covered below in the "Of Special Interest" section on the TAPE chart. CODI is our proprietary measure of risk and reward for longer term position and close only traders.No one else has it! This indicator alone is worth the price of a subcription. An adaptive average has been added to it to facilitate trend identification and catch those reversals in the indeterminate region. At present, slower moving traders and risk-adverse option players are not yet in the official end of day buy alert zone where the best long trades are made.An agressive intraday CODI is on buy alert, so players with more flexibility can begin to lightly scale into long positions.

Relative Strength and Stochastic Momentum:

Gold stocks continue to behave like other stocks. They led other equities up in this last move, and held up longer, but are losing relative strength. Stochastic momentum on the golds are is still holding out for a large retracement, but at this rate it might make a higher low. Yields and big caps are trending inversely as is their nature. There has been no decoupling of stocks and bonds as of yet.

Of Special Interest:

NDX has really fallen apart as the precient charts of last week and early this week were warning. Just as they were unbelievable then, so are the current cycle and breadth charts that say a turn is imminent. The OEX cycle chart has already gone on a buy. The caution here is that the sinewave indicator is unreliable in the trend mode and the mesa algorithym catches turns in the market within a quarter of a cycle. What that means is the cycle indicator should be used as an alert device and other technicals for confirmation. This brings us to a new breadth chart that has never been presented in public before. It is used in reading the tape intraday. It is one of a battery of charts used to monitor the amplitude and velocity components of the tape. This particular chart has four plots. The top plot is of the Flow Rate in terms of shares per minute. The one below that is the Advance Decline spread. Below that is the Up volume minus Down volume spread. On the bottom is the OEX although a momentum plot normally occupies that location. The OEX is being used to illustrate the linkage between the flow rate, breadth measures and price. Notation on the chart explains the theory. Basically, when you enter an option position on the long side, you need high flow rate, good breadth in both issues and net volume. The important part of this chart occurs an hour and a half before the close. Most OEX option traders were expecting a pop of some sort going into the close. This was goosed into being by a tentative settlement on the international waterfront. Note the three impulses in flow rate, note the turnaround in issue breadth, pay special attention to the flatness of the up volume - down volume and on the bottom note the 12 point gain in the OEX. It would be pure speculation to draw any conclusions about further downside or rebound on Monday. Finally, the OEX October 925 put chart shows the rare ten for one gain possible in OEX options.

Longer term look:

here is a daily and weekly view. The middle indicator is called Least Squares Momentum cycle indicator. On the daily basis it is oversold, still negative, but trying to turn up. On the weekly basis it has just turned negative(below the centerline of its plot). In comparing the two charts, it looks to me like the cycles say a rally short term measured in days could start anytime, but the weekly is just beginning to roll over. We have found another indicator which reveals the potential for some of the drops we've seen that start from overbought conditions. A violation of the trend line in the lower plot is the condition for a sell. This particular indicator does not give buys. It revealed the potential for the recent drop, in concert with our famous CODI indicator.

Cycle comments: Microsoft and IBM earnings come out Monday.Greenspan speaks next Tuesday, October 28,along with his favorite indicator, the employment cost index.He weights this most heavily when deciding whether to raise short term rates.Presently the futures market is giving a 50-50% chance of a November 12 25 basis point raise.The market will be nervous going into that meeting.The lower 3.5% band at 7731 is where Friday support was found. Below that 7600-7550 is KEY support, below that 6900. These are important numbers to monitor. Later November , then December and January tend to be strong, especially after a successful test of key support and a bounce from seasonally oversold conditions. The DOW often { with this chart formation} works the lower 3.5% band on the charts for several days before working back up to the midband. This means possibly more selling even if it is just to test the lows. Jump the gun bottom fishers might have tried to buy the first low on Friday but the smart big money will wait to make sure the selling has dried up, because there is guaranteed to be some selling into any rally. Margin calls( of which there must be some) have to be met. That alone could produce more selling on Monday, or possibly Tuesday. Futures guys get taken out the first day, stock types have to do it in the next few days(3?). If post expirations are any example of what will happen next week, then upward bias may come from that. If either the Greenman or the ECI report are not ravingly bullish, next Monday and Tuesday the 28th of October could be very volatile. Best to wait until tomorrow to get it all in perspective, it might be that some more insights pop up, or news come out.In addition, our statistical studies show that with extreme NASDAQ weakness in the Tuesday to Friday close cycle, the ensueing Friday to Tuesday close has only a 22% probability of being net up.So some more up and down in the lower 3.5% band area near term is likely. More short covering at 7731 is a good bet, if it is retested.

To quote from the VIX update for the open of trading on October 20, 1997:

"To summarize, we're looking for a long entry. Some of our indicators are on subtle buy alerts. We expect some movement back and forth in the lower 3.5% band. This may be a V shaped bottom with a blastoff, but a W shaped bottom along with a retest is more probable. We feel the smart money may want to see if the selling has dried up. Key support is 7731, 7600 and 6900. At present, slower moving traders and risk-adverse option players are not yet in the official end of day buy alert zone where the best long trades are made.An agressive intraday CODI is on buy alert, so players with more flexibility can begin to lightly scale into long positions. "

VIX update before the open on October 21, 1997:

Covering short on Friday's low as suggested and going long lightly on Monday's open as suggested sure looks like good advice. Let's look at Friday's and Monday's OEX action to see what really happened. We still could see a W shaped bottom, so let's keep those long stops tight!Traders are ahead about 15 OEX points from Monday's probable long entry point.

Volatility:

Modified Volatility Indices closed back inside their lower bands generating an official buy signal. Caution is warranted here because of the propensity for the MVIs to form "tweezer" bottoms on the test of a band. Buying the first low can be hazardous to a trader's wealth. The quality of the next low is important to the future of the market. AMOSS components are painting a totally neutral picture for Tuesday as far as zone levels go. Five and Twenty day components are in lower neutral zone 3. Ninety day inched back up to just inside the edge of overbought zone 5. The Z Timer is sitting exactly on dead neutral and is not providing a directional clue. Even the P/C ratio is just inside the neutral zone above the sell line.

Breadth:

McOsc of issue and volume bounced just above the April lows. This was a faster than normal decent and the move up is not likely to be one way. Complex bottoms are the name of the game and is why a bounce in breadth and another low that is higher, lower or the same is expected within the week. NYA advances were healthy but the declines were a little high for good breadth. CODI is on a buy but since it is in the indeterminate region, this could change tomorrow.

Relative Strength and Stochastic Momentum:

Nothing has changed in the three indices on these charts. Gold stocks are weak and headed for an oversold condition. Yields are holding up and big cap stocks are losing momentum.

Of Special Interest:

Tape reading chart for today illustrates one method of trading using flow rate and rate of change. The NDX did not fare too well today. It tried and ran into resistance. From a theoretical cycle standpoint the OEXc is calling for more downside. It did switch from a call for up on Monday to a down on Tuesday. Trend modes cause the signal to be indecisive unless it also has a strong cyclical content imposed on the trend. Breadth measures say money flow for the OEX has switched from down to up, but that should be expected after a Friday like 10/17. OEX up probability is 76%. The NDXc is experiencing a stronger cycle mode and is forcasting more upside. Breadth measurements are mixed for the NDX, price phase says down, a few other technicals say up. NDX up probability is only 30% up which means the last signal is still in force and that was a down signal. When the picture is not clear trading large positions based on the cycle probabilities should be avoided.That is why we only recommended a light long entry Monday.

Cycle comments:

Greenspan talking , the employment cost index{his favorite inflation gauge}, and the 19th trading day of the month { the weakest day of the month} all cluster on Monday October 27 and Tuesday october 28.There probably will be downside volatility then, or on the Friday before{this Friday} .After that, there may be a relief bounce, if the news is not too bad .The futures market now rates a short term rate rise probability as 50% at the November 12 meeting.Let's monitor overbought- oversold prior to those key dates carefully. Here is what I came up with on a stop if anyone got in 15 points ago. I don't like giving up profits and that is rule number one. We almost made a 50% retracement from last week's high and it is possible we will retrace some of Monday's gains. My guess is there will be a little upside on the open and then it will trade back down inside Monday's range. Therefore, I would start the day off with a tight stop at 914 and if taken out be glad for Monday. If the mkt moves up I would look for 920 to 925 in the first two hours when flow rate is strong and I would move the stop up accordingly. If you want to play with it, then 914 is a warning level, 913.3 sell one third, 912.44 sell one third, 912.44 sell the last third. But, I hear the words of a wise old broker named Fred in my ears. He would say if it is at 915 and you would be happy with that, then why are you putting a stop in below there? Personally I exited on Monday at 3:06 PM ET at 913.50.

Momentum Cycle update before the open on Wednesday, October 22, 1997:

This is how the November 905 calls fared from Monday to Tuesday. If the stops posted on yesterday's comments were used, then holders of the calls were not stopped out.Remember we recommended buying Monday A.M.'s weakness lightly, so the entry on the chart is probably a more expensive entry than you actually achieved.So users of this page made 33% on the long trade on Friday's pre-expiration last half hour to Monday's exit of expiration week, and 65% in 2 days on the long trade from this Monday's open till Tuesday's close, and are still long.Posted on this chart is your moving stop for this long position.Let's move the red moving stop line tommorrow similarly to keep those bucks in your pocket, and not give em back to the market beast! Wednesday PM's post will be posted Thursday AM before the open. Still plenty of time for you. This should do it for the stops on the 905 call option for the open. After the open move the stop up $0.50 on the option price each half hour until stopped out. We are using a combination time/price stop when close to an anticipated exit.

VIX Analysis:

Once again the MVI generated a nice trade today after giving a buy alert on Friday and a buy on Monday. It is still on a buy for the open of 10/22, and since the mvi is near the center band, caution is urged to be on guard for an intraday reversal on Wednesday. Significant trends often start near 2:30PM ET plus or minus thirty minutes. The Z Timer on the AMOSS chart gave a Buy signal on Monday also and remains on a Buy for Wednesday's open. The Z Timer is entering the potential Sell zone. This happens as previous highs are approaching.

Breadth Analysis:

Breadth improved for the second day and brought the McOsc of issue and volume up to the lower edge of the Neutral zone. This edge and the zero line are likely areas for reversals. It looks like the OEX is headed to test the overhead long term resistance. NYA has reached its overhead resistance accompanied with an uptrending A/D line. CODI is on a buy for the open tomorrow and it is hovering on the Indeterminate line.

Relative Strength and Stochastic Momentum:

Some one day reversals have occurred on or near the 50% RSI lines. Stochastic Momentum is slower to reflect changes in the three indices being monitored here.

Cycle and Artificial Intelligence:

Cycle analysis on the OEX and NDX are in an interesting configuration. The OEXc suggests going flat tomorrow, meaning exiting long positions whereas the NDX says to hold long positions. The AI engine is in conflict with the cycle analysis as it gives the OEX a 100% up rating whereas the NDX has a 30% up rating. This is a post expiration blue chip rally. Summary: The indicator consensus for Wednesday is more upside action into resistance where profits should be protected. That's why we posted the moving stop chart at the top. Let's keep them bucks! :-)

Momentum Cycles update before the open on Thursday, October 23, 1997:

Summary:

Well, we got stopped out, but you made a 54% profit in the last 2 days. There is resistance on this chart and the market's trying to decide whether it wants to make a run for the roses or go and retest the lower 3.5% band. The indicators are somewhat mixed, as you will see below. In addition, as mentioned here previously, Greenspan speaks next Tuesday, along with the employment cost index, his favorite indicator. There's nothing worse to a central banker than people making decent wages. So it looks like the 983 area on the December S&P 500 area is kind of critical. Usually there are many buy stops clustered above previous highs.

Volatility:

Modified Volatility Index(daily) got the expected downward bounce at the mid band today. P/C ratio on the AMOSS chart says to buy on the open tomorrow and hold for two days. Of course we don't buy on the open blindly, but wait for the intraday technicals to tell us when. The Z timer made an upward pivot on the AMOSS chart which can be a sell signal which throws caution on the p/c ratio signal. The Z timer sell signal would be more believable if it were in the red zone. So at this point lets call it a sell alert on the Z timer and a short lived buy signal on the P/C ratio. To add confusion, the intraday hourly technicals have a failure on the OEXid which is saying sell first and buy later.

Breadth:

Don't you just love those boundaries, amazing how they work sometimes. The McOsc of issue and volume tagged the lower side of the Neutral band. If this completes the left leg of a complex bottom, then the head will be much, much lower and so will price. If this is all there is to the short term downside then lets look for a small buy signal to get us up to the zero line and then maybe a bigger drop. Hate to say it, but Thursday has a high probability of being a down day. The NYA chart shows a sustained topping action and weakening breadth.

Relative Strength and Stochastic Momentum:

Had some changes here today. Gold regained some strength. T bond yields are pretty quiet. Big cap stocks are still trying to hold up. Levels above 8000 on the DOW may be the profit taking trigger.

Cycles:

Gold stocks have a new shine. Cycles on the XAU chart have higher lows. OEXc says to buy long immediately, but note the imaginary downtrend line today's high tagged. So maybe we will get a little back and filling tomorrow and then an attempt to push up through it. Pre weekend Thursdays tend to be lightening up days. NDXc also says higher prices ahead. If it can push above the magenta downtrend line on the NDX chart perhaps the cycle forecast will come to pass. We are in a momentum cycle low that should be complete by the close on October 28/29, unless it's an inversion. If it's an inversion, what's normally the low of the month (the 19th trading day) becomes the high. A strong close near term and a run to new highs would make that date more likely as a turn. We prefer to make lower risk trades through appropriate timing techniques when the indicators are at extremes. As of 10/22 the CODI and MVI are in midrange. Remember, the CODI indicator is our favorite for longer term and position traders. We like to enter at its extremes, either long or short. In the intermediate range, it can reverse abruptly. Five more trading days should put the indicators in a better position to trigger a trade.

Of Special Interest:

The OEWKA calls were exited today following yesterday's instructions to use a dynamic stop. It was triggered at 38.50 for a gain of 54% since Monday.

Flash 7:20a.m. eastern post:the foreign markets are extremely weak, with Japan near to breaking key support and Hong Kong down 10% just today.Longs still exposed{which you wouldn't be if you read our stop loss advice!} should be prepared to exit more quickly than usual in case this becomes a panic.

To quote from Thursday am's flash 7:30 am update:

"The foreign markets are extremely weak, with Japan near to breaking key support and Hong Kong down 10% just today.Longs still exposed{which you wouldn't be if you read our stop loss advice!} should be prepared to exit more quickly than usual in case this becomes a panic." Well, it's not a panic here yet, just a correction. If the foreign markets continue to link with us on the downside and Asia is down again at 10:00 pm eastern, this US correction could become a panic. Of course, we exited long positions on Wednesday's spike up. We will look for a buy entry when the indicators all line up in our favor. Not being long today was almost as good as being short! Key support is 7713, then 7560 to 7600, then 6900. We all know where resistance is after Wednesday and Thursday!

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