MomentumCycles

MomentumCycles commentary for the open of Monday, October 18, 1999:

For all intents and purposes the OEX hit the crash cone on Friday and wiped out the entire October Call market capitalization of the range we had been following from strikes 660 to 800. That is a rather phenomenal amount of money that disappeared from the public's accounts. You will also note that it happened so fast that the many call holders could not exit formerly profitable positions before quotes were even available. Gaps occur for a reason. OEX options can't be properly priced until a voltility estimate can be made. Of course, the other theory is that much of the OI was naked spread related due to the bearish seasonality this time of year. Selling calls above a declining market is quite profitable, just as selling puts below a rising market, but that is only for wealthy accounts due to margin requirements.

Once a trend is in motion it stays in motion until acted upon by another force. End Of Day Cumulative Volume is still dropping. The DOW would now have to drop another 886 points to catch up with EODCV as of Friday. McOsc Volume is dropping but not quite to previously oversold levels yet. McOsc Issues is at -133 which is normally oversold, but in the fall of 1998 it dropped to -281.88 (see McOsc2 chart). There is expected to be some more follow through selling next week. The INDU found support at the Cyan support line at 10017.92 with a close at 10019.71. That's pretty close. The SuperT is between the Correction and Crash levels. If it goes to the Crash level, then the INDU might just drop to 9448.65 on the SuperT chart or to S5 9303 on the Win Midas DJWM chart. TYX began a nice retracement after the runup on Thursday. VIX closed above 30 in the Buy Alert area, but don't forget in crashes it goes to 50 or higher as illustrated on the Volatility chart. The OEX is on the border of the Oversold and Extremely Oversold zones of the Modified Option Strategy Spectrum. Another bad day or two might possibly change the yellow buy caution arrow to green. Friday's EquityCP and Sentiment did not have the essential ingredients to buy calls, so it was advised to hold off until the 3XIND turns up. That is still true. The PutVol indicators show a two to one ratio of P/V and the BolPutVol indicators show a low is 2 to 4 days away.

Here is an interesting little gem from the TASC Jan 1991 issue PG 18. The Trend Exhaustion Index by Clifford Creel appears to catch the major trend changes. "The index is constructed by dividing the NYSE new highs by the NYSE advances each day and plotting a 10 day exponential moving average of this value." 1986 - 1987 is compared with 1998 - 1999. The shocking thing is the TEI never did recover from the 1998 low and actually started decaying in 1997. TEI will track along near zero until the next upswing starts...something to watch for going into 2000.

Overlaying the TEI for new highs, advances and the TEI for new lows, declines provides the complete trend perspective. (See the chart.) At some point the bottoming TEI, green line, will peak and fall back. Then the topping and bottoming TEI's will track together until the basing period is over and the new highs and advancing issues pick up. This bottoming process might be longer than usual and the red TEI may not turn up until tax loss selling is behind us and Y2K fears subside,thereby drawing money back into equities.

We were pleased that our bearish STOCHASTIC 20 analysis of FNM,CMGI,AOL,and QWST coincided exactly with the recent October failed DJIA top before the recent decline.We had noted that the STOCHASTIC 20 readings on all these issues were in extreme overbought territory {near 100} at the same time that the theoretical DJIA was close to tagging the upper 3.5% band of price with cumulative breadth and volume negative.This confluence of overbought issues{in previous months similar charts lead to tradeable short term declines}with other bearish indicators reinforced our seasonal strategy.STOCHASTIC 20 was at 100 for QWST at 38;now QWST is 33.3125.STOCHASTIC 20 was at 100 for CMGI at 115;now CMGI is 97.815.STOCHASTIC 20 was at 100 for AOL at 120;now AOL is 109.STOCHASTIC 20 was at 100 for FNM at 68;now FNM is 60.8125.It is a good place for short covering on these issues into weakness on Monday or Tuesday;we wouldn't go long them here.Rarely do issues of such varied character and trading patterns achieve extremely overbought or oversold conditions simultaneously;when this happens we pay attention.

XAU STOCHASTIC 20 is at 50;not oversold.Price is at the 21 day moving average after the huge runup to the upper 14% trading band.HL could have been sold for a quick 50% return at prices near 3 3/8;or again at 3.HL is now 2 7/16.We are holding this as a long term call on the sector,patiently.Another short covering run in the metals will eventually happen;it is too tempting a target for big money to avoid.Many producers are reportedly still short and are praying for lower prices to unwind those positions.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. ADVANCE/DECLINE CHART. CODI CHART. CODINDX CHART. CVDAILY CHART. CVHOURLY CHART. CYCLE CHART. EODCV CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX NSYNC CHART. OEX WEEKLY CHART. PROBS CHART. RISK CHART. VIXPF CHART.

MomentumCycles commentary for the open of Tuesday, October 19, 1999:

Better a fast nickel than a slow dollar...We had pointed out the odd occurrence of STOCHASTIC 20 at extreme overbought {near 100}at the recent NASDAQ October 11 high for 4 widely varied issues-CMGI,AOL,FNM,and QWST.The similarity of the chart position of all these issues to previous highs and subsequent declines was too obvious to ignore.We predicted a price decline in these issues in concert with the general market.On the weekend commentary we advised short covering in thses 4 issues into weakness on Monday {or Tuesday}.Monday saw extreme weakness intraday-an opportune situation to take profits{but not to go long them in case further weakness is to be seen}.Monday saw CMGI high 99.5,low 90.375,close 94.3125;AOL high 111.0625,low 105.125,close 110.125;QWST high 33.625,low 31.75,close 33;FNM high 62.25,low,60.75,close 61.875.If the market falls further, or instead rallies, these positions were closed into weakness,as advised.On to general market comments...

Monday was not all that encouraging and has the smell of the knee jerk quality. One indication of this is the TrendExhaustion is still in the bearish mode with a higher high on the new lows and declining issues. We even had a few less new highs on Monday than Friday, figure that out. Short term things don't look so hot and we could still lower lows per the EODCV. Vix is working on a buy signal. Sentiment and EquityCP are two thirds of the way into the buy calls mode. Once the SMI turns up its three for three. The Put Indicator says Friday logged an extreme sentiment low and triggered a signal that suggests a low in 2 to 4 days from Friday.

Holding HL.Closed at 2 3/8.XAU working on STOCHASTIC 20 low.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. ADVANCE/DECLINE CHART. CODI CHART. CODINDX CHART. CYCLE CHART. EODCV CHART. INDU CHART. MCOSC CHART{chart was sent incomplete,sorry}. MOSS CHART. OEX 30 MINUTE CHART. OEX NSYNC CHART. RISK CHART. SUPERT CHART. VIX2 CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Wednesday, October 20, 1999:

Tuesday provided the knee jerk bounce up to the INDU 200 day MA. Bearish Trend Exhaustion is still rising. A safe long entry won't occur until the green line TEI starts making lower highs and lower lows. Then there will be a mid-region where neither bull nor bear TEI show trend, as these sample trend exhaustion more so than trends between the major swings. One positive note comes from the Advances, in that Tuesday was the first day since October 6 that the NYSE advances moved above and closed above 1600. Bonds are being tossed around like the hot potato game with TYX yields rapidly moving back up to 6.34. Upper resistance is believed to be 6.5 by the prevailing bond consensus. TrinVIX hints at weakness on Wednesday open. OEX CODI is in the whipsaw zone with the Momentum and Market Thrust in oversold. Risk Monitor is still working on point two of the tweezer bottom. Basic feel here is that there is more weakness ahead after the bottom fishers get tired of catching catfish and carp. We would not expect significant strength to occur until October 25 to 27th at the earliest after a retest of Friday's lows.In slower methods of trend measurement,3 day cumulative breadth is still dropping.

The short covering advice into weakness for Monday for CMGI, AOL, FNM, and QWST turned out well as CMGI low Monday was 90.375,close Tuesday was 97.AOL low Monday was 105.125,close Tuesday was 115.25.FNM low Monday was 60.75,close Tuesday was 62.0625.QWST low Monday was 31.75,close Tuesday was 33 9/16.Recommended sell point for all 4 was at the STOCHASTIC 20 reading near 100;at maximum overbought.

XAU/HL still working on a lower STOCHASTIC 20 reading.Readings at the recent spike top were 100;maximum overbought.Present reading is 30,not yet oversold.Short term STOCHASTIC {5 period} is 10;oversold.When STOCHASTIC 20 period reaches oversold and momentum turns up,another rally will materialize.

Here are the charts:

% DAY ADVANCING VOLUME CHART. BOLPUT CHART. CODI NDX CHART. CONE CHART. CYCLE CHART. EODCV CHART. EQUITYCP CHART. MOSS CHART. PROBS CHART. SENTIMENT CHART. SPXMA CHART. SUPERT CHART. VIX CHART. VIXPF CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Thursday, October 21, 1999:

Nice price rise, but unfortunately, it did not have the troops behind the generals. Tax loss selling is still in vogue; we had 329 new lows versus 288 on Tuesday. New highs were twenty both days. Thus the Trend Exhaustion Index is still in bearish mode confirming what is being seen on Globex tonight, as virtually all the daytime futures gains are under severe pressure. Could it be the Terrible Thursday Syndrome? Everyone holds their breath and the crash doesn't happen, then, when they least expect it Halloween comes early, i.e. the Option Premium Ratio targets for 10/29 = 1243 and 11/05 = 1238, ouch.{The OPR dropped from the .40's Monday to the .30's on Tuesday's RISE in the DJIA-a nonconfirmation}. EODCV and the associated RSIs have not moved far enough to be convincing that all is well on Broad and Wall. Even OEX CODI is back tagging the Sell Alert level, darn...just when the party was resuming. It may have a bit of life left. Some indicators returned to neutral zones, i.e., AMOSS, MOSS, McOsc. It is the return to neutral that Bears like to see as it becomes resistance once again and is feeding time. SPXma is sort of ominous with a return to the green MA,as is the INDU with a return to the 200 and 21 day MAs. VIX, and VIXpnf are in buy trends yet VIX is in that no man's land similar to the Whipsaw zone on CODI, i.e., it can go either way.

Option Equity C/P and Sentiment as measured by a modified Hines Ratio are a bit out of sync with the Stochastic Momentum Index and the 3Xind. Just as the SMI and 3XIND go into buy crossovers the EqCP and Sentiment peak out as a topping sign for price in the next day. Perhaps this comes as a consequence of the knee jerk bounce that many are mistaking for the real bottom pivot for the next leg up. If only it were that simple. The premium on the futures dropped quite a bit just after the cash close putting a cloud over Thursday's open. The night is young and anything can happen overseas, so maybe the premium deflation just reflected some profit takers that did not exit in the day session and got greedy after the close. Thin markets are not a great place to take profits.

XAU/HL STOCHASTIC 20 now 23;STOCHASTIC 5 near 0.These are the conditions that can be the setup for a rally.Usually STOCHASTIC 20 will fall under 20,base,then pop above 20 on increasing volume.At 3 3/8 HL was overbought;at 92 XAU was overbought.STOCHASTIC 20 was 100.XAU is now 73.12.We allowed that short term traders could take profits in HL at the top;our call to hold was for longer term players wanting a perpetual call in the sector.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. ADVANCE/DECLINE CHART. BOLPVL CHART. CODI NDX CHART. CONE CHART. CYCLE CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX NSYNC CHART. RISK CHART. SUPERT CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Friday, October 22, 1999:

Trend Exhaustion is still rising, implying that tax loss selling and Y2K selling is still occurring, making long positions held more than a few hours rather risky. OEX CODI made a Sell Alert on Thursday as the Momentum closes in on its Sell Alert. Cone Projection oscillator is working in the overbought area and the OEX made one of those topping hammer-type formations. We are getting a mixed picture with neutral to overbought indications.

XAU STOCHASTIC 20 finally fell below 20,while STOCHASTIC 5 at 0 lead to a bounce Thursday.Typically,basing will occur,followed by a pop above 20 on higher volume.We are holding HL.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. ADVANCE/DECLINE CHART. CODI NDX CHART. CYCLE CHART. EODCV CHART. EQUITYCP CHART. INDU CHART. MCOSC CHART. MOSS CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX NSYNC CHART. PUTVOL CHART. RISK CHART. SENTIMENT CHART. SUPERT CHART. VIX CHART. VIXPF CHART. VOLATILITY CHART. XAU CHART.