MomentumCycles

MomentumCycles Commentary for the open of MONDAY, OCTOBER 26, 1998:

The IBD put/call ratio {page A28 of Monday's Investor's Daily}sometimes,although not always,signals tradeable selloffs with a tag near the .40 level.May 3-5,July 12-15,August 6,September 22,are good examples.This last week saw a tag near .40,with Friday's trading giving .56.The failure of the signal to bring a tradeable decline with the tag near .45 June 21-23 led only to a one day selloff,and then a flat day, followed by 3 days with prices closing at the high of the day,then a huge rally.Chart formation was similar this June to today 's price chart also,with price at a significant inflection point,after a decline starting April 17 and culminating June 14.Currently price is hesitating near the downtrend line of IBD mutual funds.In June,a break of the multimonth downtrend of price {running the stops}overwhelmed negative put/call ratios.A similar pattern here would imply that a flat day followed by several closes at the high of the day in succession implies a breakthrough of the congestion area at 8600-8700,with a target of 8850 -9000,and possibly eventually 9300.For now,in view of the normal monthly seasonal weakness usually seen in the last week of October,the CODI position,and the one day tag at .40 {IBD put/call},we will go with the held put position{see more detail below}.Be aware ,however,that multiple closes near the high of the day and a price breakout could quickly give us the 8850-9000.This is admittedly a tough call here.

XAU downside momentum slowing here,but with no reversal seen yet.STO 5 and 20 near the cellar close to 10,usually seen when an oversold bounce is near in time.However,no trade recommended on XAU for now.{See COT comments on gold below.}

On FNM, we are seeing resistance near the previous highs near 65-66, with the all time 52 week high at 68 5/16. A close above 68 5/16 on better than average volume projects the mid-70'S on short covering, a breakdown here 60 or less. FNM is a bellweather of the rally's health.

Intermediate term indicators have lost upside momentum. ADHL New High strength is on the sell alert line, New Low strength is still quite a ways from its sell line, Advance/Decline relative strength is weakening and is in neutral. It would be adviseable to use a stop on the index and not wait for the breadth indicators to trigger a sell. McOsc has peaked and can diverge from the index until the Mcosc crosses the zero line at which time serious selling comes in. Even though the sell arrows have been placed on the chart they indicate a change is occuring and tend to lead the index change. Long term charts like the INDU and INDUWM show resistance has been reached and a consolidation/reversal is in progress. NHNL is rolling over at the zero line. Short term charts such as CODI and SuperT are on sells as the RSISTO is rolling over. NYA is running flat at 530 as breadth finally turns negative. Perhaps we will see some followthrough next week as end of month booksquaring, and locking in monthly profits occurs in managed(hedge) funds. We continue to hold the November 530 OEX puts.

Here are some charts:

CONE CHART. DJIA FIB CHART. S AND P 500 FIB CHART. OEX FIB CHART. S AND P 500 PIVOT CHART. OEX PIVOT CHART. OEWWD CHART. SUPERT CHART. ASTROCAST

Thanks to one of our readers, Gitanshu Buch, we are able to provide his interpretation of the current commitment of traders' data. Interesting posturing going on - commercials reducing net exposure to S AND P 500, major sell signals on gold, a hidden divergence sell on dollar/Mark, buy on the dollar index, nothing showing up on the dollar/yen or dollar/Swiss after recent signals. Nothing of significance on bonds, which is surprising in light of everything going on in the fixed income market.

MomentumCycles Commentary for Tuesday, October 27, 1998:

XAU downside momentum {7 day versus 35 day}still dropping,with STO 20 in the cellar near 10.Normally an oversold bounce is very near in time at this reading.There is not much premium on fear presently with NASDAQ versus DJIA relative strength so positive-normally a sign rally strength is longer term intact.XAU thrives on fear.Note that present NASDAQ outperformance may be partly due to fund attempts to make asset values higher before reporting end of month.We are standing aside from XAU and 30 year T Bonds presently.

FNM looks as if the eventual resolution is a breakout above the 68 5/16 old high,with a target in the mid-70's.Low volume presently in this as many other large cap issues,is showing a lack of buyers to immediately push above the old resistance clustered above.

On to Monday's trading...

Buyers and sellers are pretty much in balance in terms of price and breadth. This reflects an inflection point in data series. An inflection can be a pause in the previous direction or it can be a change in direction. Seasonality is going to be kicking in shortly so the pause or consolidation might turn out to be the current mode we are in. The puts are not working out and are suffering from time decay and lackless trend. Tops are typically rounded and thus tough to pinpoint. The average of the 520 and 530 puts have exceeded our usual 1.5 stop and we gave them room to work. At this juncture with the UC payroll indicator about to kick in, puts may not work for another two weeks as time is running out. Thus it is best to exit them on Tuesday into any weakness. This is said even as the indexes continue their miniscule erosion. They can stay overbought until the dominant trend changes to more negative. There is no question that breadth as measured by the McOsc and price as measured by OEX, SPX, INDU, DSP8Z have all lost upside momentum and their oscillators are deceptively rolling over. Trendlines have not decisively given way yet. There are still 4 full weeks until expiration and the number one question is how many times can 8500 be tested, or the 200 day average be tested before buyers give up. Those selling stock are certainly doing so at the 200 day average and haven't run out of stock or patience yet. They may even bid their stock above the 200 day over the next two weeks during the positive seasonality and then drop the bids on Nov 6. Sometimes, month end book squaring by brokerage firms and funds will keep pressure on stock up to 3 trading days before the end of the month. If a stock broker calls you during this time and offers stock at the bid and with no commission, chances are he is clearing his inventory.

Here are some charts:

ADHL CHART. ASTROCAST CHART. CODI CHART. CONE CHART. DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX PIVOT CHART. RSISTO CHART. SUPERT CHART. XAU CHART.

MomentumCycles for the open of Wednesday, October 28, 1998:

Slight return of fear with XAU up 8.3% from the STO 5 and STO 20 readings on an oversold bounce.Why didn't we play it whole hog ?This time of month fear is likely short term, with end of month cash low in OEX{see below} fighting with pension fund reinvestment in OEX and similar vehicles.XAU is a better long play off a time of month decline for OEX {in opposition ,of course}that is not usually supported by the payroll cycle.

Bonds too up on fear near the balance point of 5.1 -5.0,with the trendline above 5.2 holding so far.

FNM holding up well,with a rally close in the future likely at some point above 68 ,the old highs.

OEX weakness around November 5-6 or November 9,that is, into the 5th or 6th trading day,is about when monthly payroll seasonality usually ends.

Starting with the NYA chart we finally see some breadth erosion that was accompanied with a wide price range. But notice that the day started off with a spike up and the remainder of the day was downhill for both the index and the breadth spread. These failing impulses are sold into by those who need to declare monthly profits with closed trades. The significant levels to watch during the day are 1200 and 1500 for both the advances and declines. These are "trend inducing" levels. At the most basic level of analyis their spread wins out on market direction accompanied with a spread zone inwhich price drifts. Next we move up to the Mcosc indicator level that involves some smoothing and spreading of different time periods. This is the first step to getting into trouble as oscillators by their nature are time period filters and will mislead at cycles other than what they are tuned for. Thus with the McOsc you will see divergences with the index that will vary in length. This time price divergence is a function of the psychology of the day. Technically things get more dramatic as the McOsc crosses the zero line as back in July. We are not there yet, but are building up for a repeat performance. Seasonal cycles should delay this a week or two. This seasonal cycle was the motivation for exiting the puts into weakness today. It really is impossible to say whether the current down draft(drift) will reach any of the obvious support targets represented on the various charts below. Once momentum is in place it tends to continue until acted upon by another force such as a moneyflow injection, gov reports, interest rate changes, political news, etc. Perusing the charts below we see that 8200 is clearly within reach this week by fibo and WMSR techniques along with basic trendlines at previous support and resistance. Best guess here is we would see a spike down at which time at the money calls could be purchased for a ride up into next week and anyone still holding the 530 and 520 puts would have another chance to exit. This correction has taken much longer than expected and the end of month momentum cycle is expected to abort it in the next day or two or three. Officially the seasonality does not kick in until Friday, but this particular week has a multidecade probability of being up into November 3rd and the UC payroll indicator will strike Thursday. Holding puts in the last week of the month is extremely risky. To paraphrase statements from a week back, "we never got the breadth deterioration to justify the puts for conservative option traders but the technicals justified positions for speculators." Risk averse could have been used instead of conservative and speculator. Back to the tea leaves. Wednesday's Cone chart shows a regression channel line between 515 and 520 and a move below that line should bring in some panic selling possibly down to levels on the OEX 5 min chart of 510.60 to 507.82 or on the Cone chart of 512 to 504. Here is Tuesday's cone chart. It should be noted that the projection oscillator on the cone chart is still pointing downward in the oversold zone just in time for the end of month seasonality. It should also be pointed out on the OEX 5 min chart that a breadth divergence has been going on since October 16. Eventually price gives way as distribution by the pros is finished. It is always fun to look at the XAU 10 minute and daily charts when the equity indexes are beginning to erode. The wiggly support and resistance levels on these two charts have been uncannily correct. A move above 75 on the XAU should cause some fireworks just as the indexes look for a short term low in the S(n) levels on the Pivot Charts.

Here are some charts:

ADHL CHART. ASTROCAST CHART. CODI CHART. DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. ANOTHER INDU CHART. NHNL CHART. OEWWD CHART. OEWWF CHART. OEX FIB CHART. OEX PIVOT CHART. RSISTO CHART. SUPERT CHART.

MomentumCycles Commentary for the open of Thursday, October 29, 1998:

The next most likely time for OEX weakness after the normal weakness seen near the beginning of the last week of the month will be November 5-9,past the time when politically motivated market jiggering by the FED and Treasury are over. What we are presently witnessing are the crosscurrents of end of month forces ,stacked on top of prices battling resistance ,stacked on top of a barrage from the news media. Cycle forces would say we have a down Thursday except this is the last week of the month which has an up cycle phase that should kick in Thursday or Friday. If you are playing a game of odds then you want to be flat to long the next two days. That means we would like to see some weakness on Thursday to make a better entry for a Call trade into next week. So we are looking to enter below the yellow line on the OEX pivot chart and the red dashed line on the OEX fibo chart. Preferably we will be handed an entry at one of the support levels. Maybe we will be served a lower green or red cone on the Thursday's CONE chart. Here is Wednesday's CONE chart. NYA breadth was moderately negative but flat today. Look for an entry at 525 on the NYA where there has been recent support then pick an at the money OEX call or one strike above. This is a cycle trade and occurs at a time when the technicals on the other charts continue to consolidate in a wave two off the recent major lows. Running through the charts there are some points of significance. INDU has an interesting development with the On Balance Volume. Note how it moved outside the upper band and then came back inside and is now touching the band. On the same chart note the INDU is sitting on the +3% band. Another long term chart, ADHL, has one of three indicators on a Sell, one almost on a sell, and the third far from a sell. So the intermediate term Buy mode is still in effect. McOsc and the NYA look more consolidative/corrective than about to turn down. It might take another week of divergence. The RSI and Stochastic oscillators on the RSISTO have reached the 50% retracement level where we could easily resume the rally. This is another strong reason why we want to try to catch a ride on the calls in here. CODI 1 has made a Buy pivot at its centerline retracement. CODI2 has reached its retracement level, ready for a bounce. Even the PT, Price Theoretical on the SuperT chart is predicting higher prices, not much, but at least SuperT is supportive of the notion. Finally the XAU is tightly confined within the channel lines and seems to have given up on the idea of an immediate meltdown. NHNL is looking more and more like the major lows for this quarterly cycle are in.....at least for the next week. OEX traders with a contrary bent never live without the expectation(OK call it a wish) of a meltdown accompanied with a large volatility expansion. Speaking of volatility, the VIX is still running at 30+ levels. This means there is still lots of fear and downside expectations present which at this time of month means the resolution should be to the upside. For an hourly perspective take a peak at the SPX hourly chart with the VIX in the lower subgraph. Note how the SPX is tracking tightly on the lower regression channel line. Note how the VIX has stopped its descent and appears to be making a rounded bottom. It is really too early for such a conclusion. But, a break below of that trendline would send VIX sailing to higher levels, like 40 to 50. The Bears may just strike on Globex tonight and put fear in the market on the open Thursday morning. Another scenario would be a failing rally and then a plunge below that line A. This is a rather dangerous situation to say the least. It has to be said that anyone considering call options at this point are doing so in an overbought situation (see MOSS chart) and the upside could very well be limited with some serious risk to the downside. We should also entertain the idea of entering puts on any gift rally over the next few days in a stop and reverse fashion.

Here are some charts:

ASTROCAST CHART. DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. NHNL CHART. S AND P 500 HOURLY CHART. XAU CHART.

To quote from MomentumCycles Commentary for the open of Thursday, October 29, 1998:

"The next most likely time for OEX weakness after the normal weakness seen near the beginning of the last week of the month will be November 5-9,past the time when politically motivated market jiggering by the FED and Treasury are over. What we are presently witnessing are the crosscurrents of end of month forces ,stacked on top of prices battling resistance ,stacked on top of a barrage from the news media. Cycle forces would say we have a down Thursday except this is the last week of the month which has an up cycle phase that should kick in Thursday or Friday. If you are playing a game of odds then you want to be flat to long the next two days. That means we would like to see some weakness on Thursday to make a better entry for a Call trade into next week. So we are looking to enter below the yellow line on the OEX pivot chart and the red dashed line on the OEX fibo chart. Preferably we will be handed an entry at one of the support levels. Maybe we will be served a lower green or red cone on the Thursday's CONE chart. Here is Wednesday's CONE chart. NYA breadth was moderately negative but flat today. Look for an entry at 525 on the NYA where there has been recent support then pick an at the money OEX call or one strike above. This is a cycle trade and occurs at a time when the technicals on the other charts continue to consolidate in a wave two off the recent major lows. Running through the charts there are some points of significance. INDU has an interesting development with the On Balance Volume. Note how it moved outside the upper band and then came back inside and is now touching the band. On the same chart note the INDU is sitting on the +3% band. Another long term chart, ADHL, has one of three indicators on a Sell, one almost on a sell, and the third far from a sell. So the intermediate term Buy mode is still in effect. McOsc and the NYA look more consolidative/corrective than about to turn down. It might take another week of divergence. The RSI and Stochastic oscillators on the RSISTO have reached the 50% retracement level where we could easily resume the rally. This is another strong reason why we want to try to catch a ride on the calls in here. CODI 1 has made a Buy pivot at its centerline retracement. CODI2 has reached its retracement level, ready for a bounce. Even the PT, Price Theoretical on the SuperT chart is predicting higher prices, not much, but at least SuperT is supportive of the notion. Finally the XAU is tightly confined within the channel lines and seems to have given up on the idea of an immediate meltdown. NHNL is looking more and more like the major lows for this quarterly cycle are in.....at least for the next week. OEX traders with a contrary bent never live without the expectation(OK call it a wish) of a meltdown accompanied with a large volatility expansion. Speaking of volatility, the VIX is still running at 30+ levels. This means there is still lots of fear and downside expectations present which at this time of month means the resolution should be to the upside. For an hourly perspective take a peak at the SPX hourly chart with the VIX in the lower subgraph. Note how the SPX is tracking tightly on the lower regression channel line. Note how the VIX has stopped its descent and appears to be making a rounded bottom. It is really too early for such a conclusion. But, a break below of that trendline would send VIX sailing to higher levels, like 40 to 50. The Bears may just strike on Globex tonight and put fear in the market on the open Thursday morning. Another scenario would be a failing rally and then a plunge below that line A. This is a rather dangerous situation to say the least. It has to be said that anyone considering call options at this point are doing so in an overbought situation (see MOSS chart) and the upside could very well be limited with some serious risk to the downside. We should also entertain the idea of entering puts on any gift rally over the next few days in a stop and reverse fashion."

Here are some charts for Thursday's open.

ASTROCAST CHART. DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. NHNL CHART. S AND P 500 HOURLY CHART. XAU CHART.

MomentumCycles Commentary for the open of Friday, October 30, 1998:

We told you FNM was fated for new highs,and Thursday we saw them,closing at 69.0625.A test of the breakout, or below would not be unexpected here.We are far,far above the 3.5% FNM upper trading band.Window dressing in end of month October trading has recently given NASDAQ some extra energy,but a pullback in most indexes within 1 or two days might be expected after the window dressing completes,and with the closing +438 tick.XAU didn't fade and bonds were strong,leading to a sense short term traders may see an abbreviated seasonality period in here{tendency of the end of month /start of month to rally OEX on pension fund flows}.Weakness somewhere in the period Thursday November 5 to Monday November 9 is the next most probable event post election.

Thursday evolved pretty much as laid out previously except we did not get an absolutely perfect entry in the OEX calls. It was,however, possible to get in near the keyline for the first hour of the day. That would mean purchasing the Nov 525 call, OEWKE, near 12 and 13 for a ride to 18. Or maybe the 530 near 10 for a ride to 14 or 15. NYA breadth was quite good. SuperT forecasts higher prices yet. ADHL continues to weaken and bears watching for an unexpected sell. NHNL is still hanging on the zero line meaning the new highs have not expanded sufficiently to call this a new leg up. The Adaptive Modified Option Strategy Spectrum, AMOSS, is tagging the extremely overbought zone and the MOSS is in the Overbought zone, so we are still planning on a stop and reverse once this positive seasonality wears out early next week. Astrocast has been a big disappointment the last 2 weeks of the month,although the rally into midmonth worked out as forecast. With all due respect to my good friend who provides it, I had to ask him if someone was robbing his account while he was distracted by the stars. Don't let your profits slip away and don't get greedy.With those who entered long,a trailing 1.50 stop might be considered,and as always, employ a 1.50 stop loss from the initial entry price.

Here are some charts:

CODI CHART. CONE CHART. DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. MCOSC CHART. OEX FIB CHART. OEX PIVOT CHART. RSISTO CHART. S AND P 500 CHART. XAU CHART. XAU DAILY CHART.

MonentumCycles Commentary for the open of MONDAY, NOVEMBER 2, 1998:

Those who took partial or complete profits in representative OEX calls initiated late last week did very well exiting Friday on a trailing 1.50 profit stop,or trendline stop,{see OEWKF below}.Those who are still holding long positions should read the comments on stops below ,in the 5th paragraph.

We said good new highs on FNM{a rally bellweather} were inevitable once 68 5/16 was exceeded on any trade,with a target in the low to mid-70's as a minimum.Friday saw 71 1/8 high,70 13/16 close.FNM is now far above the upper 3.5% trading band,with STOCHASTIC 5 at 90 and STOCHASTIC 20 at 100 in saturated overbought.A pullback to the rising 3.5% band along with the general market post-seasonality{see below}and/or post-election would be normal with FNM STOCHASTIC 20 at 100.

One of the momentum indicators we use is to compare the momentum of price of 5 days versus 21,and 7 versus 35.In XAU,5 versus 21 momentum is negative{slightly oversold } and rising,but 7 versus 35 {a slower measure} is still flat.

Longer cycles allow for further OEX strength,after a pullback, that goes into later November.On to Friday's and next week's trading...

So far we have had two very good seasonality days. Calls were advised for Thursday with the OEX below its pivot(keyline){chart is for Monday,incidently}. The November 525 call, OEWKE, was the at the money call. It has made some very nice gains in two days. Friday was close to being a red Cone day. A tag of the red cone or R3 on the pivots is a good profit taking level for day traders. Here is MONDAY'S CONE CHART. The following day usually provides a lower re-entry level. In any case, stops should be moved up to your comfort level, using a fixed dollar below the high or a percent below the Friday high if you are still holding them. 50% gains are common, 80% to 100% gains are more rare and should be taken advantage. Earlier in the week we suggested that the indexes might be bid above the 200 day average through this seasonality period. It has been a distribution level lately. Nothing has changed that view yet. New Highs are gradually increasing, yet the NHNL is still in the "neutral" area near zero. ADHL has reaffirmed its intermediate term buy mode. McOscs are positive with a slight divergence from the index. A good sell won't occur until they cross zero. SuperT is agreeing with the upward move in prices. CODI's are on buy mode with CODI nearing the Sell Alert level. CODI2 in the lower plot has been replaced with CODI dynamic that appears to give a clearer buy /sell configuration. The On Balance Volume on the INDU chart is very interesting as it has moved back above its channel band and is tagging resistance seen last July. If the market is going to drop back to a "fair value", this would be a logical level for it to occur. Using a lookahead earnings forecast for the DOW stocks and making a Price/Value composite we find that 8800 to 8900 on the DOW would be historically worrisome. 8700 to 8800 is on the upper side of acceptability, with 7700 being in the center of a historical Price/Value channel. Official seasonality does not end until November 6 but that does not mean every day will be like Thursday and Friday. In fact what happens over the next 5 trading days is going to be very critical for the rest of the month. Markets drop a lot faster than they rise so it would not be too prudent to wait until a big drop to exit the calls.

Here are some charts:

S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. MOSS CHART. NYA CHART. OEWKF CHART. OEX FIB CHART. RSISTO CHART. S AND P 500 HOURLY CHART. XAU CHART.

MOMENTUMCYCLES commentary for the open of Tuesday, November 3, 1998:

One of the problems after entering a trade is timing the exit on an end of day commentary.Ideally multiple daily exits should be given,which enables scaling out of positions at multiple profit levels{see below}.If the OEX continues at this rate,we will be up another 11.6% in approximately 2 weeks.Unlikely.Note, for instance,FNM,which has been a good rally proxy,closed exactly unchanged today from yesterday at 70 13/16,again at the lower end of our short term target level of low to mid-70's,showing momentum loss.NYSE +999 and +980 ticks occurred early on in the a.m.,and price gave a feel for another pop early Tuesday with the closing +419 tick,still short term saying a pullback within one or two days likely.

No trades on XAU{too near the 70's equilibrium point now} or 30 year T bonds.Bonds testing the trendline of yields,and need a dose of fear to get some attention.

On to Monday's analysis,and the rest of the week...

Day three of seasonality and all goes well as of the close. Optimism is prevalent as evidenced by the OEWKE doubling from Thursday and the breadth numbers all look good, too good. One caution to those who are daytrading and position trading...intraday price trends and daily trends are often at odds with each other. A conclusion for one does not necessarily hold for the other so it is best to have a different set of rules and objectives for each. This MomentumCycles commentary has a mix of both intraday and end of day charts because sometimes the intraday activity is a clue for the next day and gives a "feel" for what might happen. Monday's sometimes are overdone in either direction because of weekend analysis and the close of the previous week. This week the positive view is compounded by the beginning of month seasonality we point out at the end of each month and with it try to time an entry and exit. We got into the OEWKE satisfactorily and are trying to get out without giving up too much of the gain. Official seasonality did not begin until Friday and does not end until next Friday. We did not and still do not think it will be straight up with 100 point days each day, and therefore have encouraged some stop loss level. With an entry of 12.5 and a close of 26 on Monday, there has been a 100% gain. It can go further, but the 100% level has a high probability of being the max. Looking at the SPX HOURLY chart we see that after the first hour pop, the rest of the day was distributive. This is a clue that Tuesday may live up to its name, "Turn Around Tuesday". The OEX and SP8Z Swing machines have a probability analysis that agrees with the TAT syndrome.Another argument for TurnAroundTuesday is that the INDU stalled out in the nearby weekly fib resistance zone. Long term cycles contain shorter term cycles that are tradeable and since time decay is a component of options, long options need to be traded. Reviewing the various breadth charts does show power behind this move. ADHL has rightly held onto its buy mode. NHNL is ever so slowly improving with 70 new highs versus 19 new lows. McOsc is still positive. On Balance Volume on the INDU chart is now testing last July's highs. This is potential breakout stuff. SuperTimer is also confirming the price rise and says higher still and is pointing at 8954. This INDU chart with its mean price shows the breakout more clearly. This DJIA chart has a target of 8881 in the next 13 days. RSI and Stochastics are overbought, but remember they will stay overbought when the index is in trend mode. NYA shows four very good days of increasing breadth. You will recall from previous commentary that the 1200 and 1500 levels are trend inducing levels and we are clearly seeing the proof of that. So now we must watch for an increase in the declines and a decrease in the advances. Strong trends tend to run six to nine days which means we might be 2/3 to half way into this. That would put us in sync with the official end of seasonality at the end of the week. The main caution is the indexes are getting back into the high price/value range, even though they tend to overshoot. Another reminder is we expected the 200 day average to be breached in this seasonal period and it has been. Final comment is on the OEX AMOSS chart which we use for measuring overbought and oversold. When in Extremely Overbought we like to anticipate an exit of Calls and an entry of Puts. Note the divergence between the OEX and the MOSS and the AMOSS that occurred last summer and the one that exists now. This is another reason we anticipated exiting the calls this week and entering a put trade. Currently we are holding the November 525 OEWKE call and with the index at 544 we are anticipating an entry into the 540 OEWWH put. Both CODIs are approaching their Sell Alert Bands. Yet we have seen back in July that when the index is in trend mode, as it is now in the regression channel, that CODI may not dip below the Sell Alert band before the index turns down.

Here are some charts:

MONDAY's CONE CHART. TUESDAY's CONE CHART. DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. OEX FIB CHART. OEX PIVOT CHART. SUPERT CHART. XAU CHART.

MomentumCycles commentary for the open of Wednesday, November 4, 1998:

There is a historical tendency for unchanged days at rally tops to be often,although not always,followed by bearish action.Look at this chart of sugar, for instance.At the arrow at the top of the rally, an unchanged day is followed by a decline.{See SUGAR CHART.}

Tuesday the DJIA was exactly{note EXACTLY} unchanged from Monday,with OEX almost unchanged at -.04% and S and P 500 at -.07%.Note also NASDAQ relative strength versus DJIA was weaker,therefore bearish as well.This is in contrast to recent NASDAQ REL STRENGTH DJIA action,which was bullish.Note FNM's 2 unchanged days brought price weakness Tuesday,as expected,similar to FNM's 2 unchanged days at the rally top in late September at 65.

Note an unchanged day for XAU in MAY 98 was followed by a tradeable decline,as well as a similar pattern mid-JULY 98.

On to Tuesday's action and the rest of the week...

"Take profits" was the mantra for Tuesday. It wasn't exactly a turn-around-Tuesday as alluded to on Monday, but the momentum had a decided shift. In fact it was a go-nowhere Tuesday. Price/Value analysts are focusing on the fact that the equity indexes are back to where they were in August before the fall spill and at valuation levels that no longer discount the forecasted slowdown in the next 6 to 9 months. Perhaps the discounting has to make a repeat performance. Tuesday provided opportunity twice to exit the November 525 calls with a 100% gain from last Thursday. And it provided opportunity to enter the OEWWH November 540 puts around 8 which is the current recommendation. The intraday pattern for Tuesday had the feeling that a top is being put in near 8740 and that 8700 is a rather fragile support. Reviewing the charts we see that a wedge formation exists on the SPX shown on the ADHL chart. Wedges are classic failure patterns as price spills over and down from the converging lines. It behooves even the intermediate term traders to put a tight stop under their positions and not wait for new high,new low, and issue breadth to signal a sell. NHNL weakened a bit with new highs dropping back to 57 from 70 on Monday. CODI has ticked closer to the Sell Alert band. The dynamic CODI's upper green band has turned down. Note what happened previously to the OEX when the upper band turned or dipped downward. The timing appears to be on schedule as the seasonality is running out in the next few days(remember terrible Thursday's). Tuesday was clearly a distribution day and was quite balanced between buyers and sellers quite unlike last Thursday, Friday and Monday. What we have facing us in the next few days and next week is more of the same topping action plus some downward bias. Next week is pre-expiration week which tends to have a downward bias until Friday, so the message is if one is bullish, they would be best advised to wait until more advantageous prices. Tuesday's Cone chart shows an overbought projection oscillator and a spinning top candlestick that is spinning below the resistive regression channel centerline. Here is Wednesday's CONE CHART. The McOscs have extened their divergences a bit more and appear headed for a trendline crossing. NYA chart shows the topping action and the balanced advance decline with a near zero spread, also read as not trend inducing. In the last commentary we advised looking for a change to the negative in this spread as an indication when the OEWKE should be exited. Finally the SuperT has turned down and is crossing zero. This behooves attention since it has been above zero for a relatively lengthy period.

Here are some charts:

ADHL CHART. AMOSS CHART. ASTROCAST CHART. DJIA FIB CHART. S AND P 500S AND P 500 PIVOT CHART. INDU CHART. ANOTHER INDU CHART. NHNL CHART. OEWWH CHART. OEX FIB CHART. OEX PIVOT CHART. RSISTO CHART. SPX HOURLY CHART. XAU CHART.

MomentumCycles Commentary for the open of Thursday, November 5, 1998

One of the indicators we look at is the option premium ratio,the ratio of price premiums of puts versus calls in IBD.We have had 5 rising or unchanged ratios to values above .80 {.57,.68,.73,.73,.78,.89} and a .76 ratio on an unchanged day after an 18 session rally of over 300 points.Both of these relationships have on numerous occasions led to tradeable selloffs.RSI 5 and STO 5 and 15 are jammed overbought where short term reversals often take place.Wednesday saw a +1000 tick at 9.45,at 10,a +750 at 10.15,a +950 at the close.Extremely high closing ticks are often the prelude to a reversal.

FNM continues its predicted selloff from the unchanged day near the 71-72 top,closing at 69 with a intraday low at 67 3/4.Unchanged days after big rallies often lead to retracements,even after a further pop up after the unchanged day.

Bonds diverging from XAU,an interesting development that bears watching.XAU strength often a prelude to equity fear.

On to Wednesday's action and the current OEX put trade...

The plan laid out last week for this week is half completed. The plan was to do a stop and reverse starting with a call on Thursday 10/29 and exiting during the seasonality peak this week followed by entering a put position. Last Thursday provided an entry in the November 525 call for a ride into this week with gains exceeding 100%. The update for 11/04/95 urged exiting the 525 call if it had not already been exited. Additionally it was advised to enter the Nov 540 put near 8. Little did we know we would be able to buy it between 5 & 6 on "W" day. Wednesday's or "W" days have become popular in trading circles as the weekly pivot day. Alternatively for longer term subscribers the 545, or 550 would have been closer to the at the money puts. For trendline momentum purposes 6 to 6 5/8 would be likely entries on the 540. Charts of these three will be followed until we exit the position. The plan from here is to hold the put until sometime next week, maybe as late as Thursday 11/12. It just depends on price behavior & profit objectives. We expect 50% gains at a minimum and 100% at a maximum, unless of course we are stopped out earlier. Thursday is typically weak as is the pre-expiration week and if the market tries to rally you may have another chance to make a put entry. It is advantageous to enter in a contrary fashion as that provided today. The INDU and the OEX reached excessive valuation levels mentioned here on the weekend update and the program traders decided to pick a top. That gave the OEWWH a wild ride this afternoon. As has been mentioned here numerous times, the Red cone is a decent profit taking level as is R3 on the OEX Pivot chart. Both were the turning point on Wednesday. Note the OEX projection oscillator is now rolling over. A trip down to 530 is clearly within the channel lines. Dynamic CODI is one day away from making a juicy sell, could happen on Thursday. Note that the INDU and OEX fibo charts had resistance exactly at the upper weekly fib level right here at midweek. 8527 and 532 are only at the weekly balance point and could easily be hit by the close on Friday. THIS INDU chart also shows 8500 support at the yellow line and that is just initial support. Next support is 8250 area and solid support is at 7800. Might take a week to reach those levels if in fact it goes there. Here is the OEWWH chart. The Sweet chart is a rather unique presentation of valuation of the INDU. The upper left quadrant is the "Sweet" spot and shows that 7500 to 8000 is where the bargain prices are. This represents the lower risk area for going long and covering shorts. The upper right quadrant is the overvalued area from which selloffs start. Also the OEXTF, TF for Top Finder, shows the OEX came within 1.16 points today of reaching its projected top of 553.5. This could be in error by a few points, so we conclude that the top is in for this seasonality cycle.

Here are some charts:

ADHL CHART. AMOSS CHART. WEDNESDAY'S CONE CHART. THURSDAY'S CONE CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. MCOSC CHART. NHNL CHART. NYA CHART. OEWKE CHART. OEWWI CHART. OEWWJ CHART. RSISTO CHART. SUPERT CHART. XAU CHART.

MomentumCycles commentary for the open of FRIDAY, November 6, 1998:

Using a trend line stop on a sample OEX put, OEWWH, note we would have been stopped out between 7.5 AND 8 Thursday after an entrance at approximately 6 Wednesday,near the suggested cone high price of the day. Using a 1.50 trailing profit stop Thursday would have had us exit at 6.5. A 1.50 stop loss would have had us exit under 5 for a slight loss. Just a nick after last week's big win, or a break even with the trailing profit stop. The idea is to repeat this with more entries until we catch the reversal on Friday or next week.

On XAU, on a daily basis 87.25 is next resistance and 75.37 next support. A break of either would send it to the next resistance or support. On an intraday basis 80 is nearby support.Thursday brought several non-confirmations of the XAU high of the day.

On to Thursday's action,and the rest of the week...

Intraday volatility forced any early put entries on Wednesday below the 1.5 stop loss level used as a money management stop. Contrarily the rally provided those who did not enter on Wednesday even lower entry prices as was advised yesterday. We will continue to track the 550, 545, 540 puts. It should be kept in mind here that this trade is one half of a seasonality trade that started 10/29/98 for which there were 100%+ gains. To repeat what has been said several times over the last week and during previous seasonality trades, Official Seasonality does not end until the fifth trading day of the month. Thursday went against the 70% odds of being a down day. Some believe it was stop running prior to the seasonality close. Only one more day of trading will tell the true story. There are two weeks left until the November expiration and with the volatility we have been seeing, only the pit god knows where prices will settle or what route they will take to get there. This seasonality trade is a more or less mechanical trade that we try to fit within the technicals. With one hundred and fifty point swings in 30 minutes it is rather difficult to come to conclusions about the underlying reality as it does distort the relationship between prices and all of the breadth numbers. For example, Thursday had 23 fewer new highs and 13 more new lows than Wednesday. The ADHL chart is still on a buy, but the SPX is about to spill out of the wedge pattern. This pattern is one that can have a sharp downdraft if in fact it fails, and the breadth indicators will be late in generating a sell signal. Reviewing some of the other charts we see that the Theoretical Price(PT) on the SuperT chart continues to lead the index but the price difference between the two is narrowing, suggesting that future prices are not getting enough support from the SuperT components to continue at the current rate. Right now the PT is at 9037.42 which is 126.95 points above Thursday's close. This means IF we get closure on Friday on poor NHNL, issues and volume, then a sell signal is imminent. This is in agreement with the Dynamic CODI which has turned up and a cross above the Buy/Sell band is a Sell signal. It could happen on Friday, it is that close. The MOSS/AMOSS chart shows a 2nd tag occurring at the end of this price trend just as occurred back in June and July just before the crash.The AMOSS2chart shows from a momentum cycle basis that a downturn in the equity indexes is imminent. The last kick up like this is frequently found at the end of trends using other indicators such as stochastics and polarized fractal efficiency ratios. It represents the ease of price movement with respect to time. Call it short covering, or blowoff top. Whatever the name, it deserves respect. Thursday's cone chart showed it was a Red cone day. Prices have a 68% probability of falling anywhere within the inner red cone based on current implied volatility and 83% within the larger red cone. Here is Friday's cone chart. A likely move tomorrow would be to test the regression channel line at 550 which is also very near the pivot line. If that should fail then 546 is the next target. The only reason the downside is being focused on here is because of the completion of the seasonality trade layed out on Wednesday of last week. This trade goes back decades and has a wide following in certain mutual fund management circles and market pundits. Two that come to mind are, Growth Fund Research of South Dakota, and Norman Fosback of Market Logic. Switching out of aggressive growth equities into money market accounts on the fifth trading day of the month and remaining there until the end of the month has missed all market crashes, has captured the majority of all market upside since the depression with a major attendant reduction in risk because of lack of exposure to the market. On top of that the compounding of yield and income has made this one of the most profitable of all ventures. Of course what we are trying to do here is capture this with a very leveraged and volatile instrument, OEX options. If done properly it is possible to capture 100% gains as was done with the calls. It is necessary to implement this trade prior to Friday, and sometimes to make repeated entries on rallies. Thus the instructions for Thursday were to pick up puts in a contrary fashion if handed another rally. The red cone and R3 on the pivots are where you would hope to pick up the puts, and preferably at the money puts so that the probability of success is greater. Profitability (+,-) will vary with the selected strike of course and there are many opinions on this. The SPX hourly is forming a megaphone formation which results in a widening of the trading range until one side fails to contain prices. Given the overbought status it is expected that the lower side will fail sometime next week.

Here are some charts:

ASTROCAST CHART. DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. ANOTHER INDU CHART. MCOSC CHART. NYA CHART. OEWWH CHART. OEWWJ CHART. OEWWI CHART. OEX FIB CHART. OEX PIVOT CHART. RSISTO CHART. XAU CHART. XAU DAILY CHART.