MomentumCycles

MomentumCycles commentary for the open of Monday, October 4, 1999:

Not much has changed except that the upgrades are becoming more frequent. Now we have semiconductors and drugs. Soon we will have a band wagon of upgrades going into the next expiration two weeks away. Even tech stocks will get more of a boost ahead of the conventions. COMDEX is in November,and MacWorld is usually in January. It used to be that the end of September was the best time to buy Apple Computer. It's a no-brainer for the brokerage firms to upgrade ahead of conferences, and the fourth quarter is full of them. Techs get downgraded at the end of the second quarter ahead of an expected poor third quarter, then they get upgraded again in the fourth quarter. Third quarters are suspect on earnings for techs; buyers are waiting for new hardware and software releases in the fourth quarter. The 4th quarter brings a new physical year for numerous techs and the analysts get busy on earnings upgrades for 2000. That will be easy to do as next week starts the release of a long series of positive earnings for the third quarter. Upgrades and money flow fuel the year-end rally,and this year will see no difference. We should begin seeing five waves up and three down as the year-end rally unfolds. Risk Monitor says we are in that safer buying period. End of quarters are always turbulent and choppy. Once the FOMC is behind us we should see the ADX and other trend indicators gain upside strength for two weeks and peaking on 10/15. It will be a memorable period for longs. Forget a crash in October;in our opinion the correction ended in September.

Listen to a former great one at . Joe Granville is the guest speaker. He had his time in the spotlight like so many others that eventually fall out of favor. At his height, he claimed he was so great he could walk on water and would demonstrate it at the next seminar. He secretly arranged to have a plexiglass support installed just below the surface of the hotel swimming pool water, then proceeded to demonstrate his powers.

The downfall of many technicians is either reliance on a limited number of overly popular indicators,or a belief that the analysis is correct and the market is wrong.Flexibility and good money management are crucial.Granville has been spectacularly wrong for extended market moves,as well as right for extended periods.

He is not known for flexibility.

EquityCP and Sentiment are still neutral looking,which means a 50/50 probability of up or down. Seasonality says up. SuperT says composite breadth of issues, volume, New Highs/New Lows have improved as price based at the yellow support line. Numerous analysts are giving 10550 as upside resistance. SuperT chart says 10606 is more likely as of Friday. Let's assume for a few days that we get through the FOMC without too much damage and the OEX is capable of rallying. The question is-where might it range on the upside over the next few days to two weeks? Monday has green cone resistance at 677, red cone between 682 and 686, and crash UP at 694. Regression channel resistance is at the red cone 682. If that is broken then we have a trendline between 690 and 695. Looking at a two week cone set with assumed implied volatilty of 25% we see an average upside of 690 to 695, strong upside of 706 to 720, and crash up of 745. If the OEX can get above the upper regression channel line then we would look for the overhead resistance lines at 718, 725,and 736.

3 day breadth and volume smoothed are still rising from the congestion bottom near 10100 .A turn in these slower measures of trend often,although not always, picks up a good long and short entry for a sustained move.

Here is a quote from Mark Leibovit of the Volume Reversal Survey as posted at w.decisionpoint.com that highlights the explosive potential: "As you may recall, Tuesday was the day when we hit rock bottom in the S&P and Dow Industrials, but the Nasdaq Composite managed to hold its low. That event created a positive divergence. Tuesday was also the day that Ralph Acampora was quoted as saying downside risks in the market lie into the 8900-9200 range, i.e. a negative comment potentially at a market bottom. Last year, Ralph was quoted on October 8 speaking of the Dow Industrials in terms of 6700. THE Dow Industrials low was posted that day at 7399.78 (intra-day) and we subsequently rallied 1000 points over the next eight days. Incredible. Could it happen again. You bet it could! Meanwhile, my expectations are more modest. I could see the Dow Industrials rallying to the 10,500 - 10,550 level and then re-evaluating from there."

XAU 20 period STOCHASTIC reached 100 on the recent 92 spike that coincided with the HL print of 3 3/8.Price pullback here was expected and discussed on the spike.Price is consolidating near the previous XAU May highs of 82-84.We are holding HL from near 2$ as a perpetual call on the sector,with a lot of "wiggle room".Some readers elected to sell into the spike for a 50%+ gain.HL is currently 3$.

Here are the charts:

AMOSS CHART. CONE CHART. CYCLE CHART. DMP CHART. INDU CHART. MCOSC CHART. NSYNC CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PROBS CHART. SPX CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Tuesday, October 5, 1999:

Seasonality is kicking in with improved issue and volume breadth. It should continue regardless of the FOMC results tomorrow. In fact if price weakness sets in, it should be bought once any selling abates. The advice is not to be too quick to short it or buy puts. The delayed compression of buying is so great that we could begin seeing gap ups on the open. Look at most any yearly chart and you see a nice ramp up in the indices starting in this Sept/Oct time frame. Monday's action had excellent cumulative volume (MThourly). Risk Monitor is looking good as are numerous other indicators.3 day breadth and volume conitinue to rise since the congestion bottom. What we have going here is a mountainous pile of cash waiting for 2:15PM ET. It is seasonal money that comes in and remains for an intermediate term trade that should last into 2000. Forget Y2K. It has already proved to be a nonevent as the US government and other government's fiscal years ended Sept. 30 and only encountered a few glitches. VIX at 26.5 represents a wall of worry that will be resolved on Tuesday. Since markets discount the future, the FOMC has been discounted and we will soon see the post discount reaction. Specialists were in an accumulation phase by dropping the bid since the summer high, and now that we have a pivot low in place, prices will begin to be bid up in the distribution phase that can last an equal length in time with much much higher prices. From the August highs to the September lows we should expect at least a 2/3 retracement. Even if we moderate that with the dynamic fib retracements we have targets of INDU = 10730, OEX = 695, SPX = 1320. If we take the upper side green line we have INDU = 11142, OEX = 716, SPX = 1361. Note that the PLdot indicator is in buy mode with the thin cyan line above the yellow dot. The thin cyan line is the "yellow" dot for the next day and provides support. There is nothing to say the indices have to stop at the resistance levels, they can go on to test the old highs and in fact Jerry Favors is still expecting new highs. The 50 day average of the INDU is at 10810, 21 day average is at 10661. These lines may offer temporary resistance. SuperT first resistance is at 10629. Coming off the low in October '98 the oscillator went over 100 in the first up wave impulse. Monday close was 47.37. Note the INDU closed above the 200 day MA. TICK and Premium are behaving very much like the bull is still alive spending more time above zero and more time between fair value and buy programs. Since the market has a mind of its own it may not accommodate a slow start. Once the signals are there and believed, i.e. change in psychology, the money flow is like movie goers trying to escape a theater fire...everyone tries to go through the door simultaneously. Markets do not like uncertainty. Once we are through Tuesday and the earnings begin coming in, coupled with brokerage promotions, upgrades, mergers, etc, we have the makings of a memorable rally into expiration or longer. Those waiting for a capitulation ala old days may have seen all they are going to get in September. Those who expect history to repeat exactly (climactic double bottom) will miss being a participant in the making of new history (year end rally). McOsc issue and volume oscillators have closed above zero generating institutional buying, synonymous with intermediate to long term holds. OEX NSYNC has a ways to go before getting overbought. Upper Bol Band on NSYNC chart is at 724.86 at Monday's close. { NSYNC is a composite of 8 price and breadth oscillators.} MOSS and AMOSS has made a bullish zone crossing from below the Zero line to above. CODI, OEX RSI, BR_Momentum are only half way to overbought, and channel resistance is at 710. In one sentence, correction is over, trend is up, money is better in equities than cash.

OEX is just now entering the Time and Price zones for the next pivot high. Time zone is 10/1 to 10/14. Price zone is 685 to 719. Assuming we get a statistical length in time and price then the OEX should move above the center tine of the pitchfork. Probabilities are for 713.4 {Bullish view} and 695.3 {for bearish view}. Stochastic RSI is just coming out of oversold and ideally it would reach the 85% overbought level at the next pivot high. Positive seasonality officially ends October 7 but because of the delayed buying and compression build up the seasonality could last much longer.

OEX open interest on the call side is kind of interesting. The 700 and 720 strikes have the two largest OI and those strikes bracket the upper half of the TPRZ. Since we don't know the flavor of clothed or naked or spreads with this OI we might make an assumption that the OEX will migrate to the center of the distribution. If the OI is summed between strikes 660 and 710 and compared to the OI summation between 710 and 800, the 710 strike is pretty much in the center. This ignores the put OI which should skew things to the 710 to 720 strikes also, as that is where the put OI disappears. The objective is to minimize liabilities on the sellers' part. This may just be a wasted exercise; interesting nevertheless.

XAU/HL/ABX all above the upper 14% band of price,with STOCHASTIC no longer screaming short term overbought.That pullback from 92 to 82 in XAU worked off some of the overbought condition.Momentum reversed to up on Monday in some oscillators-perhaps late comers looking for a long entrance.HL is 3 1/8,and XAU rallied 4.17%.We are holding HL from near 2;many entrances were made at 2.125 and opportunities existed recently once more at 2.25.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. ADHL CHART. CONE CHART. CYCLE CHART. EODCV CHART. EQUITYCP CHART. INDU CHART. INDU WEEKLY CHART. NYA CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. RISK CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Wednesday, October 6, 1999:

News causes noise, and the market had lots of that today. The B&B tug of war was a draw by the end of the day. Seasonality says higher prices short and long term. Price action was respectable, all things considered. Perhaps the VIX will settle down to the low twenties now that the FOMC has left its mark. This being pre-expiration week, we normally expect a "buy the Friday" trade into an upward expiration. There are no indications to suggest otherwise at this point. Unless something dramatic happens to tank the market, it looks like business will get back to business and talk will turn to what really matters, such as earnings, buyouts, mergers, tracking stock, etc. Expectations from this camp are that the OEX will challenge the 700 to 720 level between now and 10/15. Expert Rating for DJIA suggests an uptrend may be beginning.3 day smoothed breadth did marginally turn down;however,this indicator can be whipsawed when not at the extremes of the bands.

XAU found resistance at the recent 90-92 highs,settling at 84.61.HL was 3 at the close.We are holding HL from near 2$.

Here are the charts:

CODI CHART. CONE CHART. CYCLE CHART. EQUITYCP CHART. INDU CHART. KELTNER CHART. MCOSC CHART. NSYNC CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PROBS CHART. RISK CHART. SPX200MA CHART. SUPERT CHART. VIXPF CHART. VOLATILITY CHART.

MomentumCycle commentary for the open of Thursday, October 7, 1999:

What we are dealing with here is not only beginning of month seasonality, but 4th quarter seasonality. Additionally, a down September gives better than 50% odds of an up October, and as has been said before, Octobers have the roots of the Christmas/year end rally. Most of the gains are made in the early days and weeks of the new trend. Wednesday's action was punctuated with institutional buying as evidenced by the XII index. Institutional money is not committed unless there is reasonable profit potential for the next 3, 6,12,or 18 months and not just the next day or two, or the following week. Therefore, if the gains stick then you know the people who matter are back in the game. Everything was good about Wednesday's action. Pullbacks were shallow. The beauty of it was that buying overwhelmed any additional tax loss selling that was fed into it. Eventually the NYA breadth will be more consistently solid as will the New Highs/New Lows. 5 day advancing volume vs. declining volume confirms this move. Its been said that the rally could not unfold until the financials participated. They are. The drugs are, techs are, transportations are, airlines are. Even the skepticism remained with traders trying to short it in disbelief. Yet, VIX declined confirming the bullish action. You could say that a longer wave up cycle is exerting its influence on prices. A really good overbought market would see VIX closer to 21 or lower. We are not there yet. Any price setbacks due to upcoming economic reports will be buying opportunities. Short term oscillators can be overbought when markets begin a trend. This includes our CODI which can trend below 4 as the market trends higher. So we wait for it to get overbought and turn up before recommending exiting the long side and going the short route. In fact Codi could cycle between overbought and the whipsaw zone as prices trend higher. Stochastics and RSI are two of the most misused and deceptive oscillators. P/C ratio is also a misused indicator. If you recall from cnbsee, it was promoted the other day that a low was not in because the ratio did not indicate so, yet look at the price action. Liquidity speaks, seasonality speaks, bellweathers speak, volatility speaks, earnings speak. Realization that Y2K is a nonevent will recommit stashed cash. These all say the trend is up and end of day overboughtness is not here yet. The new earnings releases are expected to support a DOW of 12,000 and SPX of 1425 by year end and the next significant leg down won't occur until the first quarter of 2000. Putting that in perspective, Dow 12,000 is only about 500 points a month for the next three months. That almost seems conservative when an average day can knock off 100 points. Momentum begets momentum with additional buying power in margin accounts. The time to put on positions with margin is when a pivot low has been put in. We could see the feeding on itself syndrome with pyramiding the next three months. The market always moves further and faster than anyone expects. RSI screens for Thursday buying should show up an increasing list of purchase candidates helping fuel the expiration rally. Since this month's seasonality was delayed due to the FOMC meeting we guess that it has been shifted into next week. Thursday has a history of having a relatively weak performance, but this Thursday may be an exception because of this shift in seasonality, thus look for shallow pullbacks.Finally,3 day breadth and volume both turned up marginally from the one day turn down Tuesday.

Playing mind games for OEX target projections on various charts we see that the OEX could rise all the way to 735 and still remain in a consolidation channel. Volatility, EquityCP, 5ADVOL are a few charts marking these resistance levels. OEX 30 minute has the next TL target at 713. CODI channel resistance is 710. Remember CODI can remain below the Sell Alert if the OEX is in uptrend mode so don't anticipate a sell signal. Wait for CODI and Momentum to change direction. OEX call open interest centroid is now between 710 and 715 and we expect the OEX to thus challenge 710 and higher as the Put OI disappears at 710. Time and Price zones for the next pivot high are 10/1 to 10/14 and 684 to 718 or higher if the bullish swing dominates. Again, don't let the Stochastic RSI take you out of an uptrend prematurely.

Looking at some of the technicals we see the INDU ten day rate of change has turned positive. INDU 50 day average is at 10793 and the next SuperT resistance is at 10759 after getting above the green line (note, the use of red for this line has no intended implications). Trin and VIX both closed below their signal lines for follow through strength on the next open.

It would take only an average day on Thursday to take the OEX to the CONE regression channel near 700. A strong day as expected in a bullish trend would take it outside the channel between 705 and 710. Note the Projection oscillator is trending in overbought and can remain there as long as the uptrend is intact. RSI of INDU and End of day cumulative volume are only half way to overbought. RISK Monitor is still looking good. OEX NSYNC is only halfway to ovebought also with an OEX BBand top band at 720. OEX Expert Rating indicatetes further upside is in store.

XAU/HL/ABX are cycling back and forth around the previous resistance level of 82-84.Two atttempts were made to surpass 92,which failed.We are holding HL from near 2;close was 2 7/8.STOCHASTIC 20 is 78;working off an extremely overbought short term position from the recent spike.

Here are the charts:

CYCLE CHART. INDU DAILY CHART. INDU FIBRET CHART. INDU WEEKLY CHART. MCOSC CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PROBS CHART. SENTIMENT CHART. SPX CHART. TPRZ CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Friday, October 8, 1999:

The important story for Thursday is what did not happen. Orderly consolidation was the name of the game. Profit taking was absorbed with little price erosion. This is characteristic of a market that wants to move higher. New Highs/New Lows improved nicely, which means the underlying breadth technicals continue to improve. Cumulative volume hourly is further evidence of the orderly consolidation. VIX was a bit overbought on Wednesday. It corrected some of that on Thursday. Last hour continues to firm up prices removing most of the early day losses with only 1/3 retracement of Wednesday's Dow gains. This should be construed as positive action. We could not have asked for a better Thursday, considering its reputation for big down days and high VIX readings. You know that we place an emphasis on probabilities, and Thursday does have high probabilities of being a down day with VIX closing in the upper third of its range for that day. The OEX fib retracement chart shows the pattern of up day, consolidate day, up day, consolidate day, all with higher highs and higher lows. The PLdot trend is still up with the cyan line above the yellow dot. Trendline resistance and 2/3 retracement levels kept a lid on the OEX Wednesday and Thursday. A close above the 2/3 dynamic level at 694.35 implies a run to test 716.15 to 724.92 range. This fits in with the Time and Price zone targets. There is no question; this rally from the 9/28 pivot low is built on a wall of worry, as evidenced by the elevated VIX levels. We still have a possibility of strike price range shifts in either direction. Friday has a reputation of being a trend day in bonds. If the bull is lucky, then bonds will retrace their recent drop and yields will drop precipitously through the magenta line at 6.16 and fall to the longer term trendlines at 6.1 or lower on the TYX chart. The tug of war now is between a market that must stand on its improved earnings versus the inflation fears that will never die. Imagine how bad things could be if the third quarter earnings were coming in below expectations. Dear Abby says current S&P levels are 5 to 10% undervalued, and they should and will rise. Now, if the OEX can break above, and then close decisively above 700, then we might have an entirely different ball game. That level {700} appears to be a significant one in terms of call open interest and old fashioned price levels. A strong one- or two-day move could do it. Friday is guaranteed to be an exciting day, as the OEX daily fibos have a narrow range facilitating the breakout (up or down or both) potential. If we take a look at the OEX weekly fibo chart, we see the possibility of a rise to 729.76 next week using the "olde convoluted mug and handle"{IBD cup and handle}. The problem is, the mug handle has to form on the right side. Considering the OEX has already spanned this distance from Friday of last week to Thursday of this week, it is entirely within the realm of possibility, with strike price range shifts being the norm during expiration week. A more conservative look at the 60 min OEX in Advanced Get shows that a 4th wave is almost completed at the centerline of the upward sloping regression channel. The Profittaking index is 85, which means the OEX will move upward to form a 5th that is higher than the 3rd. The price profile shows a concentration of price activity at 700, then 704.57, then 709.29. The Time Clusters have hits on 10/08, 10/12 and 10/15. OEX CODI has made half of a Sell Pivot in the Sell Alert zone. By "half pivot," we mean it only turned sideways, and this could just be trend mode action rather than reversal action. Another day or two will tell. SuperT ran into resistance at the green trendline. Money Flow has improved as the INDU moves up to test the underside of the channel at 10800, etc.

OEX Call Open Interest centroid is at 715, meaning half the call open interest is above 715 and half below 715 over the range 660 to 800. Put open interest essentially disappears at strike 720 and exists entirely below 720. It is very interesting that there is very little put open interest that is in the money. The open interest balance point would suggest a move to the 715 to 720 range.

OK, if the market wants to play bear, then a good short would be at 1335.50 SPX. The weekly trend is down and trendline resistance meets at the 21 week simple average. The 50 week average has been support the last three weeks. A break below 1284 spells, "It's all over folks, batten down the hatches and give Greenspan a raise for his sccessful decapitation of the market." CODIndx is grossly overbought and its momentum is peaking. This is one dangerous market to be long as leadership is nonexistent. The best advice is to liquidate all longs and institute shorts on any rallies if you are lucky to get them.

Holding XAU component HL patiently.There is currently a loss of interest in this index due to OEX strength.

Here are the charts:

EQUITYCP CHART. MCOSC CHART. OEX 30 MINUTE CHART. OEX BULL CHART. OEX NSYNC CHART. PROBS CHART. RISK CHART. VOLATILITY CHART. TPRZ CHART.