MomentumCycles

To quote from the MomentumCycles commentary for the open of Tuesday, September 21, 1999:

"You heard it numerous times today: "Leadership is getting narrower and narrower." Also, "NASDAQ and S&P have toplike breadth divergences with fewer new highs and a ski slope A/D line." I idolize that technician;Ralph Block says it like it is with his historically 100% accurate crash barometer. It is not if, but when. Perhaps a catalyst or some shock therapy is needed since a review of the fundamentals and graphic descriptions does not seem to do the trick. The reason for the market still holding up is the majority of people with money in equities don't understand what is being referred to and don't care. They won't care until it hits them in the account statement. Let's coin a phrase, "old bulls die hard". Can't vouch for the originality of that but it aptly describes the current existing complacency. The truth of the matter is that the majority of "mom and pops" {and especially young investors have bought the notion of longterm investing} are having their pockets clandestinely being picked by the professionals. The shock therapy source can be external via economic or political news, or it can be internal as in tax loss selling and profit taking. The indigestion is the same. Without shock therapy the bull will die a slow death.

We know what is going to happen, we know how far it is going in terms of price, we don't know when, we do know it can happen any day, we also believe it will start when the least number of investors expect it and probably when they are sleeping. They will wake up with a living nightmare. The most important chart tonight is the Sentiment chart. The HRBBVS, i.e. modified Hines Ratio, is close enough to the optimistic level to buy puts. Reviewing other charts we see that the OEX 30 minutes has retraced to a lower fib level 5 times. INDU is on a collision course with the 200 day moving average. Moontide daily is now below the hourly, one day and two day averages. This continues to say that down volume is consistently eroding the foundations of the market. Trin closed near the Sell Tomorrow level. OEX projection bands on the VIX chart are 691.67 and 678.08 with a neutral VIX buy/sell oscillator. NYA on the McOsc chart ran into resistance right on our WMSR line at 614.90 and generated another sell arrow. OEX CODI is working the whipsaw zone close to the Sell Alert level. It could still follow the channel path to support at 680 when CODI zips on up above 6, maybe 6.5 or higher this time. Before it gets there the OEX NSYNC says there is temporary support at 688.48. We enabled the Cumulative SuperT to more clearly illustrate the price breadth divergence seen on the EODCV2 chart. SuperT and cumulative SuperT are created from normalized breadth information. Note that in late August and early September the CumST dropped below the lows in March. What this means is that if price had a one to one proportional relationship to the breadth composite then the INDU would be back down to 10,000 at least. The October 700 put at 13 1/4 might be a way to participate in a lower OEX. Option Premium ratio is still targeting the SPX for 1309 or lower by 9/24 close.

One of the resources we employ is a NASDAQ one week rate of change oscillator.This hints that if the market is able somehow to hold up until October 1,or makes a lower high than the August high on October 1,an important low is likely about October 27."

MomentumCycles commentary for the open of Monday, November 1, 1999:

Seasonal and cyclical studies can give beneficial advance notice of impending news,as we can see from the above commentary...

This is the time of year when there are more than a few crosscurrents driving various sectors and the market in general. Pump and dump is used to raise titanic-like stocks so that tax losses are not as great, and thus turkeys rise in the prevailing wind. The major influences are the mutual fund distribution dates and the re-entry of pent-up funds that have been avoiding buying an immediate tax loss.Along with these influences come the seminars, conferences, brokerage recommendations, upgrades, downgrades, road shows, etc. In the midst of all this, the general market makes its seasonal low as the short covering ends the annual downturn from the summer highs. Thursday and Friday of last week were benefits of all of the above plus the end of month money flow, plus perceived favorable inflation reports. It must not be forgotten that tax-loss selling is not over yet and can occur right up until the last trading day of the year. The skeptics and contraryitis types {me included} believe that Thursday and Friday were a major effort to "make the quota" for the month. Perhaps it is my imagination or just my increasing awareness that there seems to be a larger and larger use of strategic timing by those in control of {and who benefit by} short term performance. For example, the end of month, end of quarter, end of year are the benchmark periods for performance benefit calculations. When the majority are on the same wavelength as they are at these times {in addition to expirations}, the market experiences these panic-driven herd instinct type moves. Friday a week ago we saw the strong buy programs come in, then a few days of consolidation. At that time we reiterated our advice to expect positive conditions for a call trade mid week, then the UC payroll indicator payoff. It is very possible that we have seen the most of the seasonality occur in the end-of-month week, and thus will see distribution next week as many of the oscillators are at maximum overbought positions. Under these conditions fear can increase,and buyers can go on strike again as prices stall out. This may be somewhat premature thinking, but channel breakouts tend to retest the breakout, just as price lows and highs are retested. What this means is a potential drop in the OEX back to 700, plus or minus a strike. Thus our www intraday suggestion for the OEZWC November 715 put below 10 3/4. It was available at 10 and made 20 percent before the day was out. There is expected to be some short term pullback next week after last week's pumping by the talk of DOW 12000 again and 20% gains in the S and P by year end. I hope you noticed all this exuberance came just prior to, and just after Greenspan's evening speech. The market is tempting him to jam on the brakes again.

Reviewing the indicators for next week the question is, "Do things look too good, and are we in for another pre-FOMC pullback into 11/16 and 17th?" Starting with the INDU chart we see a tag of the +3.5% band, a tag of the On Balance Volume mid band, a max Force index, a max Rate of Change, and a max 5 day Relative Strength. The positive is that the INDU did close above the 21,50,and 200 day moving averages. The INDUtprz shows a completion of time and price swing with peaking stochasticRSI, and more importantly, a bearish pattern of 5 waves down and an ABC up, so far. The low red Trend Exhaustion Index turned down as the rally unfolded. What we would like to see in the TEI to confirm that the low is in for the season is another move up in the red TEI to a lower high and then a drop below the previous low. As can be seen the 1999 TEI has come nowhere near the magnitude of 1998, and there is fear that if 1999 is a millenium type 1929 top, then we are in for one turkey of a market in November. The SPX trendline on the TEI chart shows a retest of the breakout trendline would be a move back to ~1325. The McOsc made a rapid rise to 167 as the NYA made a 2/3 retracement of the July high and October low. This is a resistance level, as is the +3.5% INDU band.This is where some profit taking is expected. OEX CONE shows channel resistance at Friday's close along with a dromedary(double) type Projection Oscillator. An average probability pullback would be to 711, a strong pullback would be to 705, a near 50% pullback would be to 700,and a trendline pullback to 685 to 690. OEX CODI is on a sell alert again with channel line pullback to 700, lower high on Momentum and peaking Thrust oscillator.RSI is near overbought but hasn't turned down yet. When it does, the at the money puts will have turned and moved significantly. Implied Volatility, VIX and VIX point and figure are closer to a sell than a buy. Thus, you get the picture of why we suggested the November 715 put. The OEYKP had a pretty toppy look on Friday. Last, but not least, the Market Bias indicaters from TradeHard.com have a downward bias.

There is an excellent trading tutorial coming up on TradeHard next week. The annual subscription to TradeHard is one of the best educational trading buys available,and provides access to all the past and previous training series. This one by Connors promises to be the best so far.

This weekend we have Ralph Acampora on in a discussion of the past and future.

Option sentiment as measured by EquityCP ratio and the Sentiment as measured by a modified Hines Ratio both indicate increasing optimism.This would be expected in a market such as the one we have had the last few days. Both of the indicators are nearing the extreme level that marks pivot highs. Even though the accompanying price indicators of 3INDX and SMI have not turned yet, you can see that their levels are near previous turning levels.They are developing the doubleness that was seen back in July and August where the second high was followed by a downward slide in price. There is the possibility that the daily and weekly trend has changed from bear to bull, and in that case the market is not ready to reverse its recent gains. Strong McOsc readings like +167 on heavy volume accompany the start of new bull legs, but as mentioned above, this last two day move has the signature of pre-conference, prepayroll, end of month quota-making activity. This would be the first serious bounce at the end of the bear trend and the final or real test of the lows is yet to come. Option Premium Ratio analysis per Cadbury at says we should see something like a 0.5% drop in the SPX to 1355 or lower by 11/05. Anyone who bought the www OEZWC 715P suggestion below 10 3/4 {and I know some bought with limits at 10} should now use a breakeven stop or a 1.5 point stop if they wish to risk it. Gains on this trade were only expected to be in the 25 % to 30% range since it is a countertrend trade in the midst of what is otherwise a strong positive seasonality. A trend trade should net 50% to 100% in short order. In retrospect we probably should have flipped out with the 20% gains intraday.

Note that the The Capitalist Edge at is a fee site but there are some interesting freebies on it.Take a look.

HL 2 7/16.XAU,as seen in the STOCHASTIC 20 XAU chart below,is still basing for a rally and breakout.Momentum is still down,on a price versus price of 7 versus 35 days basis.

Here are the charts:

ADVANCE/DECLINE CHART. CODI NDX CHART. FRIDAY'S CONE CHART. MONDAY'S CONE CHART. CYCLE CHART. EODCV CHART. EODCV2 CHART. MARKET BIAS CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX NSYNC CHART. OEX TPRZ CHART. OEYKP CHART. PUTVOL CHART. RISK CHART. SPXMA CHART. SUPERT CHART. XAU CHART.

MomentumCycles commentary for the open of Tuesday, November 2, 1999:

We heard today from bullish prognosticators and very little from bearish types. That tells you something about where prices are headed. Even the last hour phenomenon showed the Pros were not cleaning up bargains or tape painting, because the bargains have disappeared in last week's rally and tape painting is not needed until later in the month when the pre-Thanksgiving seasonality kicks in. Strategic timing would see distribution this week and accumulation later again in the month. There is no urgent need to own stocks in advance of trend making history from the economic front. The most important report this week comes on Friday, so expect the market to consolidate into Thursday with failing attempts at rallying in a similar manner to Monday. Now the concern is rising rates around the world, with Australia making a decision on Tuesday, and if they raise, then Europe raises on Thursday.At least that is what the bond types are promoting. Then if Europe raises, the US follows to remain competitive for currency inflows as the US has not reached the self-funding stage yet in terms of the confidence factor. So today we heard the DOW year end forecast of 11500 and that of the NASDAQ pegged at 3100. Might we ask why when earnings have hit a cyclical growth rate peak in an already overvalued market? It isn't just earnings that are important for the major average stocks, but more importantly it is the growth rate. A growth rate slowdown is a deflationary stimulus for stock prices, i.e., just what Greenspeak prays for in the balancing act. Growth stocks crash when the growth rate falters and PE's drop to historical norms. This employment cost index on Friday is most important to the TYX yields. How many times have you heard "its only a correction"? Well, "only a correction" will produce nice profits in a put trade.

Today's reading on our indicators confirmed Friday's www intraday e mail OEX put suggestion, with entry below 10 3/4. It closed Monday at Bid 12 1/2, Ask 13. OEX closed on its low for the day. It could be exited on Tuesday with nice gains. We expect more selling Tuesday AM with a late day attempt at rallying. I would be inclined to take profits at 13 or higher, even though the put could go much higher before the week is out. If the Bid moves above 13 move your mental stop up to 13 and then in quarter point increments until stopped out. Alternatively, use the CONE suggestions below. OEX options are tradeable items not designed to be bought and held until expiration, and holding puts during the "positive seasonality" is risky business. Unless used as spreads, OEX options are insurance-like products with built in amortization, i.e., you pay to hold them, and we are entering the accelerating exponential decay period for Novembers. If a positon goes deep in the money as the 715P could, then the chart would look something like the OEYKP. But dont get the wrong impression here, we only expect 25 to 30% out of this trade and are virtually there. Beyond that it is your own risk,responsibility, and timing for an exit.

Note the decrease in the Rate of Change for the INDU and OEX fibret. Note that the CODI NDX RSI has turned down as its CODI hits the Sell Alert level and its Momentum indicator makes another high. Trendline resistance also played a part today. OEX CODI also made a sell pivot and its Momentum osc is stretching for a sell. The Flow Rate chart has a telling picture about Thursday, Friday,and Monday. Note how the net volume decreased each day and went negative on Monday. As you might guess the End of Day Cumulative volume also turned down for the hourly as the daily EODCV stalls out at the 50 day moving average. This continues to look like bear action despite all the bullish forcasts on cnbsee. We should see more of it on Tuesday. The NYA ADVDECL chart also shows the raw data and the spread differential. Note what happened to the NYA when the spread went negative. OEXnsync looks like it is also supporting our notion of holding a put position. The INDU chart is also revealing resistance at the +3.5% band, a downturn in the Force Index, a stalling of OBV at the mid band, a Rate of Change rolling over. It is pretty clear the market reached a short term extreme last week. Not surprisingly the NewHighNewLow turned back down on Monday and SuperT is correcting. Next best buy will be back down at the Correction level or lower.

Some Y2K selling and get out even behavior is taking advantage of the high channel side of the trading range. Monday's CONE shows the pullback from the upper channel side as the Projection Oscillator backs off from overbought. It also shows that the downside was to the lower green probability cone set. Tuesday's CONE shows the probable levels for Tuesday. Assuming we do get some additional selling, then the Lower green cone range would be a conservative place to close the OEZWC, or if the OEX drops below the green cone then move the stop to that area and hope the OEX falls to the red cone set where profits should be taken or the stop moved again. It isn't the seasonal time for a trip to the red or grey cone, however.

XAU stochastic 20 is still basing for a rally. Momentum of price 7 vs. 35 is still dropping and oversold. HL is 2 3/8. We are still holding long as a long term core position.

Here are the charts:

CYCLE CHART. EQUITYCP CHART. MCOSC CHART. MOSS CHART. OEX 30 MINUTE CHART. SENTIMENT CHART. TEI CHART. VIX CHART. VIXPF CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Wednesday, November 3, 1999:

Tuesday rallied and then sold off, taking the OEX down to the green cone late in the day. That drove the OEZWC up to 16 BID on the close. WWW intraday e mail update advised readers to begin to start take profits at 14 as the initial target was met. The plan here is to reenter puts on a rally. The INDU closed below its 50 day MA as the Rate of Change and RSI peaked. Even though we had positive breadth in ADVDECL issues and volume (on FlowRate chart) most of the day, OEX still took a nose dive to lower daily fib support. Coincidentally, this nosedive occurred just before perennial bear Jim Stack appeared with election year statistics on cnbsee. The essence of his message was that the Fed is out of sync with previous election years, and should have already raised rates. Doing so in an election year that drops the market 10% is a death warrant on the incumbent party. The implied conclusion is that we are guaranteed a rate rise before the year is out. Earlier in the week a rise of 0.5% was a rumor that was spread when the consensus was reached that 0.25% had been already discounted. Traders should never assume rate rises have been discounted as discounting is not programmed into mechanical systems, i.e. three steps (rises in rates) is programmed (psychologically) to stumble the market. Most of the technicals still look like a top is being put in. 5advol hasn't peaked yet but is at an extended level. On the same chart the net New highs - New Lows has peaked for this swing as the OEX dropped to the first downsloping trendline. We may get a bounce off of it tomorrow, at which time we could have another put entry. End of day cumulative volume is developing the resistance hook under the 50 day moving average. CODI NDX is resting on the Sell Alert line as its Momentum hits the upper side of the Sell Zone and the RSI peaks. The white uptrendline provided resistance, with a channel line about 75 points higher. CODI OEX has moved back into the WhipSaw zone as the Momentum Osc peaks and Market Thrust hits a high level. These latter two have not turned down yet but the RSI has. EquityCP and Sentiment are on sells but seasonality may delay it a few days. The feel is we could have another rally attempt on Wednesday; the official seasonality does not end until Friday. Thursday might give a headache to the bulls if the notes on my calendar are correct. November 5th was circled as a Spiral Calendar crash date. I can't seem to find the source of the information. It has to do with Chris Carolan's Spiral Calendar. I hope I am not misquoting old information.

XAU 7 days versus 35 still dropping in momentum;STOCHASTIC 20 still basing for a rally.Complex STOCHASTIC 20 bottoms occur in very oversold conditions.HL is 2 1/4.Perhaps Tuesday saw a glimmering of oscillator downside momentum stalling.

Here are the charts:

ADVANCE/DECLINE CHART. TUESDAY'S CONE CHART. WEDNESDAY'S CONE CHART. CYCLE CHART. EODCV CHART. IDDATA CHART. MCOSC CHART. MOSS CHART. MVM0735 CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX NSYNC CHART. OEYKP CHART. SUPERT CHART. TEI CHART. VIX CHART. VIXPF CHART. VOLATILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, November 4, 1999:

Wednesday was a go nowhere day. Beginning of month seasonality says we have another day or two of positive bias, but as everyone knows it is on hold until the interest rate picture clears. We also have the longer term seasonal bias evidenced on the RISK Monitor chart that can extend for weeks and months. Conferences are still boosting select sectors, primarily tech. CODI NDX hit the upper regression channel today as its Momentum pasted a yellow dot at the +6 Sell Alert Level. If I were a betting man, some NDX puts might be in order. OEX CODI is working on a momentum sell, a weakening RSI and an overbought thrust oscillator. Price action still seems consolidative. SuperT found support at the 10600 greenline support with the composite breadth oscillator dropping to the zero line. AMOSS has dropped to the neutral line. One sign of a top is when the 5 day advancing volume peaks and it looks close to doing that. The NewHigh/NewLow has peaked again and is a more sensitive indicator. The plan here is to buy puts on rallies to resistance. That sounds kind of vague, but is in fact defined by the highs of the previous four days. The most important day is the immediately preceeding one as laid out on the Midpoint chart. For daytrading the previous day's high, low and midpoint are important.Just as important is the current day's high,low,and close. Profitability is keyed to trades around those points. The OEZWC was quite active today offering more exits at 14 or higher. Since the OEX hung out on the pivot most of the day and cumulative breadth was directionless {as was the ADVDECL} no trades were recommended.

Sentiment is still showing put level buying optimism as the 3INDX and SMI roll over.

Closing tick of +610 would normally suggest a correction within one or two days.Option premium ratio has been dropping from the recent rally high of .75 into the .60's.Option premium ratio often leads the market up and down.

XAU Stochastic 20 still basing for a rally. Momentum of price 7 vs. 35 days is still dropping and extremely oversold. HL is near $2.00.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. WEDNESDAY'S CONE CHART. THURSDAY'S CONE CHART. CV CHART. CYCLE CHART. EODCV CHART. EODCV2 CHART. EQUITYCP CHART. FLOWRATE CHART. INDU CHART. MCOSC CHART. MIDPOINT CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX NSYNC CHART. TEI CHART. VIX CHART. VIXPF CHART.

MomentumCycles commentary for the open of Friday, November 5, 1999:

Various indicators point to the expiring beginning of month seasonality. The Sentiment indicator is in the "Buy Puts" mode, with the SMI and 3INDX in sell mode as well as the modified Hines Ratio. Advancing volume has peaked and turned down and is within one day of making a sell crossover with the declining volume. NewHighs/NewLows have already peaked and thus turned negative earlier in the week. OEX CODI is in sell trend mode along with its momentum and Market Thrust indicators. The last 5 candlesticks on that chart are in profit taking formation. Cumulative volume made another opening jump and then went flat the remainder of the day. This sucks in the naive buyers as the pros distribute stock to the unwary. OEX is working in the lower half of the up channel indicating loss of momentum as its Projection oscillator continues to drift lower. INDU is struggling to hold above the 50 day moving average. On a positive note, the INDU on balance volume closed above its mid band, and the Force index moved above zero,while ROC increased a bit. More negatives are on the EODCV chart with the 50 day MA still providing resistance and the McOsc of volume turning down. The RSI is also hitting bear market type resistance at the 55 to 60 levels. The OEX 30 minute chart looks like a distributive triple top to bears and a consolidation to bulls. NYA is finding tough resistance at the 0.667 retracement level as the McOsc of issues stalls out. OEX Nsync also looks like the end is near for the short term. On the intermediate to longer term the Risk Monitor is looking constructive as it now is working the upper side of line E, as it has in previous bottoming formations. VIX point and figure has moved into the Indeterminate Zone after bottoming below 21 and trending upward since 10/28. OEZWC gave another opportunity for a 20 to 30 percent trade on Thursday following the www intraday update entry and exit. TYX yields continue their downtrend which is bullish for stocks. However, that may just be saying the money is going for fixed income instruments rather than stocks for the interim. Also the Momentum Cycles chart shows a similar bearish setup to that in July and again in August. At that time the US Dollar Index and the OEX were in overbought zones when the 30 yr T bond yields and Gold Index and Commodity index were oversold. This is a nice setup for a short term short measured in days rather than hours. Perhaps Friday will accomodate another opportunity to enter at the money or one strike in the money puts.

XAU continues its basing for an eventual rally.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. ADVANCE/DECLINE CHART. EQUITYCP CHART. MOSS CHART. MIDPOINTCHART. MoCyclesCHART. OEX 30 MINUTE CHART. OEXFIBRETCHART. OEXNSYNCCHART. RISKCHART. SUPERTCHART. TEICHART. TYXCHART. XIX P and FCHART. VOLATILITYCHART.