MomentumCycles

To quote from the Momentum Cycles update prior to the open on Monday November 17, 1997:

"Short term traders who entered on the CODI buy pivot in the buy zone Thursday achieved at least 7 OEX points on 15 invested from the post opening selloff Friday to Friday's close.They would have exited on Friday's close knowing that premium often deteriorates on the weekend, or at the very latest near Monday's open" -This trade netted a double in 2 days in an in the money OEX call sold near Monday's open!

Momentum Cycles update prior to the open on Tuesday November 18, 1997:

Breadth:

It would be hard to find anything wrong with the breadth numbers today. Our NYA chart shows a major plurality of advances over declines. The McOsc shows the issue and volume oscillators completing the right shoulder and moving above the zero threshold. The issue oscillator made a marginal move above the zero line. Price advanced early in the morning and held most of its gains all day. So what was it that happened to cause concern to this option trader? As an option trader it pays to look behind the scenes with an anticipatory mindset. Taking a look at the flow rate we see that the maximum flow occurred on the pop in price in the morning, drifted off in midday as is common, but then in the afternoon the net flow rate drifted into the negative region right along with the TICK. This meant that profit taking was occurring. More shares on their last trade were down.{That's why we recommended taking profits early Monday-we saw the pop coming!The other reason was the predicted short term turn date of November 18th area approaching.} Things were so good today that CODI is on the verge of generating a SELL alert by a flirtatious touch of the alert line.

Volatility:

Modified Volatility indices are in the over bought zones. In fact the MVI regular is stretched to the profit taking band and the MVIadaptive is at its first logical resistance point. The AMOSS chart indicates risk has increased by moving the 5 & 20 day components into the overbought zone. The OEX P/C ratio has moved deeper into the sell zone below the sell alert line. This is the second day in the sell zone and reflects too much optimism on the part of traders. The 90 day is sitting on dead center neutral. AMOSS Zone timer has not quite reached a good sell area nor has it made a pivot. Gains like today are the kind to hang onto, so option traders following intraday momentum models exited at 12:28 as November calls peaked and began giving some premium back even as price advanced marginally.

RSI, SMI, Fibonacci Zones:

Daily Dow Jones Industrials closed right in the center of the weekly Fibonacci resistance zone. This would be a likely short term reversal point. Daily SPX closed just above its weekly Fib resistance zone. XAU is a short distance above its weekly Fib support zone. XAU and Yield are both still working the low RSIend. Stocks are making headway in strength and momentum. Expiration week is never a one way affair for five days. It is a back and forth shake-em-loose affair with multistrike range shifts.

Of Special Interest:

Canmine is now in the boring basing period. If it can hold the 1.5c level for a number of weeks, or months then a solid base will be built for a sustained advance. Base metals prices are pressuring stocks in this sector.

Momentum Cycles Update prior to the open on Wednesday November 19, 1997:

Remember that we predicted a short term turn to take place on November 18 a week or two ago, and that CODI argued for a short term trader's "take long profits on Monday" .Well, today we saw the wisdom of the use of cycle projections and risk- reward measured by our CODI indicator.Friday's long OEX call purchase sold Monday netted a double near the open.Take those profits when you can, especially when premium is as high as it is now !No trade is recommended for Wednesday for short term traders.

Breadth:

Advances and declines on the NYA chart reversed positions from yesterday's spectacular performance with declines edging out advances. McOsc has not suffered major damage yet and Wednesday might very well continue the upward impulse move started on Monday. CODI did in fact warn of selling today by pausing on the intersection of the Sell Alert line and a trendline drawn under the previous two CODI sell signals. Flow rates were definitely in the profit taking mode today.

Volatility:

AMOSS is painting a neutral to weak picture for Wednesday. The Z timer did make a sell pivot today and the P/C ratio edged upward, and it is still below the sell alert line. MVIs have dipped back from the initial tag of the upper bands. Since the bands are curling upwards, today's setback is likely to be short lived and another tag of the upper bands should be expected.

RSI, SMI, Fibonacci Zones:

Gold stocks may have found the bottom of the mineshaft or are within days of reaching it. There is a Fibonacci zone within a day or two of reach where we might see a reversal and beginning of serious basing/rally into the end of the year. Note the gold index either goes up or down and rarely goes sideways very long. Yield RSI and SMI are not threatening stocks yet. SPX and DJIA RSI and SMI are constructive for more upside action.

Of Special Interest:

Canmine has generated another 99 up Expert Rating. Expert ratings of 100 up and 0 down were generated for the S&P100 and the S&P500 on Monday 11/17/97. These are significant ER measures for groups of 100 and 500 stocks. The may have been assisted by weekend news that a "deal" was in the works with Iraq. Such be the case they might not lead to the advance they indicate if such a deal is not fulfilled. On the other hand this is Expiration week and if the weeks prior to E week are down, then E week has a net positive bias.

Momentum Cycles Update prior to the open on Thursday November 20, 1997:

From Friday of last week to Monday of this week{ or Tuesday open} we bought and sold an OEX call position for a double.We projected weakness Tuesday, followed by the probability of a net up Wednesday after the residual Tuesday selling was over. Important resistance is found above DOW 7900, where the upper band normally temporarily stops advances.

Trading Strategy-We like to initiate option trades from the extremes of overbought or oversold regions.The market always rallies within one or two days of crossing the buy alert region of CODI{green line area} and always declines within one or two days of a cross of the sell alert region { purple line area}.Pivots in the indeterminate area call for the interpretive assistance of monthly cycle probabilities{strong and weak days of the month}and our sentiment indicators{ AMOSS and MVI}.We attempt to call the market on a daily basis, even when no trade is recommended.

Breadth:

Advancing and declining issues ended the day fairly equal even as the equity indices inched upward. Thus the McOsc issue and volume oscillators did not budge from the neutral zone. CODI generated a buy pivot within the indeterminate region which means it will be a short lived signal. NYA showed the split nature of the market today. Dow and S&P 100 were in demand, and the smaller stock indexes were weaker.

Volatility:

MVI bands are still pointing upwards with the indicators working on tagging the upper bands. At this point it isn't possible to determine if they will enter a trending mode or retreat. They are indicating an overbought condition. The AMOSS Z score timer is still on a buy trend, but it too is nearing the sell zone. Ideally we could see a minor pull back on Thursday and then a stronger thrust upwards on Friday. This is the nature of expiration week.

RSI, SMI, Fibonacci Zones:

Gold stocks are getting some attention as its RSI, SMI and Fibonacci zones synchronize in time and price. T bond yields are still favorable for a rise in the OEX, SPX, DJIA. All three of these are working on resistance in their respective Fibonacci zones. A close above the zone implies a move up to the next Fib level.

Of Special Interest:

Canmine continues its basing above 1.5c. The S&P500 breadth indicator generated another strong Expert Rating of 99 up and 1 down. Breadth and price are not always completely in sync. Breadth often leads price. Probability expectations for Thursday are trending in the directions of some selling. The inner bands on the chart are the primary price targets and zones for a one day move based on implied volatility. It is also possible that the solid line and dotted line do not cross but diverge and thus price continues to move up. But as of the close on Wednesday they were converging implying some selling on Thursday is to be expected.

Momentum Cycles update prior to the open on Friday November 21, 1997:

Saddam blinked and the world had a party.In a matter of days before a large military strike was scheduled, and with Arab nations falling all over themselves to distance themselves from a suddenly coalition-less U.S.,Iraq apparently backed down,securing the peace multiple once again for equities world-wide.Secure oil fields mean no risk premium for oil prices.The price of transportation drops;psychological security returns. However,militant Islam is not dead- just resting.Either Saudi Arabia,Libya, or Iran are at risk for political destabilization.Oil prices long term probably do not reflect political reality.

What likely would have been a give back Thursday and a gonzo Friday were therefore probably reversed this week.Why were we not recommending a long entry for short term traders Thursday?CODI is closer to the sell area than is comfortable for a long trade.Resistance of the upper 3.5% band is in the 7900's, and longer term resistance is 8059.

Breadth:

NYA advances overwhelmed declines by 2.5 to 1 and up volume over down volume was 4.6 to 1. Even total volume was six hundred plus million. The CBOE Casino tallied OEX call and put volumes in the six figure category compared to a typical five digits. Well now, do you buy this market on Friday? No way Jose. Not with CODI making another pivot near the Sell Alert Line and the McOsc of volume near its former highs and the issue oscillator running into resistance at the top of its neutral zone. The higher the mkt is the longer equity purchases would have to be held to be profitable. Expiration week has these gyrations that are not sustained over long periods. Of course now we are talking about short term trading here where calls and puts are held for only a few days, or aggressive mutual funds are traded on a five to six day basis. The pattern for Friday should be up on the open for NDX and SPX settlement. Then expect some retrenchment of today's enthusiasm midday. The remainder of the day might just be untypical of expiration Friday's. Unwinding might just have occurred on Thursday.

Volatility:

Another reason to be extremely cautious is the extremely overbought state on the Modified Volatility Indices. The AMOSS Zone Timer is still on a buy trend but is penetrating deeper into the sell alert territory. And the P/C ratio has slipped back into the Sell area.

RSI, SMI, Fibonacci Zones:

Ever so slightly the XAU RSI and Stochastic Momentum are bottoming. The reversal is as difficult to see as disseminated gold in a cyanide heap leach pad in the Nevada desert. On the interest rate front, T-Bond yields made a wiggle upwards. Stocks were on a rampage, that's why they call it a bull market. In case you didn't know, bulls charge with their heads down and then fling the target upwards upon contact. Bears attack with head up and then throw themselves down on the prey. Examine your feelings to determine the type of market. Gold bounced off of the lower Weekly Fibonacci Zone as the Ratio Oscillator is turning up. OEX Ratio Oscillator is beginning to roll over as the Weekly High Zone was penetrated and closed above. Which one rules will soon be known. It looks like the Oscillator may carry more weight as price has had the pattern of following it in previous months when the upper Fib Zones were being challenged. The SPX chart has the Monthly Fib Zones overlayed on the Weekly Fib Zones for added perspective. Its Ratio Oscillator is also rolling over. Does this mean Expiration Friday will be to the downside? Or maybe next week will see some selling? DJIA closed right on its Weekly high fib zone with the accompanying Ratio Oscillator rollover.

Of Special Interest:

Canmine Resources continues to encourage with the basing. Some different indicators are displayed on the CMR chart showing the underlying improvement. Even though price is not advancing yet, there is a certain amount of base building that has to be done. Split Volume Moving Average (SVMA) often signals the next direction in price action. When it moves from negative to positive, it is a buy signal. P-Vol index is an index of price action during periods of increasing volume. It is based on the premise that "volume is the fuel to sustain rallies." Momentum Cycles update prior to the open on Tuesday November 25, 1997:

When CODI and AMOSS both tag the sell area, its best to leave money on the table for greedy ,late-coming longs!On this page, we made a double on the long OEX index option trade from pre-expiration week's Friday open into Monday's open, and took the money and ran!Left quite a few points on the table end of last week-but no damage in exposed long positions on Monday ,November 24.Readers had 2 days warning last week{Thursday and Friday} to exit any remaining long index positions as CODI edged closer to that inevitable sell.Japan's Yamaichi Securities problem may possibly spur further global selling tommorrow.

You may have noticed how our pointing out the last week or so on the rsi and smi charts that there was resistance in bonds to further yield drops, and the relative strength changes among the asset classes precisely signalled the recent bond retreat.On the multi year chart, 6% looks like a well tested profit taking level.We would need a decisive penetration of that level to get bullish again on bonds, accompanied by negative sentiment.In the past 12 years, there have rarely been more bond bulls as before last week{according to Barron's yield section}.

Any time an asset class falls for 20 years, you've got to watch it closely.Our proxy for silver, Sunshine Mining, topped at 20 in 1980 and has a classic Ted Warren type downtrend.This chart you should monitor for the next several years, as silver is often where the hot money goes.Once it gets a head of steam, a retracement of the 20 year downtrend , at least partially, is likely.{We pointed out that November 18 would mark a turning point for silver for extreme short term traders, and indeed it was the start of a fine tradeable rally!}Now Sunshine is not recommended as a buy here, but this chart should be monitored to look for a breakout of the downchannel for investors with an eye on extremely long changes of trend.When silver does finally take off- this one will also.

Breadth:

Well, did it feel like a bull tossed you into the air today, or did it feel like a hairy beast was falling on you? A very simple bull/bear indicator was confirmed intraday today with many more declines than advances. The McOsc closed just under the zero line as the volume oscillator rolled over. It doesn't feel good. Do we dare expect it to make a few indecisive cycles about zero before resolving the direction issue, or is it going to drop precipitously from here? Please take a look at the Flow Rate chart and you will see something rather rare. The flow rate net was below zero the entire day, as was the NYSE TICK. This is bearish action by any standard. CODI formally made a sell pivot today after tagging an uptrend line(yellow) from previous CODI lows. CODI was telling us this move up in price was weaker than the previous two. That is why the Sell Alert was put on last week without waiting for a penetration of the Alert Line, which is not an absolute level and is just a general reference.

Volatility:

MVIs made an unsurprising drop today. Last week they were warning of the overbought state. Even the AMOSS Z Timer made a sell pivot after venturing into the extremely overbought zone by the AMOSS components.

RSI, SMI, Fibonacci Trader:

Take a look at just where the NDX ended the day on its weekly Fibonacci Zone indicator. Simply amazing. The XAU is continuing the basing started last week. The Fib Zone had a level of 72 in view so the 74.5 close today may just give way. A major brokerage firm dampened the enthusiasm for stocks/metals in this sector today on TV. The XAU RSI and SMI are still indicating basing in gold stocks. T-bond yields appear to be yielding to bond selling pressure as the Yield RSI & SMI are rising. SPX Relative Strength and Stochastic Momentum are losing ground. Of Special Interest:

Canmine Resources may test the 1.5c if there is followthrough selling in equities on a broadbase. Momentum cycles are usually positive this time of month, but the Asian crisis does have the potential to spread like the flu of the same name. Bond yields did end on their highs today, and once momentum starts it is hard to stop.