MomentumCycles

MomentumCycles commentary for the open of Monday, November 29, 1999:

The market is entering one of the strongest seasonal periods of the year. This is reflected in the option data of the Sentiment chart. It is also reflected in the TV bull/bear numbers. Tech funds are jacking their easy movers up as November comes to a conclusion. Chances are the NDX and NASDAQ will see higher highs over the next week and a half. Then we should see another bout of tax loss selling into the middle of December at which time the Santa Claus rally competes with Y2K fears. The Red Trend Exhaustion Index is establising the lower low and we should now get a lower high. Issue and volume breadth was atrocious early this week and took the SuperT down near the Correction level where some decent rallies have occurred. As you may recall from previous commentaries, MomentumCyclces shies away from puts or shorts in the last few days of any month, regardless of technicals, and, in fact, looks for call entries. The selling early this week has set up a very good short term oversold position for calls going into early December.{Additionally,using the method of price rate of change trend turn dates,which must of course be confirmed with our other indicators,we would look for a rally starting at the latest by December 1.}

This year has not been particularly kind to mutual fund owners or their managers when compared to the gains of prior years. The year 2000 may be even less kind if history is a guide.

"Every year ending in zero since 1960 has had a recession", notes Argus Research Corp. economist Richard Yamarone. "Only four decades in American history have avoided the zero curse: 1860, 1880, 1940 and 1950."

From Yale Hirsch... "Don't Sell Stocks on Monday":

"Zero years have been dreadful years or have at least been hit hard before turning up in 1960 (September), 1950 (July), 1970 (May) and 1980 (March)."

Also, years 1900, 1920, 1940, 1960, 1980, and 2000 (?) are election years.

Here are some statistics that don't favor the buy and holders and would suggest reducing RISK by raising cash into this current rally and any produced by post Y2K euphoria.

** T-BONDS: DUS9Z has retraced almost 62% of this fall's rally and is poised to test the lower boundary of this summer's trading range crossing at 112-16 later this year. If this support level gives way, the 75% retracement level crossing at 111-19 is the next downside target. Stochastics and RSI are bearish, signaling additional weakness near-term is possible.Note that T bond correlation stock FNM is oversold,near the lower band of price,but momentum has not yet turned.

**The tech-laden NASDAQ index has now rallied over 25% in a month -- nonstop with nary a pause or pullback. NDX CODI is on a Sell Alert, yet we are extended well into the strongest seasonality of the year. The Nasdaq's strength is exemplified by its winning streak of 17 up days out of the last 21. This, despite the Goldman Sachs Commodity Index (GSCI) rallying sharply in November, a bond market that registered nine losses in the last 10 sessions and the inability of other key market indices to devour new highs like the Nasdaq. Individual trades on the Nasdaq grew 35% in November, a rate that matches a good year's annual growth.

**EquityCP and Sentiment reflect this strong enthusiasm - so much so that they are registering Put buying levels. OEX has not yet had its Cyan line indicator drop below the Yellow dot indicator.When that happens it will confirm that price agrees. This puts us in a quandary as this is the time of month we like to put on OEX call trades. The timing is usually within three days of the last trading days of the month and holding time is into the first week of the new month. The UC Payroll indicator has struck early this month so the funds are in the hands of the portfolio managers. Money speaks and we have to weigh that factor more heavily than the indicators this time of month. This, coupled with the public's enthusiasm, means we are likely to see higher index levels over the next week or two. We could begin seeing tech funds dumping underperformers starting in the middle of next week,thus bringing on another two week bout of tax loss selling. The net result may be a flat market rather than much higher prices, and then down into mid-December, at which time we will see how strong Y2K fears really are.{Tentative price rate of change projections,which must of course be confirmed by other indicators,show a high about December 17 and a low about December 22.}

**Trading by small investors is hitting unprecedented levels with reports showing as many as 1 million new brokerage accounts opened in the third quarter. The monetary background is negative and the technical background is eroding as measured by McOsc, NHNL, 5ADVOL, SuperT, etc.. It will be interesting to see if the pre-holiday buying binge suffers a hangover.

XAU/HL found recent resistance at the upper 3.5% band of price.STOCHASTIC 5 is actually overbought.XAU index components are obvious tax loss selling candidates.Examine the position of the momentum oscillator for the index.We are still holding HL from near 2$ as a perpetual call on the sector.

Seasonality says we should be looking for a call entry during the last 3 to 5 days of the month. Holiday seasonality boosted prices last week and made such a call entry a bit riskier. Regardless we will stick to the mechanical nature of this system and look for a low entry on Monday 12:30 and 14:30 eastern time. The Time and Price zones indicate a price entry between 744.26 and 750.50. This would correspond with the lower green cone on the CONE chart. The Time and Price zones uses a statistical analysis of swing length and time whereas the CONE technique uses only the previous day's data plus an implied volatility calculation to project support and resistance for the next day. If the OEX drops into this zone, then the preferred strike to buy would be the 745 since it is the at the money with most liquidity and narrowest Bid Ask spread. The 750 may produce a higher percentage profit if we get a few strikes movement to the upside after entry.

Since the market is entering the positive seasonality and hasn't actually formed a pivot high yet, we should be using the last established pivot low to project the next pivot high. The results of this are a price zone between 754.22 and 780.07, and a time zone of 11/24 to 12/03. The other chart has a forced pivot on Friday, which may or may not be the case, so it is best to consider the possibility that the current upswing is not finished yet.See the pivot chart here.

Here are other charts:

CODI CHART. CONE CHART. CYCLE CHART. DSP9Z CHART. INDU CHART. MOSS CHART. OEX MIDAS CHART. OEX NSYNC CHART. RISK CHART. VIXPF CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Tuesday, November 30,1999:

We had called for a short term high {using the rate of change of price oscillator} well over a week ago scheduled for Friday,November 26.So far,that seems to have been accurate.Rate of change oscillator looks for a rally starting about December 1.Note the high number of over 1000 negative ticks recently that often in the past have preceeded rallies.The next paragraph discusses monthly money flow patterns due to pension fund reinvestment.

First we have to ask whether the market is overbought or oversold. Is time favorable for a rally resumption? From a breadth standpoint, i.e., McOsc, SuperT, 5ADVOL, and NHNL, the market is oversold. This happens in bull trends when price consolidates and weak breadth brings out renewed hope for bears. Seasonality says fund managers have loads of cash to commit and there has been a compression of delayed volume buying due to the holidays. Tuesday marks the official first day of payroll seasonality. More players should be back in the game on Tuesday as they return from the turkey feast. The time and price chart as well as Monday's Cone chart may just have called a pivot low. Cone Projection oscillator is now oversold. Tuesday has a "turnaround" personality and is the day that the end-of-month switchers transfer from cash accounts to aggressive growth accounts. Don't be too surprised if the NDX and Nasdaq make new highs this week. The official end of this seasonality is the fifth trading day of the month, 12/07. It is very possible we could see a few strike price range shifts to the upside over the next few days. Using an historical series of 82 swings based on 30 minute bars, the next pivot high projection is scheduled to occur over the next several days and run the OEX to between 754.77 and 773.44. Of course history is just that and is subject to modification by the various economic reports to be released this week. On the other hand, most of the fund managers could care less about reports and are mandated to be 80% or more invested at all times in bull and bear markets. This means they do little if any market timing and leave it up to the individual. Traders produce a lot of market noise and very short trends. Longer trends are dominated by the institutions and they are the ones who make it possible for us to trade OEX options in sympathy with their spending. So, as of Monday close, the OEZLK or OEZLJ look like they could produce a 25 to 30% gain this week.

Last week we had forecasted a further decline in 30 year T bond prices and a commensurate rise in rates until extreme oversold was reached, in concert with the stock we have found correlated with rates,FNM.Note that the FNM oscillator turned up Monday,which is usually in advance of price.FNM STOCHASTIC 20 is in extreme oversold.This combination would normally preceed a short term T bond/FNM rally.

XAU was short term overbought last week at 72 near the upper 3.5% band with a STOCHASTIC 5 reading near 100,when we posted a short term sell signal.Monday saw a sharp 7% decline back to the lower 3.5% band,but unfortunately,readings are not oversold.Further XAU/HL weakness might be expected here.

Here are the other charts:

ADVANCE/DECLINE CHART. CODI CHART. TUESDAY'S CONE CHART. CV CHART. FLOWRATE CHART. FNM OSCILLATOR CHART. FNM STOCHASTIC 20 CHART. INDU CHART. INDU60 CHART. INDU FIBRET CHART. MOSS CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX MIDAS CHART. OEX NSYNC CHART. RISK CHART. TEI CHART. TPZ HIGH CHART. TPZ LOW CHART. XAU OSCILLATOR CHART. XAU STOCHASTIC 20 CHART. XAU STOCHASTIC 05 CHART.

MomentumCycles commentary for the open of Wednesday, December 1, 1999:

At the end of September, we had mentioned that October 27 would likely be an important low, using cycle analysis of price rate of change. At the start of the third week of November, we had mentioned that November 26 would likely be a short term high, using cycle analysis of the price rate of change. Using FNM oscillator analysis, we mentioned yesterday that Tuesday would likely see a short term 30 year T bond rally and FNM rally. Both of these occured on Tuesday. We also said previously that 72 on the XAU would likely be a short term sell point, as Stochastic 5 had reached extreme overbought. XAU promptly fell 7.5%, back to the lower band.

Well, commentary for Tuesday said the Time and Price statistical zone low could be as low as 733. Who would have thought it would drop to 737.71, except perhaps someone who was also looking at the implied volatility cone for 11/30 which made a solid red cone tag. Norman Fosback of Market Research popularized the end of month seasonality switching system and Growth Fund Guide of South Dakota has tracked the mutual fund switching system from money markets to aggressive growths on the close of the last trading day of each month for many decades. The next switch will be back to money markets on the close of the fifth trading day of December. This system has by far the best long term track record for compounding gains and missing all market crashes. This might be the millenium exception if the NASDAQ and NDX have day after day repeat performances of Tuesday. NDX CODI is finally gone into sell mode after being in sell alert for some time. OEX CODI is also moving up into the whipsaw zone. It certainly doesn't look like the seasonality trade has much hope for success, or does it? Issue breadth was improved, as the Advance/Decline chart was pretty evenly matched most of the day. Flow rate was positive with up volume exceeding down volume most of the day until just before John Bollinger appeared on cnbsee. Recall how Jerry Favors' appearance on Friday used to tank the market 30 minutes before his appearance, so much so that they had to drop him as a guest. Once the mkt clues into a pattern, the pattern disintegrates until another one takes over. Yet the end of month/beginning of month has endured over decades, so sometime this week we still expect some upside action. The Time and Price zone is calling for a move up on Wednesday to between 748.16 and 764.08 or more precisely between 751.33 and 759.11. Looking at the implied volatility cone for 12/01, we see the first strong up red cone is at the 750 level. The 1999 summer high is just below Tuesday's low. Perhaps Wednesday will test 736 and then bounce just as the End of Day Cumulative volume is testing the 200 day moving average and previous support/resistance level. This may be painting too optimistic of a picture for the potential damage that could be done if buyers go on strike. OEX and INDU have made 1/3 retracements on the dynamic fib ret charts. They could bounce here, technically, Could be the final day of November was a portfolio cleansing one and Wednesday might have an entirely different character. There is no denying that RISK for being long is much higher than on October 30th. Sentiment and EquityCP have been signalling put buying and finally paid off. On some charts, like MOSS, the OEX is oversold, and on others, like OEXnsync, it is only halfway there. Seasonality and statistics say we should get a bounce in here. It depends in large part on the economic reports and oil, which is dropping, and their impact on T bonds, DUS9Z. Note that yields did back down on Tuesday. Perhaps that is a harbinger of things to come.

EquityCP and Sentiment charts indicate the optimum put buying time has passed for this cycle. Stochastic Momentum and 3INDX have moved back to the midpoint of their oscillation as the OEX has dropped back to near the 735 high of July 19th.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. DSP9Z CHART. INDU CHART. INDU60 CHART. INDUB CHART. MCOSC CHART. OEX 30 MINUTE CHART. OEXWM CHART. SUPERT CHART. TEI CHART. TPZ LOW CHART. TPZ HIGH CHART. VIXPF CHART.

MomentumCycles commentary for the open of Thursday, December 2,1999:

Well,we projected a price rate of change cyclical high on November 26,and a rally starting December 1.Not much of a rally from Wednesday open to close,but a rally nevertheless.The action seems drifting,with negative issue breadth, negative NHNL, positive volume; it just seems comatose. Looked as if like portfolio cleansing continued into 12/01AM. There is a dynamism missing that tests resistance but can't break through, yet. Maybe the turkeys that flew prior to Thanksgiving are now landing, holding the quality stuff back. Newhighs/NewLows are a component in the TrendExhaustion Index with which we are looking for a lower high to signal the next upward march in prices. There were fewer new lows on Wednesday. If the NASDAQ is going to take a breather then might we see more action in the S and P and associated indices? Did someone say leadership is switching to cyclicals? If so, the DOW and SNP might just surprise everyone. However, NYSE TICK is running constantly negative hour after hour. Been so long that I can't recall when we had a positive tick that lasted all day. That has to mean something besides my need for some ginko biloba. An unsynchronized tape is just not going to be accomodative for decent trading and time decay will erode call or put premiums. It also makes the call entry all the more crucial, as at the lower red or green cone on Tuesday. Best to enter calls when the OEX is on the lower side of the range. Flow rate almost switched to negative again in the last hour on Wednesday. UpVol and DwnVol kissed and then continued in a net positive difference as President Clinton spoke. 5ADVOL is about to cross to the positive inducing trend. Yet TICK remained negative and ADVDECL remained negative. To get a decent sustainable OEX call trade it is going to take net positive ADVDECL, positive Flow Rate, positive TICK, stable or declining interest rates,and rising DUS9Z.With those in gear overhead price resistance should then yield to seasonal pressures. We have yet to experience the formidable results of positive seasonality that produces doubles and triples in a matter of days. This doesn't mean it hasn't been possible to make money with intraday trades as the OEZLJ,K,L,M had 50% moves from low to highs on Wednesday. MoCycles has been pointing out that Calls were the end of month/beginning of month trade to shoot for using the TPZlow pivot as a confirming "price and time tool" for timing. The high pivot is expected to occur between now and Wednesday of next week. One sage expects the S and P to range short term between 1400 and 1425. I'll take that. Another sage says 12,000 is now back on the target for the DOW by March, whoopee. AbbyC has lowered expectations to 1475 S and P by late 2000, best to forecast low and raise later. Any bet those targets come before Santa gets sooty coming down the chimney? If so, that would be more like what people have come to expect...fantasy that is better than reality, dreams that come to life. Ah, that is the problem, investors are spoiled, and that is what gets OEX traders in trouble when they place a trade and then there is insufficient followthrough to move the premium. A bad entry can make a trade a wash or a loser even if the direction is figured correctly. My overanticipation gets me on occasion and multiple entries have to be made. There is always another day to trade.

EquityCP and Sentiment are now in neutral. CONE projection oscillator has turned up and OEX close was above the classical pivot. Seasonality and the Odds favor higher prices.

FNM and T bonds sold off a bit;both are oversold-how much of a bounce we get off the recent lows is uncertain.We would have preferred a stronger follow through on Wednesday.Short term T bond traders/FNM longs could place a protective stop loss near their recent long entry.This may well have been a countertrend trade.

XAU/HL is showing continued weakness while near the lower 3.5% band.True oversold setups for rally come at STOCHASTIC 5 and 20 rising off 10 to above 20 on big volume.XAU volume was very light Wednesday.More basing may be needed.XAU components are obvious tax sale candidates.

Here are the charts:

Volatility chart. OEXMidas chart. OEXnsync chart. SUPERT chart. VIXpnf chart. OEXfbrt chart. OEX 30 chart. ADVANCES/DECLINES chart. CODINDX chart. CODIOEX chart. END OF DAY CUMULATIVE VOLUME chart. INDU%b chart. INDU chart. INDU60 chart. McOsc chart. Moss chart.

MomentumCycles commentary for the open of Friday, December 3,1999:

The recent wild divergences between the various indices is giving conflicting signals in the method of rate of change of price projections for the DJIA ,S and P, and NDX.One projection gives the 17th of December as a high,the other gives the 16th as a low.Possibly this confusion is due to Y 2 K money flow abnormalities from overseas seeking safe haven status in the U.S.,or U.S. banks hedging against 3rd world year-end illiquidity.Y2K may turn out to be a tempest in a teapot{see more on this below!},but the recent readings in the M2 money supply seem to imply an effort to insure year end hyperliquidity. Accordingly the rate of change price projections for mid-December are not clear...what was previously seen as a mid-December high may reverse to a low.Before being critical of the current apparently mixed signal,please remember this methodology did accurately predict weeks in advance the October 27th low-the very start of the remarkable NASDAQ run.{After the 27th the NASDAQ never looked back until November 26,which we predicted a week in advance as a short term high,and at that time we also predicted correctly December 1 as a low.}

Looking at another methodology,the current point of interest to be examined today is the Nov/Dec period of 1998 and 1999 on the Volatility chart. Note that in 1998 there was a pause in the year-end rally that bridged the end of November and first part of December, and thus delayed the usual end of month/beginning of month seasonality. It looks like we are getting that same result again this year. Whether we have yet reached point "D" on the Volatility chart remains to be seen.

After the last few days the virtue of a mechanical system is becoming obvious. In spite of the divergent breadth, at the money or nearby calls purchased 11/30 or 12/01 at Cone or TPZ pivot lows have paid off nicely. Sometimes multiple purchases can be made on consecutive days if you believe in the theory, and allocate 1/2 or 1/3 to each of two or three entries, such as the example cited and recommended {the OEZLK}. We stated a few days ago that a 25% to 30% gain was possible in these options and so far it is over 50%.

McOsc has given a trendline crossover Buy several days ago. Some OEX and futures traders use a trendline crossover buy on the ten percent component of the McOsc. Cumulative volume ended Thursday in buy mode. RISK monitor says the INDU will see resistance at 11500. OEXnsync says the OEX will see resistance at 765 and the Time Price upper target is 764.08 by 12/08 or 12/09. Also the Modified Implied Volatility, MIV, on the OEXnsysnc chart is coming off a band pinch low below the zero line as it does at Price pivot lows. So just maybe we have some further power here. This view is definitely contrary to the feel a trader gets from watching the tape intraday. That view is one of sell the rallies, and is perhaps why the rally will continue. Friday we have that "much to do about nothing" labor report. There is no question that the T bond and S and P futures will react to it, but by the time the dust settles we will have Act 2, the real performance. MCM had a neat view of T bonds and T bond options today that stated that from a contrarian's point of view the put/call ratio says bonds are oversold.In that view yields should fall and thus equities should respond positively. You can bet that there are a bunch of bond buyers waiting to buy any selloff in T bonds, as the yield may represent value for those who buy such instruments. If the truth is as we are sensing... that there is a compression of equity buying waiting to finish digesting "Big Bird" and still trying to get warmed up after a week of playtime, then we might just see a continuation of the Year End Rally illustrated on the Volatility chart. Imagine this hoard of Y2K cash burning holes in pockets, and as price inches upward the fear of being left behind or paying antique prices on 01/01/2000 might make for a nervous market. It could be like an expiration rally in the final hour as the reality of Y2K is finally recognized as the biggest bogus pitch played on the investing public in history. Breadth still stinks but is gradually improving. This brings up the issue of whether breadth matters anymore as valuations don't seem to matter anymore. Since sector rotation has been the name of the game for some time now, perhaps breadth has to be sectorized to be meaningful for timing purposes. In the end it is price you trade regardless of breadth.

{Speaking of trading, if you traded NASDAQ stocks between May 1, 1989 and July 17, 1996 you may qualify to participate in the $1,027,000,000 class action suite. See http://www.nasdaqlitigation.com for details. December 8, 1999 is the final date to postmark your claim. This is a reminder for a posting we made last summer on this matter.}

We feel admittedly a little nervous with the FNM/T bond correlation long going into Friday.Labor market looks tight.The FNM long trade and its corresponding bond play has been early a bit in the past and we have been stopped out a couple of times trying to catch the bottom at the lower 3.5% band,missed it by a hair with a close stop,then seen the rally materialize and rocket to the upper 3.5% band.Some of the buys have been bang on.The sells at the top 3.5% band have generally been closer to the selloff date,often just the day before.The current FNM Stochastic 20 position looks set up for a rally;it just needs a little nudge.As always,readers can place a reasonable stop below the entry...right now we're about even on the entry as of Thursday's close.

XAU/HL is near the lower 14% trading band.In the past year that area has provided support.We got the short term double sell right at the recent XAU 72 area {upper 3.5% band red arrow downwards},but now the STOCHASTIC 20 reading on the XAU seems to be basing for a rally.This oscillator needs to come up above 20 on increasing volume.Tax selling is impacting the oversold status.HL is 2$,about where we entered for long term holders{traders sold at 3-3 3/8 or so at the 94 price XAU spike.}

Here are the other charts:

MOSS chart. OEX 30 min chart. OEXfibret chart. OEXmidas chart. SUPERT chart. Trend Exhaustion Index chart. VIXpnf chart. Indufbrt chart. Indu 60 chart. ADVANCES/DECLINES chart. CODINDX chart. CODIOEX chart. Cone 12/02/99 chart. Cone 12/03/99 chart. DSP9Z chart. End of day cumulative volume chart. Flowrate chart. Indu%b chart. 5advol chart. Sentiment chart. Equity CP chart.