MomentumCycles

Momentum Cycles update prior to the open on Monday, November 3, 1997:

Military action against Iraq near term is probable.Oil will probably be strong into the first day of such action.Gold still possibly made a spike low last Monday at 308;that has not yet been taken out.A close much below 308 would mean gold has not yet bottomed.Our call for an equities cycle low on October 27-28 , followed by a seasonal rally into early November appears correct.We expect some selling following the end of the seasonal money flow- watch CODI this week.

Breadth:

The McOsc of issue and volume appear to be two thirds to three fourths the way through the completion of a complex bottom. While they work their way up to the zero line the OEX should work up to regression line B and possibly A. That conjunction of price and breadth should coincide with the end of the momentum cycle that began last week. NYA has worked above a 6 day downtrendline with good net positive advances over declines. The A/D line has also broken above the 6 day downtrendline. CODI is on a buy pivot and crossover as of Friday. CODI should plunge in a buy mode with any degree of stability of the market next week. It should drop into the inderminate region by mid to the later part of next week where caution would once again be advised for short term traders.

Volatility:

The modified volatility indices are trending upward and the indication from them is that there is room for at least a few more days of advances in the OEX. The MVI would be expected to reach the moving average line B and for the MVI adaptive to reach above line C. The AMOSS Zone timer is on a buy signal.

Relative Strength and Stochastic Momentum:

XAU RSI is working the oversold level. T-Bond yields still weak. SPX RSI consolidating after the recent plunge. None of the three have turned positive on the Stochastic Momentum chart.

Of Special Interest:

The NASDAQ 100 has a love affair with the center fibonacci line. Perhaps next week it will work up towards fan line A. DJI RSI daily is at the level where some nice rallies have been born. SPX weekly RSI is in a downtrend. 45% or 50% would make a likely technical target. We can have rallies on a daily basis with the weeklies in a down trend. The super speculative stock we are watching, CMR, has generated the second limited buy signal with a rating of over 95% probability of accumulation. Breadth and price phase indicators have not confirmed this buy just yet. On Thursday when price was between 1.5 and 1 21/32 the rating was 100% probability of accumulation. When and if the other indicators confirm the accumulation rating it becomes less of a risk, less of a speculation. The fundamentals are touted as being supportive of higher prices, but in a tax loss selling period like November-December there is some decoupling that takes place. This may be read as opportunity but, it is a tad bit early technically to commit to it.

Presently this stock (CMR) is on what we call a buy watch, which means we feel that it has a possible eventual 10 for 1 potential. It is presently under what appears to be smart money accumulation. Our probability of smart money accumulation indicator is now registering in the 95 to 100% probability range. We look for a price breakout on On Balance Volume as a signal to go in and buy. We will be later than the fundamentalists, but avoid buying before the down channel is complete.

Momentum Cycles update prior to the open on November 4, 1997:

Love that CODI indicator!Traders who entered long near the open Monday on the advice of the weekend update and sold near the close Monday did well.Click here for our chart and reasoning for Monday's intraday post to exit late afternoon for short term traders.Gold is holding above the spike low of 308.

Breadth:

Breadth was given a real boost on Monday zapping the issue oscillator into the neutral zone with the volume oscillator right behind. Detailed breadth on the NYA chart illustrates this in detail. OEX price closed right on the intersection of a long and short term regression line. Funny how these things work. Remember the Zero line and the Neutral Zone can act as resistance or consolidation areas for the issue and volume oscillators. They can also act as breakout points. We will just have to wait and see. NYA and Advance Decline lines have broken the six day downtrendlines and are looking strong. CODI buy signals from last week are taking effect this week in fine fashion. Long or short entries are less risky when CODI is at its extremes. It closed Monday in the indeterminate region where whipsaws can place the best laid plans in ruins. Positive cash Momentum cycles begin with a burst and end with a whimper.Remember we called the cycle low last Monday October 27 to Tuesday October 28 in advance and predicted the rally to begin last Monday or Tuesday into early November.Our proprietary CODI indicator enables us to judge rallies and declines cyclically in advance so you can prepare.We take profits and post intraday when they are ripe for taking. There are a few days left to this cycle. Odds are strong that they will not all be like Monday.

Volatility:

MVI adaptive is stretched to the profit taking point. The MVIa is a tad above the +2 std dev band and a scan back in history says it will close under that band on Tuesday. The MVI regular has not even reached its +1.618 band. The intuitive feel, if it be permited here, is that the MVI regular will drop back and tag the center band before reaching the +1.618 and it may not reach the +2 on this cycle. The reason this is expected is the VIX is running at 30 plus and wide swings in the OEX should be expected. Some of the impetus for the move on Monday has been removed by bringing the 20 and 90 day AMOSS components into Neutral zones, the five day edged into overbought and the Z Timer edged into Neutral. The Z timer is still on a trending buy. Components can move further into neutral or overbought given sufficient time and moneyflow.

RSI & SMI:

Things shaped up somewhat on the RSI front. The SPX is at that critical juncture of a downtrendline and a reversal band on the RSI chart. It closed as it often does with a question mark for the next day. Gold stocks and T bond yields are working on gathering strength. All three sectors have firming Stochastic Momentum plots. It would seem to be a bit early for all three to turn positive so soon after dropping to such a low level. Infact it is unlikely that all three will take off and run simultaneously.

Of Special Interest:

NDX almost tagged its upper fibonacci line on Monday. Another day or two and it could reach it, whereupon some profit taking should be expected. Canmine Resourceson the Toronto exchange , our 10 for 1 speculative stock on our buy watch list may be finding a low above 1.5C. It is just a little bit early to say the OBV is turning. The mkt is now into the second month of tax loss adjustments so most stocks below their highs for the year may still experience some selling pressure in the coming weeks.As before , we think this equity is under smart money accumulation, and are waiting for a breakout of the down channel to go in and buy. One of our new proprietary indicators under development, named the Virtual Mirror,has captured a few points in the OEXKQ last week and on Monday. Note that as strong as Monday was, it exited in the morning and still captured the majority of the move and protected profits.

Momentum Cycles update prior to the open on November 5, 1997:

Today's commentary is not accompanied by charts, due to time constraints. We wanted to get this posted before the open. We are sincerely sorry for any problems the late posting may have caused. The following is the commentary.

Breadth:

Breadth has customarily narrowed as the McOsc zero line is approached. Approaches from above tend to oscillate about the zero line before reversing or continuing down. Approaches from below are more likely to pause one day and then continue upward or plunge again. After a complex bottom has been put in they are more likely to continue on through to the upper side. The last move up that completed the complex bottom came at the beginning of the monthly momentum cycle, now with three days remaining. Tuesday had an NR4 day, meaning an explosive move is immediately ahead. The price, breadth alignment is at one of those major inflection points that determine the price trend for weeks ahead. Two alternatives appear likely. One, a move up by the issue oscillator on Wed., Thurs., Fri. to the other side of the neutral zone and perhaps slightly above. Two, an immediate retracement of the big move on Monday. The Iraqi thing is intefering with the progression of this momentum cycle and may extend it some by having delayed commitment of funds. The vote in this camp is for a move above the zero line.

Volatility:

MVI adaptive is signalling an imminent reversal to the downside whereas the MVI regular is not quite as advanced. I would give them the benefit of the momentum cycle and expect them to work higher until the weekend. AMOSS Z timer is still on a trending buy. The caution here is the 5 day has entered the overbought zone with the 20 and 90 still in oversold side of neutral.

Of Special Interest:

NDX tagged the upper fibonacci fan line and tracked it for most of Tuesday. CMR is still issuing a high Expert Rating, 97 up, 1 down, yet unconfirmed by breadth measures. CODI is in the indeterminate region where it gave a sell pivot intraday on Tuesday. It was not significant enough to have followthrough on Wednesday so the call is indeterminate as the label on this zone implies.

Momentum Cycles update prior to the open on November 6, 1997:

Remember our advice to short term traders to take equity index option profits during and after the big up day Monday?Traders were long from the open{from comments on the weekend CODI chart buy pivot}and the over 200 Dow points were mighty tasty.We projected a subsequent slowing of upside momentum leading to premium decay due to several +1000 upticks{one of which we had today}, and the spectacular rise in CODI into a higher risk{read somewhat short term overbought } area.It is our purpose to measure risk for you ,and to be contrarians to price , because only at the extremes can profits be made.We were one of the few sites up 56% during crash week and totally unexposed to price damage on the downside.CODI presently is on a short term buy pivot near to, but not in, the sell alert area.Therefore we are not recommending a short term long entry here, even though cycle strength officially has a few days left.Gold still is holding above what appears to be our projected spike low of 308, and is riding the channel downtrend with what appear to be nonconfirmations accompanied by universally bearish "experts' " comments.Only time will tell if we nailed the exact low, but a break above the channel would take only miniscule price action.

Breadth:

McOsc of issue and volume have both crossed the zero line to the upside generating a buy signal by a good number of mutual funds that manage money based on this oscillator. There was a concerted effort in the morning to push breadth and volume above zero and a profit taking contingent that tried to pull breadth and volume below zero in the afternoon. End of day management may view the zero crossing as a buy signal on Thursday. Critical price support is holding on the regression line B for three days now. TV commentators are promoting the idea of a double bottom in price to retest the lows last week. Seasonality is on their side for such a test later in November. However, the problem is the McOscs do not make complex bottoms in back to back months of the size made last week. NYA is now working above an uptrendline. Advances were marginally better than declines today and the intraday A/D line has a saucer appearance. There is still price action present that reveals the remainder of the get out even mentality that was born out of last weeks washout. CODI is in the area close to the sell alert zone, although it has not crossed into that area yet. Remember the rule for this indicator. The largest price gains on the long side in the shortest time are made from a reversal in the buy area, which occured Tuesday, October 28, as we had predicted in the week before the mini-crash.So even though officially it is still on a buy from yesterday's pivot, the greatest gains and lowest risk were made from the trade from the buy alert zone on the 28th into strength early in the money flow cycle.

Volatility:

MVIa has generated a sell signal and has dropped a tad below the +1 band. MVIa is always early. MVI is stalling at +1 std dev line on the way up and hasn't turned down yet. With only two official days left in this momentum cycle we don't want to be early on the short side. We always have to expect, although it may not come, one retest of any band even if it is a failing retest. AMOSS is in a very neutral posture except for the VIX Z Timer which is still on a trending buy, although it has moved into the upper side of a neutral zone. Note yesterday the five day component was overbought and it has pulled back into neutral and the Z timer did not make much progress on the buy side. The OEX P/C ratio ended in the sell zone today. This all comes as the McOscs are struggling around the Zero line. This chart formation is where the Bears get aggressive and the immature bulls polish their horns. We have two days left in this cycle to see which way the mkt is going to spring. This market fears the worst and is relieved on neutral to good news. A paranoia has been locked in for Thursdays as" bad news at Black Rock" to quote a classic western movie. Maybe the P/C ratio and the MVIa will be right along with the McOsc finding resistance at the Zero line.

RSI & SMI:

These charts are finally showing some character. Yield RSI is picking up, not good news for stocks. Stock RSI can't make much headway. Gold RSI is building up support. Stock momentum is curving up nicely, followed by Yield momentum, leaving gold stocks behind with sluggishness. Relative strength and momentum are slightly different creatures.

Of Special Interest:

NDX climbed above fibonacci line A and tested it from both sides as though it were controlled by an intelligent force rather than a lot of random buying and selling. The NDX stochastic momentum and relative strength oscillator are pointing to more selling ahead. Now this is a ten minute bar chart so it is possible for the NDX to go through several cycles in the same day. If you recall, our interest in watching the NDX is that it has a tendency to lead on the downside. On Balance Volume for CMR is starting to turn up. Price phase has not turned yet confirming this OBV. The volume accumulation percent and OBV percent are both close to zero. Now it is possible for the OBV percent to cross above zero in one or two days from where it is now and if it is accompanied by a turn up in the volume accumulation percent then price phase should follow soon. Only time will tell if the 1 5/8 to 1 11/16 range is the price low.If you have not done so, read our fundamental analysis on this button. The S&P breadth chart presents a positive view of things to come for the SPX. These % ratings greater than 95 on the breadth chart are good for a few days, but not guaranteed. It shows an internal strength to the move off of the crash lows last week. Just something to think about.

Momentum Cycles Update prior to the open on November 7, 1997:

CODI is now in the sell alert region, setting up for a trade soon. However,no trade is recommended for tommorrow, as our PRE indicator , which can sometimes predict market direction on the day PRIOR to a significant government report by smart money flow tracking, did not give a conclusive signal this time, unlike the October report{which we predicted prior to that open!}Longs made 200+ DOW points this week from the weekend "buy Monday's open, sell the close or Tuesday's spike" advice and are sitting comfortably.Always watch the CODI chart to judge your risk-reward % for entries or exits.We like to enter on crossovers at the extreme ranges of the buy or sell zones in concert with trade setups on the AMOSS chart.You don't have to make all the points available- just enough to leave some crumbs on the table for the late buyers or sellers!

Flash update Friday at 7AM Eastern: The Asian markets have broken key support,especially South Korea , Japan, and Hong Kong.Europe is down somewhat also.This may increase the risk for longs in our equity market, especially since CODI is in the sell alert zone.

Breadth:

Market followed a typical "sell Thursday" mode and between 2 and 3 PM it looked like the sellers quit trying to take the market down. There were two distinctive negative flow rate impulses during this time. Virtually all day the Total Flow Rate in terms of shares per minute was inadequate to sustain a strong move in either direction. The day ended with the net flow rate in balance with the NYSE TICK.Remember we pointed out we had multiple +1000 ticks this week, starting with Monday's huge point rise- where we took long profits{or Tuesday, if you waited a bit!} knowing a stall was likely for a few days. McOsc of issues shows how neutral the breadth was today by residing on the Zero line. The Volume oscillator remains in the neutral zone also.The NYA chart gives the Declines the edge forcing the A/D line into a negative slope. The NYA also dropped below its 7 day uptrendline. CODI is now in the SELL ALERT zone. Does this mean the mkt is going to tank tomorrow? NO. But the trade setup in the works is looking more dynamic than the Halloween treat we had last week. For one, the McOsc is sleeping on the Zero line tonight after an incremental change today. This has a history of creating GONZO Fridays. (continued in the Volatility update:)

Volatility:

The MVI adaptive generated a sell signal two days ago and was effective for part of today. It is still trending down in sell mode. The MVI regular is stalled at a reversal/continuation boundary. Sometimes the market enters these modes where direction is on hold for governmental reports and international crises to be resolved. The usual momentum cycles get distorted in cycle length. Normally this Friday close would mark the end of this monthly cycle. There are some large mechanical traders that will sell the last hour tomorrow regardless of anything else. Since this is widely known they are generally given their way for one day. This is getting off the subject except to point out some of the volatility inducing factors tomorrow, which include the employment report. The VIX is still running at 30+ levels. This means the OEX is subject to gonzo moves. Now the next statement is not a forecast, just a what if game. If the MVI regular were to drop to line C, that would represent a 72.00 move in the OEX with the VIX remaining at 30. In October 1987 the VIX went to 150. Of course this kind of move would not/could not occur in one day. When volatility bands pinch as they have presently on the AMOSS chart with all components in the neutral range, explosive moves can occur in either direction. It just depends on how the affecting news is interpreted. The Z Timer has made a minor sell pivot in the neutral zone. Z timer buy and sell signals are more significant if they occur in the outer zones.

RSI & SMI:

See charts for commentary. Not much change on these. Gold stocks still seeking the bottom of the mineshaft. Yields working the oversold line. Stocks in a profit taking mood.

Of Special Interest:

CMR is where the action may be about to occur. The On Balance Volume is curving up and is accompanied by a tick up in the price phase. You recall we had some 95% probability of accumulation by smart money readings on this stock in the last few days. We hope to see Volume Accumulation Percent continue to bounce off of zero like it did today and we want to see the OBV Percent cross above the zero line in concert. The NDX followed the minor sell signals yesterday and ended with a minor buy divergence.