MomentumCycles

MomentumCycles commentary for the open of Monday, November 8, 1999:

Friday close completes the official end of positive seasonality for the beginning of the month. ADVANCES/DECLINES went out with a beautiful distribution high. Technicals still look pretty overbought from this column and are due for more profit taking next week. The 5 ADVANCING VOLUME had a data error on Friday's update, and is corrected for the weekend posting. The error was in the up volume used in the volume crossover plot. The approaching crossover appeared closer than it should have. On that same chart the NewHighs/NewLows are acting like a top is being put in place in terms of price. It is a common belief that the overall market will not make much headway without the participation of financial stocks represented by the banking index, BKX. That chart is sensitive enough to reflect the bearish pattern we have been experiencing. A bearish pattern is one that rises sharply and then drifts off. A bullish pattern is one that drops sharply but recovers in a trending fashion. Next week we have a spate of market sensitive reports. The PPI is on Wednesday,and some Treasury refunding on Tuesday and Wednesday,or Thursday. Treasury refundings are usually preceded by a backup in interest rates, with an accompanying dip in equity indices.{Accompanying this probability is the series of short term upside nonconfirmations in the FNM chart,which often precede short term T bond retracements.}We would advise repeating this week's hit and run trading by buying at-the- money puts on rallies into resistance {or upper cone levels} and dumping intraday for a 25 to 30% profit. The OEZWD provided several opportunities for such trades on Friday. Pre-expiration weeks have a down probability following the positive seasonality. Note the candlesticks on the OEXfibret chart as well as the Cone chart. Such sticks above the body of the candle represents profit taking and a sign of imminent reversal. Even the double top formed by this and last Friday's action seems to add to the ominous picture. CODI is working on its Sell trend. If the OEX RSI were to drop and cross over the CODI, we would be in a confirmed sell mode. Momentum and Market Thrust support the notion of the sell trend. OEX Nsync is looking like a high pivot is at hand. Momentum Cycle Chart has the summer setup. We have an overbought dollar and OEX opposing the Tbonds and commodities.This could produce quite a Put trade going into pre-Thanksgiving holiday. Finally, the Sentiment chart advises buying puts when intraday rallies stall out. Because of the premium stripping and exponential decay between now and expiration, only day trades are advised. They tend to capture most of the price movement without the overnight gap risk. The pros might need to do some inventory rebuilding prior to expiration after distributing all this week. So we should expect the bids to be dropped on stocks taking the indexes down a notch or two or three.

OEX Midas technique lays out resistance between 720.36 and 721.42. Nearby support is 716.43 and 713.06. "Crash" support is 695.15. Classical pivot on the Cone chart is 720.66. If you are of the bearish camp, then that is where a put entry has better odds of success. 712 to 714 would be a conservative place to take daytrading profits. If the issue and volume breadth is supportive of a stronger correction, then 709 at the regression channel line on the Cone chart makes a good exit as it is also at the red cone level.

This week's informational website tip is . It looks like a one stop shop for information on initial public offerings.

UPS IPO looks like a winner on Wednesday. Chances are it is fully subscribed for. Here is a quote from www.ipo.com:

"You can expect UPS to open up like a rocket ship," Jeff Hirschkorn, IPO analyst at IPO.COM, said.

The world's largest privately-held package delivery company plans to offer 109.4 million shares, or about 10 percent of the company, priced at a range of $36 to $42. At the top end of the range, the offering would be worth $4.59 billion, eclipsing the U.S. record of $3.96 billion set by the IPO of oil company Conoco Inc. in October 1998.

The company has said that it would use the publicly traded stock as currency to make acquisitions in logistics, distribution and electronic commerce. The funds from the IPO would also be used in a tender offer for some of the existing Class A shares of the private predecessor company, United Parcel Service of America Inc. [UPS.CN], held by employees and descendants of employees.

Analysts and IPO trackers expect the deal, tentatively set to be priced Tuesday night, to be very well received by the market on Wednesday.

Vincent Slavin, an institutional sales trader who tracks IPOs for Cantor Fitzgerald, said he expects UPS to trade at least 20 points higher than the IPO price when trading opens."

Note that the OEZWD dropped three points Friday between the last OEX updates which stopped at 1600 and the futures which closed fifteen minutes later. This action points out the risk of not monitoring the futures when trading options, and it also points out how options pricing is keyed to S and P futures.This trading action shows a supply/demand component that is not picked up by pricing models. It also is a reminder of the premium stripping that occurs in the first and last half hour of the day as expiration approaches.

The heavy IPO listing next week should add to market weakness along with the pre-expiration week bias.

The 5 day historical volatility on the Volatility chart is nearing the threshold at which sharp down moves occur. Historical volatility tends to drop at market tops and the five day is suggesting a sharp drop next week.

XAU stochastic 20 and MVM0735 indicate preparations in the basing for a rally. Momentum up has not yet turned.Previous support in component HL was seen at 2 or slightly below.

Here are the charts:

CODI NDX CHART. FRIDAY'S CONE CHART. MONDAY'S CONE CHART. EODCV CHART. EQUITYCP CHART. FLOWRATE CHART. INDU CHART. MCOSC CHART. MIDPOINT CHART. MOSS CHART. OEX 30 MINUTE CHART. RISK CHART. SUPERT CHART. TEI CHART. VIX CHART. VIXPF CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Tuesday, November 9, 1999:

Trading in MSFT screwed up the intraday charts with wild swings in the OEX and other indexes. OEX options accordingly were all over the map with the Nov 720 put ranging from 8 to 11.5. Once again the virtue of waiting for a move to the upper cones or resistance was demonstrated for a put entry. Entries were available today below 8. Monday was by no means a good day in terms of issue and volume breadth. The ADVDECL ran negative all day and the FlowRate net volume almost turned negative late in the day. At that point I thought for sure we would get a sell program avalanche. Perhaps we will have an opportunity to exit the 720 puts on a Turn-around Tuesday. The market is beginning to form those topping divergences between price and breadth as noted on the McOsc chart and Super T. 5 day advancing volume average has diverged from a rising OEX. MOSS is developing that ominous two pointed formation in the overbought zone which precedes a correction in the OEX. VIX point and figure is hanging out in the Sell Alert Zone. OEX Nsync is working on an overbought condition. Bands on the OEX nsync are looking at a midband support of 690 and a lower band of 647.46. That would be a stroke of luck for put holders. Note how the OEX is failing to hold onto the upper band. This makes the midband a target. OEX Midas shows a very indecisive last half hour. Momentum Cycles shows the dollar and OEX beginning to recede from the Overbought band as the OEX finds resistance at 724.92 as T bonds weaken (and yields increase). These trends take time to develop, but when they get going they provide sustainable trends for a couple of weeks, as can be seen on the MoCycles chart. Keep an eye on the 5 day historical volatility, as it is way below the 20 and 90 day historical and the Implied volatility (VIX) is working the Sell Alert Area. Conditions are ripe for a great short trade. You might think that the biggest IPO in US history might suck some dollars out of other stocks on Wednesday, not to mention the record number of other ipo's this week, treasury offerings,and PPI reports, etc. Monday looked sort of like a belated end to last week's seasonality as the New Highs drift lower. This too makes a nice topping divergence. Dick McCabe is calling for a 2% to 4% correction before the market is able to mount another significant rally. That would take the INDU down to its 21 day moving average. Monday closed with a weak premium and almost zero TICK, not exactly an enthusiastic situation. IPO's are timed for favorable market conditions so we might take this week's roster of such offerings as a potential trading high pivot.

OEX tagged the center channel line on Monday's CONE chart after finding support at the lower green cone. You would think that a test of the lower channel or lower is now in order. EquityCP and Sentiment are indicating put buying time. Specifically, it is best to enter puts at a previous high, such as Friday at 728 or Monday at 726.6. Cadbury's Option Premium Ratio service at is targeting SPX 1345 or lower on 11/12/99 and his advice is to short at SPX 1385 using a 5 point stop.

XAU and MVM0735 charts shown below reveal the typical basing period when STOCHASTIC 20 reaches extreme oversold.Looking at previous similar periods,momentum of price of 7 days versus 35 turns up in concert with STOCHASTIC 20 crossing above the 20 level.HL,the component we recommended as a position long near 2$ quite a while back,found support at 2 1/16 and closed at 2 5/16.

FNM/T bonds obeyed the overbought short term upside non-confirmations discussed on the weekend and fell slightly in price.

Thought you would like to know this moneyflow cycle as it might just not be a prudent venture to expect anything significant out of a put trade the next two months. This is one reason why the advice has been to hit and run on the short side as drops can be fast but short lived. This quote comes from by Michael Murphy.

"Tax loss selling by individuals at the end of December can further depress stocks that have had a poor year. Not many investors know that most mutual funds must realize their gains and losses for tax purposes by the end of October. Then they "window dress" their portfolios at the end of their November fiscal years in order to present a good-looking printed portfolio in their annual reports. All of this selling of depressed stocks creates bargains that can bounce back sharply early in the new year. If you know this cycle, you can earn some great returns."

Here are the charts:

CODI CHART. CODI NDX CHART. TUESDAY'S CONE CHART. MIDPOINT CHART. MVM0735 CHART. OEX FIBRET CHART. RISK CHART. XAU CHART.

MomentumCycles commentary for the open of Wednseday, November 10, 1999:

OEX suffered a bit of a setback on Tuesday by dropping to the lower Cone and the lower side of the channel line. The OEZWD Nov 720 paid off again with an entry below 7 and and exit above 10 3/4,per intraday www update.{"If you bought these per MoCycles speculation, you might want to take some profits in the 10 3/4+ area." 12:03 p.m.}

The general market view is laid out on MomentumCycles each night and there is no guarantee that a trade will be posted on the www intraday system even though the market is facilitating one.This is naturally due to the velocity of certain market conditions,or the position of the entry. The general plan each night is to determine an up or down bias. Option entries are best made in a contrary fashion, which market mechanics often provide. If the end of day analysis is bearish looking, then the pros accomodate this by rallying the market a bit the next day so they can get on board too and shake out the shorts. If it is bullish looking then they will sell it off and then rally it. EquityCP and Sentiment advise on trading puts or calls at the swing points and currently favor puts. Entries are very often found at the green and red cone levels since they are based on implied volatility and statistics. The Projection oscillator at the bottom of the cone chart suggests price trend. As of Tuesday night it is pointing down. Most of the issue and volume breadth indicators have been pointing to an overbought market implying we should be trading puts. This has been going on for a week now. We also stated that the pre-expiration week has a downward bias into Friday afternoon;this is sometimes Friday AM or Thursday PM...you never know how anxious the big guns are to buy the end of the week prior to expiration. The reason is that expiration week has a positive bias. Treasury refundings, PPI, Greenspeak, dollar weakness, overbought price, deteriorating breadth continue to advise trading the short side. This does not mean there are not trades on the call side as the market is in a trading range and you could pull off a call and a put trade each day. Some only prefer to trade with the dominant trend. A weak Banking index, BKX, pretty much assures a weak equities market. SuperT says composite breadth is diverging from price. McOsc of issues and volume (on EODCV chart) are peaking. OEX nsync and INDU%B say we have a statistically overbought market. FlowRate almost had a sell on Monday and on Tuesday the down volume exceeded the up volume after the fake out in the AM. ADVDECL also was negative all day assuring a down day. Even so you can still lose with OEX options unless your entry and exits are just right. Monitoring VIX in a very short time frame or in point and figure charts aids in this respect. Also, monitoring the NYSE TICK and Premium or S&P futures helps time the intraday entry. It is virtually never ever adviseable to place an order when the market is closed and expect to have a satisfactory fill on the open the next moring. The reason is that the OEX options are not priced until after the components are trading. How could they be? Thus your order is subject to overnight changes in the S and P futures and also by news after the bell about the components. There are usually two good roundturn trades a day; one in the AM and one in the PM. This is partly due to the volume FlowRate intraday pattern and the extra momentum that comes from it. Things are not always clear when the CODI is hanging out in the Whipsaw zone. The last signal was a Sell signal, so until we get a buy signal we will continue to personally trade the short side.

FNM oscillator {not stochastic} is looking more and more oversold on a short term basis,although price has declined intraday only to tag the 68 area {upper 3.5% band}.View the red area at the bottom right hand side of the chart for similar positions in earlier months.T bonds fell slightly again in price,as predicted.Since STOCHASTIC 20 is not drastically oversold,perhaps this is a signal to cover short term T bond shorts here rather than suggesting a low risk new long initiation.

XAU momentum of price of 7 versus 35 days turned up from oversold for the first time since the 92 top.STOCHASTIC 20 has not yet crossed above the 20 level.Usually that crossover is a rally confirmation signal.We are long HL,an XAU component,from near 2.Close was 2 3/16.

Here are the other charts:

CODI NDX CHART. WEDNESDAY'S CONE CHART. CYCLE CHART. FNM CHART. INDU CHART. MCOSC CHART. MIDPOINT CHART. MOSS CHART. XAU MVM0735 CHART. NHNL CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX MIDAS CHART. RISK CHART. TYX CHART. VOLATILITY CHART. XAU STOCHASTIC 20 CHART.

MomentumCycles commentary for the open of Thursday, November 11, 1999:

OEX punched through the CONE channel line and then closed right on the classical pivot back inside the channel. Probabilities for Thursday take the OEX outside the channel with a weak projection oscillator. EquityCP and Sentiment suggest trading the short side on rallies if you are using Novembers, or to position trade if using Decembers. The OEZWD provided another very good trading opportunity from 6.5 to 10.5 if you followed the previous day's instructions to buy it when the OEX rallied to an upper green cone and to exit at support(717 or 715 strike), or using the time guideline a half hour to 45 minutes before the close. The strikes often provide support and resistance because of outstanding open interest and represent market capitalization liability to market makers or significant players who will defend the level. This is more true with individual stocks, but can also be implemented by deep pocket players with as few as four of the big cap stocks. Technically we did not have all factors in place for a really good put trade as the FlowRate net volume was positive all day. Had it been negative as the ADVDECL was, the OEX would have dropped a few strike prices. Bond "gurus" say the market has factored in a 0.25% increase next Tuesday, but no one is talking about a 0.5% increase again, even though the core PPI is accelerating. OEX CODI has moved back down to the Sell Alert level and it appeared as if the NDX and NASDAQ was beginning to falter. This trader's plan remains the same, i.e., to trade the short side whenever rallies provide the opportunity.

Our call for a coming decline in 30 year T bond prices on the weekend commentary,and a rise in yields,with a suggestion to cover short term short positions in T bonds on Wednesday due to the FNM oscillator reversal Tuesday was correct and profitable.{Cover short into weakness.}There may be more in this,as FNM only reversed to the upper 3.5% band from above the band;normally we would expect a trip to the lower 3.5% band with the present FNM STOCHASTIC position.The position of the oscillator reversal in FNM,however,made the "take the money and run" attitude on the T bonds more prudent.

Our call Tuesday for an imminent probable rally in XAU and its component,HL,was precisely timed. XAU rose from the lower 3.5% band to the upper 3.5% band on Wednesday,with HL rising 6%.Support was recently found in HL at 2$,with Wednesday seeing 2 5/16.The XAU momentum of price of 7 versus 35 days reversed Tuesday for the first time since the 92 top,and on Wednesday we saw a STOCHASTIC 20 crossover above 20.Be cautioned that a move from the lower 3.5% band to the upper band is no promise of a rise above the bands,as we saw in the recent explosion to 92,but the rise off support was encouraging.

Here are the other charts:

THURSDAY'S CONE CHART. CYCLE CHART. EODCV CHART. INDU CHART. INDUB CHART. INDU FIBRET CHART. MCOSC CHART. MIDPOINT CHART. MOSS CHART. XAU MVM0735 CHART. NHNL CHART. OEX 30 MINUTE CHART. OEX NSYNC CHART. OEXWM CHART. RISK CHART. SUPERT CHART. TYX CHART. VIX CHART. VIXPF CHART. VOLATILITY CHART. XAU STOCHASTIC 20 CROSSOVER CHART.

MomentumCycles commentary for the open of Friday, November 12, 1999:

With this analysis we caution against the high risk of being short on pre-ex Friday...

Thursday was a holiday, but you couldn't tell it from total volume. What you could tell is there was a distinct opinion in terms of advances versus declines, i.e., ADVDECL negative. You could also tell by the net flow rate that up volume and down volume switched a few times. Note also that up volume peaked on Wednesday and on Thursday we had a very narrow spread between up and down volume. This is the kind of issue and volume behaviour we might expect in a topping or consolidating formation.Agreeing with this were two consecutive Option Premium ratios of .86.Readings in this range followed by a change of .02% in the DJIA{close to unchanged readings with Option premium ratios above .78} often bring declines. The End of Day Cumulative Volume shows a deteriorating McOsc Volume and The EODCV about to test the underside of the 200 day moving average. McOsc of issues is making a downward trend as the NYA finds stiff resistance at the profit taking 0.667 retracement level of the previous major swing. On the next selloff it should drop to 621.85 or 609.50 if weaker. This is sort of a make or break situation as the INDU On Balance Volume continues in a sell mode, and the INDU RSI goes negative and the RSI drops below 50%. This is occurring as the INDU slides along a downward sloping 50 day moving average on course to intersect the 20 day, 200 day and more likely the MDS line at 10453.08 as of Thursday close. SuperT is targeting 10308.88 if 10602.99 fails to hold the weight of a 30% overvalued DOW. The next best buying opportunity is when the SuperT drops to the green Correction level and 10308.88 or 10153.11. New Lows were atrocious and the NHNL line continues downtrending. 5ADVOL is indecisive. OEX CODI generated another SellAlert along with a weakening RSI and Market Thrust Oscillator. Regression channel target on the CODI chart is 700. Thursday's CONE shows a perfect tag of the green cone set at which time you could have once again bought the OEZWD for 6.5 and sold on an OEX retracement to the Classical Pivot. OEX is still working on the lower Cone channel line. A drop out of the channel should see the OEX head for 715 on an average down day, or 710 on a strong down day, or 700 on a Crash down day. EquityCP and Sentiment still suggest waiting for rallies to the upper cones and then to buy puts for a hit and run trade back to the classical pivot or lower cone.

There are many ways to look at price action. One of the popular ones is the use of 21 day period Bollinger bands and a simple moving average. Then one calculates the price difference from the close to the lower band and divides by the bandwidth from the lower band to the upper band. Multiplying the result by 100 gives a percent reading of where price exists within the band range. A little manipulation will enable a reference to the simple moving average in the center of the bands as on the INDU%B chart. The mid band is at 10471.51; lower band is at 10064.30, and upper band is 10878.72. This pretty much defines the the nearby range expectations for the DOW. Currently it is on a sell after failing to hang onto the upper band. With the deteriorating breadth situation we should be allowed to reasonably conclude that the DOW and most folks who use this technique are looking for support primarily at the 10471.51 level. Failing that, a trip down to near 10,000 would be in the cards. This does not seem to have a high odds of coming to pass with the year-end seasonality in full effect. This seasonality needs a clarification. The real year-end rally is in the secondary stocks and not the main line blue chips. The popular year-end rally trade is to short the S&P futures and buy the ValueLine. This is in no way a recommendation, just an explanation of why the Dow or the S&P, OEX may underperform the NASDAQ, Russel, ValueLine, etc. going into the end of the year.

XAU STOCHASTIC 5 reached overbought,and naturally brought a short term reversal back to within the bands.STOCHASTIC 20 is still moving away from oversold.

Here are the other charts:

CODI NDX CHART. FRIDAY'S CONE CHART. CYCLE CHART. EQUITYCP CHART. FLOWRATE CHART. INDU FIBRET CHART. MIDPOINT CHART. MOSS CHART. NASDAQ CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX NSYNC CHART. OEXPF CHART. OEXWM CHART. OEZWD CHART. XAU S05 CHART. XAU S20 CHART. VOLATILITY CHART.