MomentumCycles

MomentumCycles commentary for the open of Friday, December 11, 1998:

It is interesting that our suggestion for a mechanical trendline long exit from the previous CODI buy worked so well earlier this week,enabling a graceful exit in OEX calls and long positions near 588.The alternative techniques of a trailing profit stop 1.50 below the high of the move,and /or a stop loss 1.50 below the entry price also work well as a way to enforce discipline in trading decisions.

The projected setup for the XAU long trade may have come Wednesday/ Thursday,unfortunately about 1 point lower than our posted 65 stop loss.We had tried to buy XAU weakness off the low and mistimed it by 1 point or so and a couple days.Thursday XAU reversed on larger volume,closing at the high for the day off 64-65 support,up 6.83%.Momentum of 5 versus 21 days turned up,and above 78.5,a run to 85-90 becomes probable.A close at Friday's high price on increasing volume would look increasingly like the start of the previous rally off the yearly 48 low.

Lets try for the higher probability trade and buy an XAU close above 78.5,if it occurs,where a violation of the extremely long downtrend would occur.

On to Thursday's and Friday's OEX trading...

This week it's the Lindsey Low,and last week it was someone else. Or, maybe it is just the "Terrible Thursday Syndrome" where the VIX has a 70% probability of closing in the high end of its day's range. Or, could it be pre-expiration shenanigans? Could it really be that the public believes stocks are overvalued now? No way. Could it be that portfolio managers have decided the best way to protect profits is to collect them, maybe, if they are not allowed to hedge with short futures? Hey, blame it on the hedge funds, or the president since he was short on morals and Washington is such a moral place, jeez, who cares. If it is the PMs dumping then the rush to the EXIT is on. We are technicians so the reason isn't necessary. Be that as it may, the OEX tripped on down to S3 and closed below it(bad news) on the daily pivots and the red cone(projection oscillator below center again). INDU made it down close to the -3% band as OBV comes within a day of its center channel band. Can't have a good low without this stuff. Technicians would expect some probing of support at this level but a final low??? NYA dropped to previous support at 565 on very negative breadth. This took the McOsc down to -103. We were looking for a low Thursday PM or sometime Friday AM or PM. Is the low in yet? Of course we won't know until the OEX starts going up in concert with a rising cumulative volume(just like on TV, folks). If you took the Thursday PM low at S3 then you bought the Dec 575 OEWLO at 7 3/4. Or if you went to January, then maybe the OEWAO at 18 3/4. That methodology can disrupt your breakfast the next day. It is better to take a peek at the S and P on Globex and maybe go long there or wait until the next US opening for a confirmation rally. It just isn't too wise to jump the gun here and buy into a deteriorating breadth situation. We want you around as subscribers next month. Super T is eroding(INDU 8722 in sight)and the ADHL is looking sicker with the rising new lows and deteriorating new highs. Volatility is on a sell trend with one more day to take it above the alert band which also may be a continuation sell as last summer. It is absolutely necessary to wait for the VIX to close back inside the band after a trip above. On a daily basis that would make it Monday, intraday could be Friday. There might just be a better short here than a long trade, it is just that the methodology being laid out is a "seasonal" thing that often does override technicals. Stepping back and looking at the longer term charts such as the Haurlan, things do not look good as of the close on Thursday. A number of days back we felt it would be necessary for the option sentiment to peak and turn before the price followed through on the downside. Looks like that is happening now. It is looking more and more like a top is being put in place. The WinMidas topfinder X marks the spot with first support at 8787. The OEX and DSP8Z pivots closed below their keylines in a weak posture for the Friday opening. Pattern would be for a move up to the pivot line, and then without breadth support, they would trip down to S1.

Here are some charts:

AMOSS CHART. CODI CHART. CONE CHART. DJIA FIB CHART. HAURLAN CHART. OEWLP CHART. OEWXQ CHART. OEX FIB CHART. OEXPF CHART. PITCHFORK CHART. TRUTH CHART.

MomentumCycles commentary for the open of Monday, December 14, 1998:

The use of the trendline stop on previously acquired long OEX call positions,suggested for last Tuesday,enabled exits near 588.The position of the option premium ratio last week,with two readings in the .80's, and one in the "danger zone" of .83 to .85{it was .84},gave us caution on the long side during the week.Readings of .83 to .85 have a peculiar tendency to be followed by precipitous declines.In addition,tax selling,as discussed several weeks ago,tends to give a repetitive yearly negative bias from the end of pension fund reinvestment early in the month into December mid-month.The pre-ex /ex week seasonality trade long call entrance{discussed below},which has been effective in 10 of the last 12 trades{if closed out by a trendline or trailing profit stop during the start of ex week}was entered into near the lower 3.5% trading band,where price often finds support.Some trading systems make much use of these bands to generate buy and sell signals,as price reverses at the outer bands a high proportion of the time,even if it is only a temporary reversal.

The hoped for second day of XAU rally to the high of the day never happened,with price reversing to the low of the day after a previous close at the high of the day.We were stopped out trying to buy the low late last week near 66-65 by a spike down into 64.97.A rally in XAU is now overdue by price and time{21 day intraday volume percent is -21.8%,STO 20 is 15},but momentum of price of 7 versus 35 and 5 versus 21 days is still declining.We will look for a long entrance if XAU makes it back above the long downtrend at 78.5,if so,target 85-90.

30 year T Bonds back near the "equilibrium level",oft discussed here recently ,near 5%.A while back, buyers near 5.4%,sellers under 5%.Still appears to be a longer term bullish bias here,though no short term trade is recommended until a close outside the range of the yearly high in price or recent high in yields near 5.4%.

On to Friday's and next week's trading...

We had a typical pre-expiration week with market bias down into Friday,where the suggestion was to enter calls in a mechanical manner at the end of the week. A "seasonality" low was expected Thursday PM, or Friday AM or PM or remotely on Monday. The index low was to be identified by breadth change using McOsc, developing into a complex bottom of left shoulder, inverted head, right shoulder(down, up, lower down, up, down, up). The low may have been put in Friday and the right shoulder should be completed next week. Thursday saw a drop below S3 on the OEX pivots and also had a low Red Cone day. Friday came close to an S2 low and a Green Cone Day(a positive compared to Thursday). The McOsc closed at -130 and various indexes such as NYA, INDU,also hit the WinMidas support lines intraday. They all bounced as the MoonTide turned up with the OEX Friday PM. Even the AMOSS hit the -1 oversold boundary. So we got the price low acompanied with the hoped for breadth patterns. Not knowing in advance when the low was to occur, the suggestion was that it might take muliple entries to hit it. An added Friday bonus was the move by VIX above its upper band and a close beneath it. These are the factors that go into a valid buy signal. Coming from such oversold levels provides a base to support a rally. Political issues have aided the pre-expiration end of week entry. Perhaps market forces($$$) will overrule politics next week. The major caution here is price is still in a daily downtrend/weekly horizontal channel and the McOsc low is not guaranteed to be in place until the right shoulder has formed. This is where the game of seasonal probability is played. CODI is giving us a whipsaw condition as opposed to a an extreme trend condition. End of day NHNL is on a sell. ADHL is weakening and the NewHigh indicator fell into the sell zone as the NewLow indicator is within one day of moving into its sell zone. The AD/DJI relative strength is weakening but is a little removed from its sell zone. Overall the intermediate term ADHL Buy is still in force. There is no question this is a HIGH RISK market(politics, earnings warnings,Asian and Latin American problems,as predicted last weekend) with the technical odds only marginally positive for this Call Trade. In past commentaries we have used an at the money or nearby for purposes of trading examples. If the Friday entry was taken then the 565 was slightly in the money near the S2 pivot, 570 was one strike out and 575 two strikes out. When dealing with options this close to expiration, probabilities favor staying close to the money. Profitablity of course varies. The OEWLMpl shows the profit and loss curves for the next week vs the OEX. It assumes volatility remains constant, which is not likely. The OEWLMp is a graph of the option price vs the OEX levels. OEWAMp and OEWAMpl are for the January 565 call up to the Jan expiration. Seldom is a speculative option held for more than a few days unless it goes deep in the money and the index has a sustained trend.

Here are some charts:

CODI CHART. CYCLE CHART. DJIA FIB CHART. INDU CHART. OEWAO CHART. OEWLO CHART. OEWXO CHART. OEX FIB CHART. SUPERT CHART. TRUTH CHART.

MomentumCycles commentary for the open of Tuesday, December 15, 1998:

We said risk was higher than normal last week due to Clinton and the monetary/political mess in Brazil.Brazil was down 8.5% today,continuing a sense of global uncertainty finding some refuge in 30 year T bonds,continuing their bullish bias,now at 4.987,up .48% in price and down .24 in yields.Dollar weakness recently is correlating well with weak OEX action,in that a rally in the dollar will show a return of confidence in U.S. equities.This was one of the few expiration week starts without a Monday rally;10 of the last 12 have followed normal cyclical action.Add to the list of oversold STO 5 and 20 in the basement,5 day rate of change at -4%,and a close under the lower 3.5% band.Traders electing to use a 1.5$ stop loss from Friday's low cone entry would have been stopped out Monday.

XAU at 65.75,may still be basing for the long awaited rally from this area,now overdue.

On to Monday's and Tuesday's OEX action...

Markets do have bottoms and this one is no exception. Markets also have basing periods. Within these larger trends there are shorter tradeable trends. Expiration seasonality says we should be on the long side and the technicals still say the short side is still the preferred direction. Once in motion, it remains in motion until acted on by an external force. So far we only have impeachment and profit taking and earnings fear forces that are taking the McOsc to lower levels. We need that to turn up on an end of day basis. It appears too late to get short and a touch too early to be long. When measured with the standard cycle lengths, a trading low should be at hand. The problem is support levels are being broken and breadth continues to deteriorate with only 29 new highs and 109 new lows we still have a sell on the NHNL system which has now turned negative. ADHL now has 2 of 3 indicators in sell mode and all that is needed now is for the INDU to slip significantly relative to the advance/decline numbers in a relative strength fashon. So far it hasn't been sufficient slippage to trip off an intermediate term sell signal. OEX low on Monday was at S3 and the outer red Cone on Monday's chart representing a very weak situation. Note that the low today closed outside the longer term regression channel dating back to October and it stopped at the more recent shorter term lower channel line. From a channel perspective and an oversold oscillator perspective it is fair for us to expect an attempt to move up to at least the centerline of the downsloping channel...say 574 once the B&D MoonTide turns up and the 30 minute MACD turn up. The day ended in sell mode in all technical categories. Sentiment as measured by EquityC/P, HROEX and HRBB are becoming more neutral but their trends are still down and have not reached an extreme in the bearish direction. This impeachment thing is dropping the bids on most stocks. It could get worse before it gets better. So maybe "they" are selling the rumor and will buy the fact on Thursday if not before. From a fibonacci perspective the OEX Ratio Oscillator is running in oversold and 555 is the weekly lower support line.

Here are some charts:

AMOSS CHART. CODI CHART. TUESDAY'S CONE CHART. CYCLE CHART. HAURLAN CHART. INDU CHART. NYA CHART. OEWAM CHART. OEWLM CHART. OEWMM CHART. OEWXM CHART. OEX 30 MINUTE CHART. OEX PIVOT CHART. OEXPF CHART. PITCHFORK CHART. RSISTO CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Wednesday, December 16, 1998:

Those who had the courage to buy long OEX calls Thursday, Friday and Monday found themselves at the point of breakdown from Friday at the end of Tuesday's trading. Averaging in at the lows of each day and maintaining a trendline or a 1.5 trailing stop during Tuesday's action would have left people at break even or at a profit,depending on the entry. Those people would still be long who had the courage to hold during the last three days' action. Here is the OEX CHART.Those who reentered{see below} after being stopped out could have had a double on the day.

Bonds down on equity and dollar confidence-sellers under the magic 5% level-still buyers much above the 5% level.5% marks the equilibrium point,as trading above and below it presently brings a move back to equilibrium.

Nothing much yet from XAU.Remember XAU takes off like a rocket,usually from highly oversold STO and RSI readings on back to back high volume closes at the high of the day,overdue in this time frame.We have the oversold but no volume.

On to Tuesday's and Wednesday's trading...

Hey, let's have a parade, a parade of bullish analysts. After John Bollenger finished speaking on CNBC the OEX was up ten points. If CNBC can get a few more with his views our sentiment readings will be pushed to the crash and burn level. Total Index C/P zoomed up today, although the 3 day smooth gives a less heated picture. The key to option sentiment is that it is correct in the trend and wrong at the turn. So we want rising Call to Put ratios when the index is rising as sort of a confirmation of the trend. But watch out when the ratio turns down and the index keeps going up. Today's Cone target was slightly exceeded and that turns the projection oscillator back up with targets of 582, 587 and 590 easily within reach the remainder of the week. Even the B&D Moontide kicked in with some confirmation of the day's rally. McOsc may have made its low for this swing. OEWLM and OEWAM calls that have been focused on rebounded nicely. It is OK to re-enter if a stop takes out a position and the basic strategy is unfolding...that was a trading low on Thurs, Fri, or Mon providing it was accompanied with some breadth confirmation. Even Tuesday's numbers look dismal, as they do at the low turning points. It is a question of risk and reward here. A couple of other encouraging signs are on the NYA and VIX charts. NYA has broken a 7 day downtrend with a breadth trend that turned positive also. VIX closed above its band on Monday and then closed back inside on Tuesday creating a more solid signal than on Friday where it pushed above intraday but closed inside. Do you hear sleigh bells coming ahead of the Xmas rally?

Here are some charts:

ADHL CHART. CODI CHART. WEDNESDAY'S CONE CHART. CYCLE CHART. EQUITYCP CHART. HROEX CHART. INDU CHART. ANOTHER INDU CHART. MACD CHART. MOSS CHART. OEWMM CHART. OEWXM CHART. OEX FIB CHART. OEX PIVOT CHART. OEXPF CHART. PITCHFORK CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, December 17, 1998:

Those electing to use a trendline stop on any OEX long call positions would have been stopped out Wednesday.Due to the unusual convergence of a number of political events, including war in the Mideast and the impeachment, the next several days could be very volatile and very difficult to trade.

Bonds and XAU both benefitted on Wednesday due to world wide nervousness over the escalating military tensions.This could well continue this week.

Total index sentiment is reaching the too optimistic stage again. McOsc continues to develop the bottoming pattern of inverted head and shoulders. ADHL status has not changed from continuing the intermediate term buy mode as new lows edged back off and new highs remained steady. NHNL did generate a very short term(measured in days) buy signal. Momentum Cycles indicates bottoming cycles in all categories with the equity indexes not as weak as the other components. The calls yielded a little of Tuesday's gains.

Here are some charts:

XAU CHART. OEWAM CHART. OEWLM CHART. OEXFIB CHART. OEX PIVOT CHART. OEXPF CHART. PITCHFORK CHART. VIX CHART. NYA CHART. CODI CHART. CONE CHART. FIBRET CHART. INDU CHART. MOSS CHART. ANOTHER INDU CHART.

MomentumCycles commentary for the open of Friday, December 18, 1998:

The world decided IRAQ was a tempest in a teapot once more,and celebrated with a rise in the transports and a selloff in commodities.Those who entered long OEX calls on last Thursday,Friday and this Monday and held into Thursday saw the expiration week effect to their benefit,admittedly one day later than usual in the cycle.Notice that our call for a decline after early month pension money dried up into mid December worked again,as this cycle is one of the more reliable seasonal effects due to tax selling.In some years the decline into mid December is accompanied by highly bearish sentiment.This time bullish advisors are statistically in the danger zone.However,the 10 top timers nationally are bullish into next year,and historically they tend to be accurate.So sentiment is decidedly a mixed picture here.Perhaps this implies a rise in shorter term volatility for a while,both up and down,till sentiment becomes more muted.For this week at least,impeachment is put off till after expiration.

OEWLM is benefiting from the Gamma effects of expiration. Being deep in the money gives it nearly a point for point move with the OEX. OEWAM should carry profits into the Nature's Pulse Energy Point on December 24th. Moontide has supported the upward movement for three days now. TrendNouveau on the NYA chart clearly identifies the trend change in NYA in synchronism with the breadth change plotted below it. McOsc also appears to have completed its Low formation and is headed back to the neutral zone at -50. ADHL reaffirms its intermediate term Buy mode with the NewLow indicator dropping back below its Sell threshold. NHNL is on day two of its short term Buy signal but will be more confirming when it turns positive. VIX Buy mode continues. OEX Cone projection oscillator is in an uptrend and has not reached max levels yet. Reasonable target for Friday is 589 on the close and 595 conservatively next week. Pitchfork says 585 then 594. FibRet has 591.68 as the short term upper target. CODI is in buy trend and hasn't quite reached the Sell Alert level yet. Perhaps next week we will see Call to Put sentiment at a max and other overbought indicators signalling more caution. At the moment only the Total Index C/P is running up confirming price trend and psychology. OEX as measured by HROEX and Equity C/P are in mid stream. Total Index C/P running up may be more a function of expiration rather than the broader based Equity C/P. Note that the OEX closed above its Fear Bands on the Equity C/P chart. Ideally we would like to see the Equity C/P peak and turn before the next major trend change.

Here are some charts:

CYCLE CHART. DJIA FIB CHART. INDU CHART. ANOTHER INDU CHART. MOSS CHART. OEWAM CHART. OEWLM CHART. OEX FIB CHAET. OEX 30 MINUTE CHART. OEX PIVOT CHART. OEXPF CHART. PITCHFORK CHART.