MomentumCycles

MomentumCycles commentary for the open of Monday, December 13, 1999:

Make the plan, trade the plan, that is what we did last week. The plan was to do a "trade the Friday of pre-X week" type of trade. It has become one of the two "for sure" type of trades we see each month. Of course, it doesn't play out exactly the same way each month, just as the end of month trade doesn't start and end precisely the same way. Timing is a thing of probability and really requires a real time feed to optimize it. The Pre-X trade originally got its fame from buying the Friday close and then as it became popular the entry was earlier in the day, and sometimes it gets "front run" as early as Thursday, as it did this time with the oversold entry on the OEZLK. Everything lined up for a perfectly synchronized entry; maximum negative tick, low S and P premium, OEX at fib support, time of hour, etc.. These are the kinds of trades that harmonize with the universe and give the necessary feedback that you are in tune with the action. If you recall, a www intraday recommendation was posted suggesting the 750 or 755 calls as a potential moneymaker of 25 to 30% gains. The OEX fib chart shows the OEX path for Thursday and Friday. The entry was at the lower fib zone, 50% profits were suggested at the pivot, or you could have held for further gains, which in fact were handed to us on Friday for a total gain of 100%. Personally, I am out of the trade since I have had too many winners turn into losers with one week to expiration and lots of unknowns. Again, its a probability thing. I also prefer avoiding the premium stripping that occurs on Monday, and near the open and close of each day of X week. The Greek Gamma is something you should be aware of, as well as delta hurting the Pre-X and X weeks if you are trading that expiration. That is where the risk and reward comes from. The runup on Friday also has a probability of being undone in a rather dramatic fashion on Monday or Tuesday. If we assume a short term high pivot on 30 minute bars was put in on Friday, then the TPZ chart shows the expectations for Monday and Tuesday. It is a great week to daytrade strike price range shifts for a scalp. In my middle years I have become more dollar oriented on a daily basis, and prefer trading a 5 lot or 10 lot of at-the-money options {or one strike out} and then riding the intraday trend until the payroll is met. At that point I begin to think about holding onto profits. Payroll for me is 250 to 500 bucks. Seems to me I have had better luck using a conservative dollar profit target than trying to be a top and bottom picker once I am in a trade. The OEX usually accommodates by moving between strikes and thus can be used as support and resistance targets, i.e. 765 was a good exit on Friday with the 100% gains, but the fib zones and fib channels in Fibonacci Trader are some of the best tools for a real time trader I have seen. There is no software that facilitates multiple time frames as easily as FibonacciTrader, and I have seen a lot of software in 13 years of trading. If you have the greed factor under control and can be satisfied with a steady income rather than maximium profits you might just take home more winners and net out more in the long run,that is, if your expectations are within the realm of probability as we lay out with the daily Cones and Fib zones. It is a given that if you have profits, then so do a whole bunch of other people that are waiting to collect them. Then when they all run for the door in a thin close for the day you will see reality strike. This happened on Friday with the OEZLK drop from a high of 14 5/8 to a close of 11 3/4. Red Cones are good probability targets as Friday's cone chart illustrates. Most days, a green cone contains prices, but once broken then one looks for a red cone target. The fascinating thing about using fibonacci techniques and probability techniques is that the fibo is looking forward using historical data, and the probability approach is looking forward using option implied volatiltiy and historical price data. When the two agree you usually have a high probability hit. For Monday, it is a close call as the Boggie indicator and Boggie percent change are right at a sell point for bears, or a continuation bounce for bulls. It really is a toss up from a moving average price action standpoint.

 There are a couple of sources that discuss this approach at timing. One is the Trading Triggers article in Technical analysis of Stocks and Commodiites, November 1999 issue. There is also a book entitled "The Speculative Strategist",written by Will Slatyer, in which he lays out the look ahead calculation for stop points. He did a good job except for an error in the math formulas. Fibonacci Trader includes the Slatyer Crossover Point in its excellent set of indicators, and has the correct code which is user configurable for using highs or lows of price, and also includes three different time frames. Krausz has released version 3.07 of FT that now includes a broker selection feature that is linked to Preferred Capital's order entry screen. I haven't used this yet, but I do use Preferred Trade for OEX options. Word has it that Preferred Trade will be accepting stop orders on option positions in the next release of their software.

Briefly reviewing a few of our pet indicators, we see that the FlowRate had net positive volume all day Friday after being negative the previous four days. ADV/DECL was a spoiler of sorts, with declines running neck and neck with advances, and above the 1500 level. As you know we would like to see advances above 1500 and declines below 1200 for a strong sustained upmove. It appears that tax loss selling is abating, but not over yet, as our Red Trend Exhaustion Index is still rising. Recall that we have been looking for a lower low and lower high on the red TEI. Maybe we will see it this week, and maybe not, as Y2K fears may put a damper on buying enthusiasm.

Information on Fibonacci Trader can be found by clicking on the link button, or by going to http://www.fibonaccitrader.com.

One other tip this weekend is that Richard Arms is the guest on http://www.wallstreetuncut.com.

XAU is an obvious victim of tax dumping of losers,with STOCHASTIC 20 now again in extreme oversold {see chart below}.

3 day cumulative breadth,seen directly below,supports the notion that December 16 or thereabouts typically marks a seasonal lessening of tax selling pressure.3 day breadth does seem to be slowing its negative descent.Note the similarity at the bottom of the chart to other periods this year before 3 day breadth turned up with price.

Here are the other charts:

 3 DAY BREADTH CHART. 5 DAY ADVANCING VOLUME CHART. CODI CHART. MONDAY'S CONE CHART. EQUITYCP CHART. FNM CHART. INDU CHART. INDU60 CHART. INDUB CHART. INDU FIBRET CHART. MCOSC CHART. MOSS CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. RISK CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. VIXPF CHART. XAU CHART.

MomentumCycles commentary for the open of Tuesday, December 14, 1999:

There were several news items of interest today. The next decade will underperform all of the decades in recent memory in terms of index performance, according to John Vogle and Warren Buffet. Their average annual yield expectations for the indices in the next decade is only 6%. That would seem to imply that fixed income should be weighted more heavily as an asset class. That the Nasdaq joins Asia is another item that will expand the trading in high tech stocks. The idea is to expand your market if you've sold to everyone local. A margin increase for day traders is a third. Bullish forecasts were laid on the public by Ralph A as we expect during expiration week. His targets for year 2000 end are Dow 12750 and S and P 1600. It remains to be seen if the public falls for the bull this time.The current modus operandi by the professional money managers is to sell, and avoid buying as is evidenced by the perpetually negative TICK. Perhaps someone knows something about the CPI data to be released on Tuesday, and we will have another turnaround Tuesday with a weak morning trend. Then again, the red Trend Exhaustion index is still uptrending and made a new high on Monday, meaning all is not clear yet for an end of year rally. Perhaps the party is over and the rally is over. As you should know, that is how tops are formed, when stocks are sold at antique prices and there is no one left to sell to at higher prices. Perhaps tax loss selling will accelerate into year end and it can go on until the very last trading day. Consider too, that selling in the winners could occur now to offset the losses in the losers. Selling in both the winners and losers surely would drop the indices a few strikes.

Technically, Monday was one of total amazement to this trader as the hourly cumulative volume was on a downhill run and declines overwhelmed advances, which should have produced a negative price trend. Negative price trends in normal times occur with the declines above 1500 and advances below 1200. The few stocks that held the markets up were nothing more than a smoke screen perpetrated on Mom and Pop watching CNBsee. During this consistently negative breadth, the OEX dipped in the AM and then rallied to the first FibZone resistance, and finally sold off at the intersection of the fib channel and fib zone. One technique daytraders have been using is to take a read on price and issue and volume breadth near the end of the day. Divergences that did not seem to be effective in the morning have more power near the close as the traders decide to hold or fold for the next day. If you were a breadth trader, you just had to get short at the 765 strike or the fibzone as mentioned and posted on the weekend update. Note that when in doubt the OEX closes near the pivot for the next day. Also note that the Bill Blau Ergodic Candlestick oscillator, based on 30 minute bars, weakened in the last hour after topping the previous two half hours. The least bit of negative news on the CPI tomorrow could push the OEX to lower fib levels as the TPZ forecasts for Monday and Tuesday. It could also push the OEX below the CONE channel line on Tuesday's Cone. We would at least expect the 757 green cone to be visited. A strong down day would take it to 752 or lower. Monday's cone made a perfect tag of the upper and lower green cone just as MOSS has been indicating a neutral market. Markets don't stay neutral very long. On a short term basis things look neutral to overbought, but on a longer term basis with the RISK monitor, things look on the risky side as the bargains that existed at the October lows are gone until the next major cycle low in the first half of 2000. They also look risky from the M3 Rate of Change perspective (provided by Ron McEwan). Alan G has been expanding M3 at an unsustainable rate and when it contracts, so will the equity markets. The timing would be expected to be immediately after Y2K fears abate, i.e. in a few weeks. Therefore, this is the time to be lightening up on risk exposure to avoid being the object of the greater fool theory. Investors, as opposed to traders, would be wise to raise some cash between now and the first week of January and wait for that next intermediate term low near the end of the Japanese fiscal year at the end of March.

In looking at the Equity CP and Sentiment charts I would say we have a crisis in the making on our hands. The total equity call to put ratio is at a put buying alert level with a Stochastic Momentum that is about to drop through zero. The modified Hines Ratio on the Sentiment chart is also at the put alert level. The OEX is barely hanging onto the lower side of the Sentiment chart regression channel that extends back to the October lows. The key level on the point and line crossover system is 760.32 for Tuesday. That will become the yellow dot for Tuesday. If most of Tuesday's price action is below that, then we have a sell signal on our hands.

Note that the mid-December cyclic weakness does allow for continued tax selling for a while yet,which agrees with the price rate of change analysis we periodically post here.

XAU is the most obvious victim of "sector dumping",as almost everyone long these components has a loss on the year.XAU Oscillator is making higher lows while price is dropping-do we dare to say bullish nonconfirmation?

Here are the other charts:

5 DAY ADVANCING VOLUME CHART. ADVANCE/DECLINE CHART. CODI CHART. CODI NDX CHART. MONDAY'S CONE CHART. EODCV CHART. FLOWRATE CHART. INDU CHART. INDU60 CHART. INDUB CHART. MCOSC CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX NSYNC CHART. OEZXL CHART. SUPERT CHART. VIXPF CHART.

MomentumCycles commentary for the open of Wednesday, December 15, 1999:

Looks like another negative flowrate and advance/decline day. The flow rate chart shows the two good periods of the day to do trading, i.e., first third and last third. Total volume drops off to about 1.5 to 2 million shares a minute during the middle third of the day. Today was a good example of what we mentioned here yesterday about taking a bead on price and breadth divergences in the last third of the day. Option trades tend to work better in the first third and last third, obviously. Those of you who might be thinking about fine-tuning your trading with such a technique might find the concepts of TriDactyl Trading at http://www.tradestationtrader.com of interest. As long as we are having these negative breadth days it has been profitable to buy puts at resistance and sell at fib or cone support. Tuesday's CONE and OEX daily fibs were calling for support at the 758 level. TPZ was looking for a similar pivot low in this time and price zone. Until the red TEI turns down I would be very reluctant to trade the long side. The red TEI is composed of new lows and declining issues. Once that turns down and the green TEI turns up we should be able to make some money on the call side. At least that is my personal preference. OEX is now working below the regression channel line pointed out yesterday on the Sentiment and CODI charts. We have a price close below the cyan and yellow dot levels on the Sentiment and OEX fibret charts but the cyan line is still above the yellow dot, so we don't oficially have a trend change yet. In fact, what it appears to be is more prepositioning in advance of expiration. One well noted guru is promoting the idea of oversold breadth and classic lows in price RSI as justification that the market is near a trading low. With the McOsc at -110 that might be true. Yet, it would surely be advantageous to see the Trend Exhaustion index exhaust itself before risking money on the long side. Also, you get these kind of readings as price goes into a nosedive. Maybe I just haven't looked closely at such things in previous years, but I just don't recall such negative issue and volume when price is so close to its all time highs. Common sense would tell you that someone is running for the door as fast as they can, but all day long, and in the mail every day we are barraged with the statistics of year-end rallies, and election year politics, and how valuations don't matter any more, etc. Personally, I want to see the selling stop before being long in this market in order to avoid becoming one of those bag holders on the street. Call that tape reading, if you will, in its simplest of forms. In case you were not aware of it, a "double repo" may be forming on the 5advol NHNL chart. Guess where number 4 goes on that chart? Wednesday will tell the tale, but don't be surprised if we get a rally attempt on Wednesday. One positive on that chart is the 5 day declining volume has made a peak. That might be the first signs of fresh air. New lows at 550 swamped new highs at 66. Keep an eye on those. Some services like Mytrack update the new highs and lows throughout the day. One day, suddenly, the new lows will dry up. That will bring in the big bucks with big volume to the upside and you probably want to own a few calls then for a short trade. Just keep in mind the M3 thing pointed out yesterday and what happens to market liquidity after the first of the year.

Looking at 2 other techniques,note that the DJIA oscillator hasn't turned up yet.Also 3 day cumulative breadth hasn't turned up yet.Price rate of change has looked for tax-related selling to dry up near December 16.We would ideally like the indicators mentioned in the above paragraph and those displayed here to come together in a bullish resolution in the next day or two.

XAU oscillator hasn't turned yet,but there appear to be some non-confirmations of the recent weak price which may be due to tax-related selling.XAU STOCHASTIC 20 is in position for a rally setup.A cross above the 20 line usually confirms a rally,at least to the upper 3.5% band.Tax-related selling of losing sectors often dries up in mid-December.We are near the lower 14% band which often contains XAU price on the downside.

Here are the charts:

ADVANCE/DECLINE CHART. CODI NDX CHART. WEDNESDAY'S CONE CHART. DOW NSYNC CHART. EODCV CHART. EQUITYCP CHART. FLOWRATE CHART. INDU60 CHART. INDUB CHART. MOSS CHART. NDX FIBRET CHART. OEX 30 MINUTE CHART. OEX NSYNC CHART. OEZXL CHART. RISK CHART. SUPERT CHART. VIXPF CHART.

To quote from the MomentumCycles commentary for the open of Wednesday, December 15, 1999:

"Price rate of change has looked for tax-related selling to dry up near December 16.We would ideally like the indicators mentioned in the above paragraph and those displayed here to come together in a bullish resolution in the next day or two."

MomentumCycles commentary for the open of Thursday, December 16, 1999:

Well, we said not to be surprised if there was a rally attempt on Wednesday. It isn't New Years eve yet, but my resolution is to become more systematized and reduce the discretionary factor in trading. Today fit into the expiration expectation pattern, and it also satisfied the expectations of a TPZ pivot low for this time frame. I can't tell you how close I came to issuing a buy call trade at the OEX fib support. Everything fell into place; price testing a popular support at S1 on the Classical Pivots and the fib zone at 755.34 to 756.37, the issue breadth was negative but narrowing,and net volume was better than in several days. Premium was expanding, TICK was improving. DOW nsync had run its two week course {meaning the majority of tax loss selling is behind us and new highs new lows and advancing declining volume should improve helping to fuel the coming rally}....a rally that can still be aborted by interest rates and Y2K fears. No need to belabor the point, as there is always "another bus to ride". The missed opportunity is exemplified in the OEZLL and OEZAL, Dec and Jan 760 calls. My finger was over the Buy button for a ten lot, but the psychology was influenced by a tired and distracted mind. Thus, the virtues of trading mechanically were driven home. Discretionary trading leaves you open to talking yourself out of good trades and into bad trades.If a system is put together properly there should be no fear of taking a trade when the odds are greatly in your favor and an appropriate stop is adhered to.

The Time and Price zone chart was expecting an OEX pivot low on 12/14 below 757.88. Using 30 minute historical bars from the first of the year the projected pivot was off by a few points and a few hours. Now then, if we use the same approach in using the pivot low on 12/15 and project the next pivot high, we see that the OEX has already entered the probability zone and hit the most probable price levels. There are two days remaining in the time zone so the OEX can roam within the area of 763.21 to 784.40 and still fullfill the requirements of the next pivot high. It might behoove a trader to keep an eye on the FibonacciTrader zones as they are providing support and resistance at a frequency far beyond random chance.

We had speculated that the XAU and its components would start to see some relief from tax selling approximately Dec. 15. Intraday volume percent shows a possible lessening of selling pressure. Although price is still declining, this oscillator indicates that money may be slowly entering the index. Stochastic 20, momentum of price of 7 days vs. 35, and the price oscillator show a setup for a rally. We have held HL, the XAU component, even though entries were recommended at or near 2. Traders had the opportunity to sell on the XAU price spike at 92 on these charts {when HL was 3 3/8 to 3}, but longer term players were advised to hold as a long term call on the sector.

Here are the other charts:

5 DAY ADVANCING VOLUME CHART. CODI CHART. CONE CHART. CPIVOTS CHART. TEI CHART.

MomentumCycles commentary for the open of Friday, December 17, 1999:

We had mentioned several weeks ago that there was a high probability of a rally on Dec. 16 due to our analysis of rate of change of price. And indeed, from early weakness into the close, we did get such a rally. (up 45 Nasdaq points from the open to the close.)Some of this was due to yearly predictable lifting of tax selling pressure.However,the rally came on weak internals.

And so even though expiration week is playing out according to plan, my contraryitis is beginning to itch again. It is almost incredible what we have heard on cnbsee this week. So rather than listen it might be better to do some looking at some charts. Imagine for a moment what would happen to the indices if the few stocks that are going up decided to go down and add to the already negative issue and volume breadth. Just look at the Flow Rate, and even the SuperT is dropping as price tries to hold a sideways path into expiration. Now we know from previous expirations that there is usually a pop on the SPX and NDX settlement Friday morning. Then there is a dip into mid-day that looks like the Flow Rate chart. Then we get some RSI divergences and volume increases in the last hour or earlier for the OEX expiration. Just suppose this time it is different and now that the market is jacked up for spx and ndx it falls through the floor for the oex. I would look for some clues after the AM settlement to see if if looks like things are going to hold together. This might be the last chance to raise some easy cash before the FOMC next week. Note that TYX has been rising; that is a fundamental not to be ignored. {We had mentioned a while back after a successful short term 30 year T bond long trade that it might very well be countertrend.} OEZLL and OEZAL made another run and if you do own either then the sage advice here would be to exit Friday morning ASAP. Post- expiration weeks have a propensity of undoing the exuberance of the previous week. We've got the channel lines drawn a bit differently on the EquityCP and Sentiment charts...intentionally. The Sentiment chart {which uses the modified Hines ratio of volume and open interest} is at the Put Alert level, so we put the channel lines a bit higher showing that the OEX is testing the channel from below. This is a situation to be concerned about, at least for the snp stocks. Something of interest is occuring on the Red Trend Exhaustion index. It appears to be losing upward momentum, meaning new lows and declining issues are lessening. However, we are not seeing a pickup in the new highs or advancing issues to turn the green TEI up yet. With a market about to break out to new highs per the famous guru on cnbsee today, you would expect the green TEI to be above the red TEI as it was back at the highs in June and July. Also note how horizontal the S&P has been on that chart since early November. That has to represent a distribution of massive proportions with the rising red TEI. The outcome is not at all certain. If the runup in the NDX has a large expiration component factor, then we should see more than 50 point down days, or even 100 point down days in the coming weeks or months.

XAU stochastic 20 is within a hair of crossing above the 20 level, which can usually be a sign of a rally to the upper 3.5% band. Price oscillator has been turning up. Intraday volume suggests accumulation, as well as other oscillators of accumulation. The momentum of price of 7 days vs. 35 is gradually showing some improvement. HL, as a component of the XAU, should benefit.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. ADVANCE/DECLINE CHART. OEX CODI CHART. NDX CODI CHART. THURSDAY'S CONE CHART. FRIDAY'S CONE CHART. CV CHART. INDU CHART. INDU60 CHART. INDUB CHART. INDU FIBRET CHART. MCOSC CHART. MOSS CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART. RISK CHART. VIX CHART. VOLATILITY CHART.