MomentumCycles

Momentum Cycles Review for December 18, 1997:

It is VERY hard to go in and buy when the media"experts" and all your friends are giving last rites to an entire asset class such as the gold and silver miners.The astonishing recent "Lazarus act" of the past week culminated today in an 9.15% gain in The XAU index, equivalent to 728 DJIA points in one day.Faithful readers here had been advised to average in on this index at various prices starting with prices matching the previous multi year lows at about 70 or lower.The tick low was 63,and the "triple switch official buy"came at 68.EVERY READER HERE HAS A PROFIT IN THIS INDEX.Today's close was 74.81.We had pointed out the value in silver being only 5x the 1924 price.Look here to see what brought us to expect at the very least a countertrend rally.

Concerning stop losses on our recent XAU trade, using Fibo Trader there are several stop loss techniques. Since the xau broke above the weekly fib level yesterday then 72 should provide support if the weekly has truly been broken. The hourly ratio oscillator weakened late on Wednesday and is essentially warning of a sell, but it could just be entering trend mode too so you have to wait until price drops to be sure. The five minute Triple switch is near 74.3. The hourly triple switch is at 73. The same signal that detects the daily trend, the Triple Switch, is a good one to use. Just read the value of the red stair step line. That is your stop if you are long. The green one is the stop if you are short. Another way would be to use a stop in one time frame less such as the hourly. Here is what I would do for the first hour. Take one third off on an hourly close below 74. Another third on a close below 73(bottom end of the first hour fib zone) and the final third below 72(the weekly TS)(or if you want to wait for the daily triple switch use 69.

Look on the index page for our secure link about major and minor cycle bottoms.

Breadth:

NYA issue and volume breadth narrowed on Wednesday as the McOsc of issues flirted with the lower side of the zero line. This lack of hesitation at the zero line is characteristic of a weak tired market. With the declines still running over 1200 everyday since the first of the month this is not the season to be jolly. They are going to have to drop below 1200 for price to make much headway on the upside. This must represent last minute window dressing on the year's losers. Flow Rate Net really got hammered this afternoon with multiple dips into extreme negative levels. Yesterday we had a similar "sell the afternoon" mentality. CODI is in the indeterminate region.

Volatility:

The Modified Option Strategy Spectrum and Zone Score remain in the neutral zones. Today's price and volatility action did produce sell pivots on both. Does this mean you should be concerned, well not as much as if the pivots were in zone 1 or 6. Further clues come from the Modified Volatility Index that is on a buy signal and ran into resistance at its -1 std dev line today. Again this is normal action. Tomorrow will be more significant in that either the -1 line will be penetrated to the upside or another test of the -2 level will occur. This being option expiration week it is not possible to know as trends are too short to project. One indicator that is still pointing towards a sell is the OEX P/C ratio. It dipped another 0.001 point to 0.871 on Wednesday. Usually this would mean to exit all calls immediately.

RSI, SMI:

XAU is the star performer of the day, no, make that the week. TYX Relative Strength is gaining strength again. See charts for additional commentary.

Fibonacci Zones:

What a glittering show it was in the gold mines today! Finally the XAU closed above its weekly Fib zone that has been providing resistance. The Ratio oscillator is nearing overbought, but appears to have a little more room to go. Commentary for OEX, TYX, NDX are on the charts.

Of Special Interest:

Our only equity, CMR on the Toronto exchange is a nickel and cobalt mine and not gold so it was not expected to respond to the cheers from gold fans. In fact we don't expect it to move much until after January 1, 1998, unless significant new reserves are found in the next week or so. It could be an entirely different picture in the first quarter.Binco drilling is due in January.Cash flow will appear in the new year.

Pivot Update for 12/18/97:

The Keyline pivot for the OEX and DJ Industrials for Thursday is slightly below the keyline for Wednesday. One interesting coincidence is the S1A pivot is sandwiched between S1 and S2. The "A" designator is for the classical pivot to distinguish it from the statistical pivots. Note how the OEX hugged the Keyline most of the day until the Flow Rate turned negative(see Flow chart above).

Flash Update 7 AM Friday December 19, 1997

The foreign markets are down very sharply, especially Japan. This may give an excuse to take the markets in the US down today.

To quote from the Momentum Cycles Update for December 17, 1997:

" 11:50 a.m.update Sell half your postion in OEX long calls from Friday's entrance { or your entrance on CODI entering buy zone or pivot}. "

To quote from the Momentum Cycles Review for December 18, 1997:

" It is VERY hard to go in and buy when the media"experts" and all your friends are giving last rites to an entire asset class such as the gold and silver miners.The astonishing recent "Lazarus act" of the past week culminated today in an 9.15% gain in The XAU index, equivalent to 728 DJIA points in one day.Faithful readers here had been advised to average in on this index at various prices starting with prices matching the previous multi year lows at about 70 or lower.The tick low was 63,and the "triple switch official buy"came at 68.EVERY READER HERE HAS A PROFIT IN THIS INDEX.Today's close was 74.81.We had pointed out the value in silver being only 5x the 1924 price.Look here to see what brought us to expect at the very least a countertrend rally.

Concerning stop losses on our recent XAU trade, using Fibo Trader there are several stop loss techniques. Since the xau broke above the weekly fib level yesterday then 72 should provide support if the weekly has truly been broken. The hourly ratio oscillator weakened late on Wednesday and is essentially warning of a sell, but it could just be entering trend mode too so you have to wait until price drops to be sure. The five minute Triple switch is near 74.3. The hourly triple switch is at 73. The same signal that detects the daily trend, the Triple Switch, is a good one to use. Just read the value of the red stair step line. That is your stop if you are long. The green one is the stop if you are short. Another way would be to use a stop in one time frame less such as the hourly. Here is what I would do for the first hour. Take one third off on an hourly close below 74. Another third on a close below 73(bottom end of the first hour fib zone) and the final third below 72(the weekly TS)(or if you want to wait for the daily triple switch use 69."

Momentum Cycles update for December 19, 1997:

We quote from the last several updates to remind readers what a volatile previous 2 weeks we've just had.With an end-of -day site such as this,readers must use their own best judgement to make entrances,exits and stop losses.We occasionally post intraday when things look about to change , but readers must not rely on this.{You may ,however,wish to check back before or near the open , or during the day.}What we do for you, and often very well ,is to measure the risk of being long and short each day in various indexes and asset classes.Now to review- readers were given the EXACT top of the rally in DJIA and OEX to the turn date of Dec5-8, got short Dec 5-8 into the turn date of Dec12,where we covered short and sold puts for a double or a triple or more{depending on what index you traded}.The pre-ex Friday close long trade {Dec12} into the first day of Expiration week strength {Monday Dec15 close netted 30 or 40%.Readers sold half of any remaining long positions prior to the past 130 point DJIA decline when MVI and the put-call ratio flashed warning signals.2/3 of the XAU or long gold position were sold today on our hourly stop loss a.m. update,readers still holding 1/3 of their position as 72 was not violated.

Looking at the xau1218 chart the XAU closed above its daily Triple Switch on 12/10 generating a buy on the open of 12/11 with the XAU at 65.95. The Dec 65 call, XAULM was available for $3. On Wednesday 12/17 it was advised to sell 1/3 of the position when the XAU dropped below 74, sell another third below 73, and the last third if 72 was broken. 74 and 73 stop losses were tripped when the XAULM was an average of $10.00. These options expire on 12/20 so the risk of premium evaporating is high and the remaining third should be sold on Friday. Had you purchased the March XAUCM, 65 calls, the range in price was about 7 on the entry to 13 on the exit. Here are some other representative option prices, XAUBM and XAUAM.

All in all,we feel readers have had an EXCEPTIONAL 2 weeks.

Breadth:

Once again NYA declines outpaced advances by almost two to one. Down volume exceeded up volume by 2.5 to one. This has to be considered bearish by any standards. But did you notice the strategic timing of Ralph's forecast for DOW 10,000? Do you recall Abby's forecast prior to a previous expiration? These things are strategically timed. Any bets about Friday being an up day? Sometimes it is best to stand out of the bull's pen or bear's den until trend sorts itself out. Net Flow Rate was again very negative but with some higher lows into the close. Amidst all the turmoil, CODI remains on a buy trend. McOsc is still in a down channel from the December 5-8 highs, but the CODI chart is edging back towards the buy zone.The option premium ratio dropping into basing levels may also be setting up for a repeat buy.

Volatility:

The market spoke and yesterday's question was resolved. The result, a retest of the -2 levels on the MVIs after stalling at -1. What we look for now is a higher low on the MVIs to start the next uptrend. Z Timer and Z score edged further into the oversold side of neutral. Z Timer is right on the boundary of Neutral and Oversold, a likely place for an upside reversal....no guarantees of course. So lets look for an up opening, a down mid day, an up close, if Expiration Tradition holds true. You have to understand that in the days prior to E Friday there is a certain amount of what appears to be prepositioning which results in wide swings in the indices. If you have been doing Gamma trades (E week options) then you have a feel for the profit and loss potential. That is why we only took the Friday to Monday trade even though Tuesday added more gains.

RSI, SMI:

Trends from yesterday remained in place today. See charts for commentary.

Fibonacci Zones:

This is one of those times when up weekly trends are on the verge of switching to down in the equity indices. XAU is behaving in the opposite manner. The mantra used to be short the golds and buy the blues. Now it is polish the golds and sing the blues. See charts for additional commentary, INDU, NDX, OEX, TYX, XAU.

Of Special Interest:

The artificial intelligence engine gave Canmine Resources a 98 up and 1 down expert rating on Thursday. It is based primarily on rate of change and breadth divergences from price. Price phase is the holdup here from issuing an all out buy.

Pivot Points:

Pivot zones for the DJI and OEX for 12/19 are considerably below those for 12/18. This means the market makers are going to work tomorrow with a set of classic pivots that say to sell the market. If the market does not sell off and instead rallies then it will hit resistance zones after a short price movement. In very general terms, if you are looking for a long entry, then look for a support zone to be hit. If you are looking to go short then look for the key line or a resistance zone to be hit. The OEX P/C ratio did rise to 0.946 from 0.871 on Thursday generating the sell signal alluded to on Wednesday. You can have CBOE statistical data emailed to you every afternoon by subscribing free at http://www.cboe.com.

Momentum Cycle update for December 22,1997:

Monday morning 9:15 am update:

This swing chart suggests that the lowest risk buy is near Friday's midmorning lows. Remember we are trading countertrend. This chart is courtesy of C. Lee.

Traders were stopped out of their remaining 1/3 XAU long call position on the entry Friday as instructed at 72.75,again at a good profit from either the averaged down price from 70 to 63 ,or the "official triple switch" buy at 68.Remember we were one of the few sites BUYING this index when the media was urging you to sell with both hands.{Remember the Merrill Lynch guy ? 250$ gold? While silver was setting up for a rally to 6YEAR HIGHS? }We sold 2/3 of our position on the day following the 9.25% rise on an early a.m update with precise hourly exit instructions, and the rest on expiration opening before the expected short term profit taking.Note: we are not bearish on this index, and in fact are looking for a good reentry point. We wanted to nail down those profits for you due to premium decay, and the expected snap back after a one day, 9.25% rise.

Traders were instructed to sell 1/2 of any small remaining OEX long positions Wednesday early a.m. PRIOR to a last rally attempt before the expiration related decline of the last 3 days of the week.Earlier, on pre-expiration Friday near the close, traders bought OEX long calls and were told to exit into strength early in expiration week.That trade netted about 30 to 40% in one or two days.Remember our cycle work suggested the EXACT high of December 5-8, the cover short , go long Friday open of pre-ex week, and the danger of the last 3 days of last week for equity longs due to the excessively bullish sentiment of the put- call ratio.It has been stated here many times that the put-call ratio in expiration week influences the direction of expiration more than any other factor.Why is that so?The big money will try to move the expiration in the direction OPPOSITE to the public's on -balance short term sentiment position in expiration week.They can read the small lot option data{small retail traders} like a bloodhound on the scent of his quarry.How else can they pay for their holiday gifts?

Now, for the question everyone is asking.WILL SANTA COME THIS YEAR?

In our opinion,we were set up on Friday at about midmorning for the expected year end rally.Remember,our cycle work suggested that the highest probability for the Santa Claus rally would be in the December 23rd area.Admittedly,it is very hard to go in and buy when the biggest bulls on Wall Street have officially turned bearish.Option traders should never risk more than one tenth of allocated option assets to each option trade and keep stop losses to LESS than 50% of the entry price.Nevertheless, we feel this is a buying opportunity.Obviously the recent Friday lows at DJIA 7563.23 are critical support.

What is the reasoning that supports a rally?

1}Numerous over -1000 downticks last week 2} Breadth nonconfirmations of the recent lows3} Historical pre-holiday seasonality4}High recent short term bearish sentiment{last 2 days}5}A low option premium ratio, near values neccessary for a good oversold rally 5}CODI in the region where buys can occur 6}Our other indicators in the oversold regions 7} Friday's bounce from the S5 region, a region visited only 3 to 5% of the time coincided with the lower 3.5% trading band, where rallies often start.8} The need for the big money to take prices higher year end to insure good yearly bonuses 9}After some possible give back post Christmas, the historical tendency to rally into the day after the New Year.

The market is officially in a short term down channel within the context of a longer term horizontal trading range, as seen on our Mcosc chart.So we are probably trading counter trend until the downward channel is violated to the upside.However,in this chart formation there is about an 80% probability of a rally to halfway between the 21 day moving average and the upper 3.5% trading band. The 5 day and 15 day cycle show not the wildly extreme oversold readings as on October 27 and 28, but readings that are within the parameters of oversold. So our advice is to enter lightly on OEX long call positions on pullbacks to support zones, as shown on the pivot charts.

Breadth:

McOsc of issue has reached an oversold level at -90. It can go lower, but many reversals occur between -90 and -120. So from the option trader's contrary view let's say we have a buy alert in place. NYA breadth again saw the declines exceed the magic 1200 level and advances were below 1000. This disparity produces a downtrend in the equity indices. Flow rate seemed to indicate a bottom at midmorning. CODI made another intraday buy pivot(not shown on end of day chart)and remains in a buy trend within the indeterminate region where whipsaws occur. CODI is primarily a breadth based timing indicator which gives it the potential to be out of sync with price, sometimes in an anticipatory way. It may say buy when prices are still going down. Conservative types will wait until price phase turns up and speculative types that jump the gun will average into price dips as on Friday.

Volatility:

MVI shows a reversal can occur any day now. The Adaptive Modified Option Strategy Spectrum and Z Score are in Buy Alert Territory where the risk is lower of buying at the money and out of the money calls within 2 strikes of the current index level. As a caution though it has to be said that for a day or two the next month(January) options can get hammered the Monday following expiration(December) when spread traders short them to capitalize on the exponential decay of the next thirty days. Also the volatility increase on Friday pumps both calls and puts up somewhat and works against straight call or put buyers. Sellers of options are ahead of the game more often than buyers. Sellers of put credit spreads during a move into zone 5 make out like bandits in a hit and run attack. Buyers must restrict their trades to very strategic timing and holding periods should not be more than a few days when there are thirty days or less remaining. The OEX P/C ratio has moved up to the lower edge of the neutral band between 0.99 and 1.48 reducing some of the selling pressure due to the excessive call volume. Remember this works in a contrary fashion, low ratios produce selling, high ratios produce buying.

RSI, SMI:

Trends remain the same on XAU, Yields, SPX. XAU daily trend is still up but is close to reverting to down next week. That would give another opportunity to trade the XAU options again when RSI drops back to 50% or lower.

Fibonacci Zones:

XAU OEX NDX TYX DJI

See charts for commentary. Weekly trends were challenged last week and failed to hold in the equity indices on Friday.

Pivot Zone Update:

OEX DJI The equity indices had a gonzo whipsaw on Friday when they dropped all the way down to zone 5/6. This kind of price migration only occurs 3 to 5% of the time. It provides a buying opportunity intraday and sets up oversold daily indicators for seasonal rallies. All the zones are shifted a bit lower after Friday's action.

Of Special Interest:

In looking at a multiyear chart of Canmine Resources(http://www.canmine.com)it can be seen that CMR makes a significant move either in December or January and by March at the latest. We are in a time period where it could spike upwards without warning. On balance volume and related indicators have been our guide to average into this stock below 1.75c and then again below 1.5c. A wedge has been forming that fits in with the expected timing breakout in the first quarter of 1998.

Momentum Cycles Update for Dec. 23, 1997:

Did the train leave the station without us?Remember the highest probability for the Santa Claus rally is in the December 23 area.Weak ends of December are statistically unusual.We didn't want to blindly buy the open in case the market spiked up early on.We didn't get a good spike down into the support{buy} zones on the pivot chart today.

The entire psychology of the market would change with a good set of days with 1700 up, 800 down type action.Traders should continue to try to establish long OEX positions on pullbacks to the "S" levels on the pivot chart below.On that chart you can see the exits and entrances made around support and resistance levels during the day possible with live feed .

Breadth:

McOsc of issue and volume improved marginally. The triple top regression channel has a slight upward slope. More recent prices have a downward sloping channel. If the issue and vol oscillators continue upward we should expect the OEX to cross the intersection of reg. lines C and D by Wednesday. Flow Rate improved in the afternoon on Monday after liquidating the weekend sell orders. NYA breadth improved also with advances firm and declines about to drop below 1200. If Tuesday and Wednesday see the declines drop below 1000 with firm advances, then we should see some nice upward price action. CODI is still in the indeterminate zone.

Volatility:

MVIs turned up along with the %b and RSI. Most encouraging is the higher low on the Adaptive Modified Volatility Index. That speaks for higher prices. Ztimer and Zscore both have buy pivots and the Zscore has a buy crossover on its Fear line(red). The red line is a measure of average fear during the day. The green line is the closing fear. If the closing fear is less than the day's average it is conducive to rising prices. If closing fear is greater than average fear then it forecasts lower prices.

RSI, SMI:

Little change here. See charts for commentary.

Fibonacci Zones:

XAU is on the verge of having the daily Triple Switch indicator cross above the weekly Triple Switch. This would have very positive implications for the gold sector. Yields are working on a low. Note the position of the Yield Ratio Oscillator and its gradual upward slope. Too early to say if this means yields are going to work higher in a few days. OEX closed above its weekly balance(dashed red line) and is within striking distance of its daily Triple Switch.

Of Special Interest:

Canmine Resources continues seeking its low for the year.

Pivot Points:

OEX Pivot Zones are shifted upwards for Tuesday implying a positive bias. Monday's close was near the Keyline for Tuesday implying indecision on the open without a strong bias either way. Perhaps we will see some oscillation about the keyline before taking off to S1 or R1.

To quote from the Monday morning 9:15 am update:

" This swing chart suggests that the lowest risk buy is near Friday's midmorning lows. Remember we are trading countertrend. This chart is courtesy of C. Lee."

To quote from the Tuesday update:

"Remember the highest probability for the Santa Claus rally is in the December 23 area.Weak ends of December are statistically unusual.We didn't want to blindly buy the open in case the market spiked up early on.We didn't get a good spike down into the support{buy} zones on the pivot chart today."

Comments for Wednesday, December 24 open:

Trading the end of the month of December is difficult.There are many crosscurrents this time of year that make volatility unpredictable.With many traders away the pros can move the market with few participants.We use a combination of monthly money flow cycles, seasonal cycles,probability, and proprietary occillators to find overbought and oversold regions.As you can see from the above quotes, it was wise not to chase the market from Friday's rally off the lows into the resistance found today near the keyline.It was sensible to be bullish at 7563 near Friday's lows.It was not sensible to buy after a 300 point rally off those lows. NOTE ONLY TODAY AT THE CLOSE DID WE SPIKE DOWN INTO SUPPORT ZONES NEAR THOSE LOWS. We are in the CODI buy zone again today, so we are very oversold,however, price can still fall further.If traders took small long positions near the lows today in the s3 region of yesterday's pivot chart, stops should be monitored more closely than usual due to the possibility of a break of Friday's lows between 7563-7600.The market, regardless of any other indicator,cannot go up until there are more advances than declines.

Breadth:

McOsc of issue and volume were almost unchanged from Monday. This sets the indices up for a gonzo move on Wednesday. At least that is what the stats say. NYA breadth deteriorated again. This is one of the longest runs of declines over 1200 every day that this trader recalls witnessing. It runs all the way back to December 1st. This will keep a check on prices until the Net Flow Rate can be sustained above zero for a good part of the day. CODI buy mode was aborted a few days back when the OEX closed below its yellow adaptive moving average. It is now firmly back in Buy Alert territory as it was back in October. It can move higher{that is,with lower prices} as it did in October.

Volatility:

MVIs turned down again reinforcing the downtrend in prices. %b and RSI also dipped back into oversold. MOSS Z Timer is on the border of extremely oversold and oversold. Z score generated another sell with the closing fear stronger than the day's average fear. Another day like today and the Z Timer will be in the Buy Calls zone. It is essential to wait until decliners stop exceeding advances.

RSI, SMI:

XAU improved somewhat today. Yields firmed up their base. SPX weakened.

Fibonacci Zones:

XAU made a shining move by rising above its weekly TS trendline. TYX bounced off its lower weekly fib zone, a good place to reverse. OEX closed below daily and weekly trendlines. NDX is easily within one day of striking its lower weekly Fib Zone.

Special Interest:

A couple of hammer candlesticks are appearing on the Canmine weekly chart. This week is not over yet. Hammer candlesticks are representative of the end of a move. Below market bids are still picking up last minute sellers into the end of the year.

Pivot Update:

Using the combination of the Pivot Point lines and a price oscillator such as Bill Blau's Stochastic Momentum facilitates buying at support and selling at resistance. Today the OEX failed to rally above the Keyline just as the SMI was going into sell mode after the open. A second attempt to penetrate the Keyline after a bounce off of support at S1A also resulted in a second sell or buy puts trade. A buy at S1A could have been made but the Advance Decline breadth was not in favor of a price rise as discussed elsewhere in this update. Intra day traders can take the Pivot Values from the Data Window and draw them on their charts with a horizontal drawing tool, labeling and color coding if desired. Then below the chart place your favorite price oscillator. If you have a large monitor then also place a breadth indicator under the price oscillator for additional confirmation.

To quote from the Monday morning 9:15 am update:

" This swing chart suggests that the lowest risk buy is near Friday's midmorning lows. Remember we are trading countertrend. This chart is courtesy of C. Lee."

To quote from the Tuesday update:

"Remember the highest probability for the Santa Claus rally is in the December 23 area.Weak ends of December are statistically unusual.We didn't want to blindly buy the open in case the market spiked up early on.We didn't get a good spike down into the support{buy} zones on the pivot chart today."

To quote from Comments for Wednesday, December 24 open:

"Trading the end of the month of December is difficult.There are many crosscurrents this time of year that make volatility unpredictable.With many traders away the pros can move the market with few participants.We use a combination of monthly money flow cycles, seasonal cycles,probability, and proprietary occillators to find overbought and oversold regions.As you can see from the above quotes, it was wise not to chase the market from Friday's rally off the lows into the resistance found today near the keyline.It was sensible to be bullish at 7563 near Friday's lows.It was not sensible to buy after a 300 point rally off those lows. NOTE ONLY TODAY AT THE CLOSE DID WE SPIKE DOWN INTO SUPPORT ZONES NEAR THOSE LOWS. We are in the CODI buy zone again today, so we are very oversold,however, price can still fall further.If traders took small long positions near the lows today in the s3 region of yesterday's pivot chart, stops should be monitored more closely than usual due to the possibility of a break of Friday's lows between 7563-7600.The market, regardless of any other indicator,cannot go up until there are more advances than declines."

Momentum Cycles Update for Friday, December 26,1997:

The U.S. market has for many years had a seasonal tendency which is called the "Santa Claus rally".It usually occurs after the mid-December lows, which is often the end of a week of heavy selling, as we traded profitably this year on the short side.After the mid-December lows, a reflex rally into at least the beginning of expiration week can be traded on the long side, as we also did profitably this year.Often the December 23 area starts the Santa rally, with some give back into the 19th trading day of the month, which this year is Friday, December 26.The strongest rally seasonal pattern is the last several days of the month into the start of the New Year, usually culminating in the end of monthly reinvestment money by mutual fund investors by the 4th or 5th trading day of January.

This year, the seasonal rally is very late, and there is reasonable doubt whether it will occur at all, or if it does,there is the possibility it could appear from lower levels than we are at now, as a reflex rally from even more extremely oversold conditions.

We sit now , at the 7600 area, in an area that has been tested as support and resistance over 20 times since June,with only October as the spike low into the 6900 area.Once we closed above 7600 again, it became support,tested at the recent tick low of 7563.23, and again on Wednesday.For this reason,one would expect a close below those lows{7563.23} would set off quite a bit of selling, as many traders have stops posted at that level.Below that, the next cluster of price "hits" are 7300-7400, then 7100, then 6900.

We now sit at the lower 3.5% trading band, at the DJIA 200 day moving average, slightly below the NASDAQ 200 day moving average, and at the 200 day moving average of the Investors Business Daily Mutual Fund Index.Many trend followers watch these levels as risk, so this is another reason to expect follow through selling if these levels are decisively broken.

Many of our indicators are at screaming buy levels,such as the option premium ratio at .39, the recent dropping of negative volume, the 5 day rate of change, and RSI nonconfirmations.In case this is the exception to the seasonal norm, we will stand aside for now until advances start to improve relative to decliners..Traders should watch the markets in Japan, Korea and Europe carefully early a.m. each day to see if global correlation is returning.The East is in a bear market, but Europe does not have the " fatal chicken flu" yet.If Europe catches the flu, it would seriously increase risk in our market.

Incidently, very weak Decembers historically don't bode well for the following January.So Santa had better appear soon.

Breadth:

The story is the same today as yesterday. McOsc issue and volume went sideways for a second day as the equity indicies edged lower with NYA declines greater than advances. Flow rate was neutral early in the day and shifted to a negative bias into the close. NYSE TICK was running negative all day. The early morning index pop could not hold its gains and gave way to the month long profit taking mood. CODI continues its trek into to oversold levels in the Buy Alert zone and price continues below its adaptive moving average....thus no CODI buy signal today.

Volatility:

The MOSS Z Timer has finally edged into zone 1 where calls can be bought. However it is adviseable to wait until the Z timer pivots upward and the above breadth numbers are positive. The Z Score also continued on its sell trend. Price drops as the the Z score trends upward. It is nearing a reversal level. It appears that the Timer and the Score are reaching the maximum excursion just in time for the next batch of seasonal money to flow into pension accounts. For what its worth, the University of California timing indicator will be delayed this month as electronic deposits will not be credited until after the first of the month. Throughout the year the deposits coincide with a positive market bias up to three trading days before the end of the month.

RSI, SMI:

Same story here. XAU outperforming TYX and SPX.

Fibonacci Zones:

Daily and weekly trends are in full force on the equity indices. XAU is the only one showing substantial gains. DJI, NDX, OEX, SPX, TYX, XAU.

Special Interest:

CMR continues under accumulation into the remaining days of 1997.

Pivot Update:

Light trading volume on Wednesday produced narrow price migration in the pivot zones. Initial support was found at S1 and a failing rally led to support at S2, another failing rally and finally a close on S2. Points of significance are that Wednesday's close is below the keyline for Friday and all the zones are shifted lower from Wednesday. Year end profit taking, producing negative breadth is to blame for continued price weakness. The shift to higher pivot zones may be delayed until midweek next week as the payroll momentum cycle is delayed a few days this month due to tax accounting influences that require deposits to be recorded in 1998 rather than 1997. Normally the deposits occur before the end of the month by a few days.