MomentumCycles

MomentumCycles commentary for the open of Monday, December 21, 1998:

We promised you a while back at the low 70's that FNM would hit the mid-70 level after a retracement to the lower channel and that this was inevitable. 74 was followed by a sharp pullback to under 70,then a Friday tag of over 75 .Now at 75.1875, some pullback here in FNM would be logical, as Stochastic 5 is at 100 and Stochastic 20 is at 90, almost to the extreme of overbought. We have had 4 consecutive closes at the high of the day and are at the top of the trading channel seen since July. Target of the channel at the top end is 75 to 78 and we are at the lower end of that target. FNM makes rhythmic oscillations as you can see from this chart,which led us to project 75 as the target once the previous high was exceeded.

XAU is back near the 63-65 area which was previous support,below which is 48-54,the year low.A complex bottom may well be forming,with STO 20 at 18,almost ready to break above 20.Characteristic of XAU are explosive rallies on increasing volume with 2 or more closes at the high of the day,but recent rallies have been aborted on attempts to rise above the STO 20 level.OBV is still slightly rising,momentum of price 7 versus 35 days and 5 versus 21 days is oversold and rising.Volume is the problem here,as it has been weak.Next important price hits are 12/26 and 1/6.A close above the endless descending channel at 78.5 gives a high probability to 85-90.

On to the end of last week's OEX action and pre-holiday probabilies...

OEX closed out expiration week at 589.84 pulling the OEWLM AND OEWAM into nice gains. Breadth has been poor all week and price has been leading breadth with increasing bullish option sentiment. Total index CP is in the sell alert zone. Sentiment is in the sell alert zone. Equity CP is running at elevated levels too, but HROEX has been lagging. It looks like a selling opportunity is developing, however we need to see what things look like after the Dec. option data drops out of the ratios on Monday. CODI made a tiny sell pivot warning on Friday, but much stronger sell signals occur when CODI has been trending below the Sell Alert line for a few days. The intermediate term system, ADHL, has had a reprieve as the new highs picked up and new lows dropped. Next week we are looking for a breakout of resistance as the McOsc pulls out of its oversold zone and the year end effect takes over in a holiday mood. Wouldn't that be nice for the OEWAM? Admittedly we do have the proverbial wall of worry for a bull trend to exist against a backdrop of seemingly endless reasons why the market should go down. Good shorts are made when price and breadth have divergence with breadth lagging. This is the thing to watch for going into the first of the year...i.e. new price highs with McOsc moving up to the neutral zone(+,-50) and then failing. Perhaps the CP indicators will peak and turn giving us a clue to price turning down a few days later. You would want to be out of the calls when these ratios peak. Historical odds read 77% probability of an up trend into the end of December. Cycle indications are for a hit on 12/24.. Some note should be made of the 50 day average crossing and closing above the 200 day on the INDU chart. The 21 day channels are rolling over to meet the INDU at 9000 next week. Money flow into money market and mutual funds has not been encouraging for a sustained rally. Bottom line is there appears to be more room on the upside, but a juicy sell is approaching.

Here are some charts:

FIBRET CHART. INDU CHART. MOSS CHART. NHNL CHART. NYA CHART. OEX 30 MINUTE CHART. OEX PIVOT CHART. OEXPF CHART. PITCHFORK CHART. RSISTO CHART. VIX CHART. Cycle CHART.

MomentumCycles commentary for the open of Tuesday, December 22, 1998:

We said to expect some retracement in FNM now that the target of the upper channel{75-78} was acheived Friday.Monday saw 76.125 high,74.1875 low,74.3125 close,off about a point on the day,and 2 off Monday's high.

XAU STO in the cellar again at 12 on the 5 day and 10 on the 20 day,extremely oversold,testing previous support near 63.Below this support the yearly lows are 54-48.Momentum of 7 versus 35 days dropping again.Volume here is disappointing.Last tradeable rally started in similarly oversold conditions,and we are due in time for a rally that extends into the new year.Volume will have to pick up for this index to have the successive closes at the highs of the day that started the previous move to overbought off the yearly lows.

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

Monday saw good follow through in price,as new highs increased, new lows were almost unchanged and even advances were quite strong. NYA declines were above the 1200 level, casting some concern about the post expiration day. Behavior late Friday and early Monday has to be due to expiration and political events, now that it is pretty clear that the most that will come from impeachment proceedings is censure, if even that. Even the up volume was nearly twice the down volume.When one looks at the end of day numbers,they appear better than the intraday numbers and patterns. The pattern seen was a strong rise on the open, flat throughout the day and a small giveback on the close. The P&F chart is one way to see the apparant distribution that was occurring by supply meeting demand. The OEWAM traded at 39 1/4 which is a double from last Tuesday/Wednesday. Seems like anytime a double occurs there is some giveback right afterwards. Flipping through our charts we see that the volatility indicator, VIX, is trekking on down to the sell band, tagged it and then profit taking came in. One more day with a close outside followed by a close back inside would make a more convincing sell signal. Yet, with CODI also closing below its sell band, the profit taking flag is waving. Markets don't tend to top and reverse in an inverted V;the top pattern is more rounded so it might just not be wise to jump into puts at this time given seasonal probabilities. The Cone chart hit resistance at the centerline of the regression channel with a projection oscillator starting to roll over. I would be inclined to take profits, avoid shorting, and look for a re entry on the long side, possibly late Tuesday at the lower green or red cone levels, or S1 or lower on the OEX pivots or look for an entry on the OEXFD chart. Some evidence behind this decision is the MoonTide rolling over, Pitchfork at max, Sentiment peakng and dropping along with TXCP, Moss nearing the extremely overbought zone, etc. The one day look ahead with the OEXFD complements the OEX pivot and Cone chart as these three techniques are popular amongst daytraders.

Here are some charts:

ADHL CHART. CYCLE CHART. EQUITYCP CHART. FIBRET CHART. HROEX CHART. INDU CHART. ANOTHER INDU CHART. MCOSC CHART. NHNL CHART. OEXFW CHART. OEYAT CHART. OEYMT CHART. RSISTO CHART.

1 oclock Wednesday eastern time update:Exit OEYAT at a 30% return..objective met early afternoon.

MomentumCycles commentary for the open of Wednesday, December 23, 1998:

We've been disapointed for a while now with the XAU's failure to confirm a bottom in this price and time frame.At the last washout low in August,we had 6 consecutive closes at the low of the day,a tag of the lower band using a 12.5% distance{unlike the DJIA oscillations which often reverse at 7-8%},a Stochastic 5 well under 10 and a Stochastic 20 similarly under 10,and greatly oversold 21 day intraday volume %.Here again presently we have 4 consecutive closes at the low of the day,seasonal pressure due to tax selling of losers{XAU issues have been good tax sale candidates this year},and Sto 5 and 20 about as low as it gets.One of the momentum methods we employ is to compare price of 7 versus 35 days and 5 versus 21 days,and when they turn up from negative positions,in concert with volume,to try a long entry.Both are still dropping.{Another tactic would be to buy the breakout above the descending tops at 78.5 for a move to 85-90.}XAU close Tuesday was below previous support of 63 {61.25},so a move into the August lows of 54-48 may be setting up.We are about as oversold on STO as it gets,so we are close in time to a rally.Again,multiple closes at the high of the day on increasing volume are characteristic of XAU surges,and we are not quite there yet.

The OEX is finding resistance at 600 with marginally negative breadth. NHNL gave a very short term sell today that now accompanies CODI below the Sell Alert Line. McOsctilted down from -50 neutral zone. AMOSS is now in the Extremely overbought zone. Yet the "feel" is we had a sharp run up Monday morning and then two days of consolidation. Rather than a sell reversal the "feel" is for more seasonal strength to resume on Wednesday. The plan laid out for Tuesday was to exit the OEWAM and look for a re-entry on the long side with a more dynamic positon. Entry was described to be at one of three levels, 1. S1 or lower on the OEX Pivots, 2. Fib support on the Daily OEX Fib chart OEXFD, 3. A lower green or red cone.

Tuesday morning gave ample opportunity to exit with a double from last week before providing the long entry. Timewise, the re-entry was expected to be Tuesday PM but you never know when opportunity strikes. The OEYAT Jan 600 OEX call was the instrument of choice. OEY is the root symbol for strikes 600 to 699. {Since this is an end of day service an attempt is made to give plans in advance of what we might be doing.} The OEX hit S1 at 10:25AM when the OEYAT was $9. Then later in the PM the OEX found support at the Pivot line with the OEYAT at $10. In between these times it hit $12 momentarily. So officially MomentumCycles is long the OEYAT at 9 and 10. Holding time is expected to be one to two days with 30% gains and a 1.5 trailing stop below the entries. Wednesday AM will likely provide an entry between these two levels. No desire is held to retain the position over the long weekend and it will be exited this Thursday at the latest. Another long entry is expected next week and no puts are planned to be traded until after the first of the year. Option sentiment peaked and turned and is in position to make another run up with price. During positive seasonality periods stocks and sectors tend to rotate rather than taking the entire market down from an overbought situation. There appears to be at least one and maybe two days left in this current up move as evidenced by rounded tops in stochastic momentum and RSI.

Here are some charts:

ADHL CHART. CYCLE CHART. EQUITYCP CHART. FIBRET CHART. HROEX CHART. INDU CHART. ANOTHER INDU CHART. MOONTIDE CHART. MOSS CHART. NYA CHART. OEXPF CHART. OEYMT CHART. PITCHFORK CHART. TXCP CHART.

MomentumCycles commentary for the open of Thursday, December 24, 1998:

In addition to the other indicators discussed below in the 3rd paragraph,a longer term perpective can be looked at by the position of the 3.5% trading bands and the DJIA price and current cumulative volume.We are within striking distance of the upper 3.5% trading band of DJIA price with cumulative volume negative.A tag of the upper 3.5% band with the current volume nonconfirmations in early January would set up an early year selloff often seen in years where large unrealized gains can be postponed into the new tax season.This situation will have to be closely monitored in case the tag generates such a sell.Some astute traders may well decide to take some long profits on December 29 to avoid crowding the exits in the new year.

An up day on XAU,closing near the high of the day.Momentum of price 7 versus 35 days negative but not dropping,5 versus 21 days negative and dropping, 21 day moving average of intraday volume % -26.5%,about as oversold as it gets,STO 5 and 20 bouncing off the cellar.A confirmation of a rally will occur when the 2 momentum indicators turn up,which may be close.

Wednesday lived up to its name as a "W" day, wait, no, we need a down Thursday to fulfill that pattern. It also fulfilled all expectations of rallying Christmas cheer. Surprisingly, none of the Call/Put indicators, HROEX or EquityCP, are at levels yet to be concerned about for anything major on the downside. The OEYAT was a big winner and an exit is advised simply because price oscillators{such as RSI 5 near 100} are over extended, CODI is trending in Sell Alert Zone, MOSS is overbought,5 day rate of change is +5%, etc. Markets can trend in overbought, but, and this is a big BUT, 12/24 is the NP Change in Trend or CIT or EP or Energy Point, whatever you want to call it. This can be a trend change, or an acceleration in the same direction. Generally trend changes from the direction leading into the CIT. Of course, there is likely to be another test of Wednesday's high. Failing that, the calls should be exited Thursday and just maybe a quickie put trade is in order at say Jan 605, OEYMA, but maybe we should keep our senses and avoid any further trading until Monday. After all, Thursday is a shortened day. Trading tradition would have a bit of a retracement of Wednesday, a test of Wednesday high and then a Thursday drop with VIX moving from below 20 back above in sell mode. So, if you are nimble, and have a keen eye, with a compulsive mind to trade then sometime Thursday a high for this move should be made. You just don't want to leave yourself in a position over the holiday weekend where you have to worry about Monday. Oh, the McOsc is back near the zero line and a cross above might just bring in more institutional buyers. Or, it is the "sweet spot" that bears look to get short again. Amazing how these CIT days are coordinated with extreme overbought and other technical conditions. I personally would not try to short this market until after the first of the year unless you are after an intraday swing of a few hours. We could easily see 615 OEX, 9285.31 DJIA on an average day on Thursday. Next week we could easily see 620 OEX, and close to 9400 DJIA. Short sellers and put holders are battling the coffers of money managers maximizing year-end bonuses, so, it is just best to wait until this force works itself through the end of the year before trading on your gut instincts. The money managers are determined to drive the market up, or at the least, to maintain defensive action on their holdings. The Pseudo chart is one I keep tabs on during the day for finessing into{ and out of} day trades. It also has value in an end of day analysis for clues to globex and the next day's opening. The top plot is the S and P futures or pseudo futures(spx cash + prem) bounded by bands with the name of Buy programs, Fair Value, Sell Programs. The yellow dots are the S and P futures or pseudo futures. The plot below that is the PREM or futures minus cash. It also has the same three bands placed on it. Below that is the NYSE TICK with some critical levels of +400,0,-600. In strong markets the + TICK will reach 600 or more. The bottom plot is the MACD of the TICK. Now then, throughout the day I am looking for divergences between the futures and the TICK, especially when TICK is overboughtt or oversold, i.e. above 400 or down near -600. I am also looking at the MACD of the TICK for crossovers. Now then, to get to the point here tonight, note what happened starting at 3:30PM. The futures kept climbing and the prem was trending up towards the green buy program level while TICK was completing a double top at 587 AND the MACD was rolling over. This is a full 45 minutes before the futures cease trading. Then on the final tick for the SPX cash the premium dropped to fair value as though the trend was broken. The main thing is the length of time the divergence between the tick and futures lasted. When a divergence like that sets up you want to seriously consider exiting daytrading longs, calls or futures. There is at least one other little clue in here. Volatility bands on the PREM pinch and expand in prelude to the next trend. Note how they were pinching near 1:54 before the drop in the futures and also note the pinch going into 4:00PM. Just maybe Globex and Thursday's open will see some downside followthrough. Wednesday's open in the OEX is a good example of how not to place orders. See the OEYATTRD chart for time and sales. Some poor eager OEX souls must have had market orders waiting for the first trades. One trade at 9:36 went off at 14 1/2 and it was preceded by one at 12 1/2 and followed by another at 12. It just isn't adviseable to use market orders when the futures premium is so far above fair value on the open. It may take 15 to 30 minutes before the auction market phenomena subsides and premiums reflect index activity more so than the psychological panic buying. The opening gap in the option was almost filled 45 minutes later at $11 and that position did not break even until lunchtime.

Here are some more charts:

NYA CHART. OEX 30 MINUTE CHART. OEXFD CHART. OEXFW CHART. OEX PIVOT CHART. OEXPF CHART. OEYMT CHART. PITCHFORK CHART. RSISTO CHART. ADHL CHART. WEDNESDAY'S CONE CHART. THURSDAY'S CONE CHART. CYCLE CHART. INDU CHART. ANOTHER INDU CHART. FIBRET CHART.