MomentumCycles

Momentumcycles commentary for the open of Monday, December 28, 1998:

Looks like 1999 may be the year gold bugs come alive. XAU implied and historical volatilities peaked in the fourth quarter of '98. Peaking volatilities signal a low in the underlying index. XAU Weekly chart shows no gain from the same time last year at 63.41 and the XAU 30 minute ran into primary resistance at 63.89. A break above 63.89 targets next resistance at 68.31. Gold stocks tend to have a contracycle from other equities and T bond yields as illustrated on the Momentum Cycles chart. These other equities are in a year end rally at the moment. Price based oscillators and trend channels paint an overbought picture. This can be seen on the following charts: CODI, Cone, FibRet, INDU, Pitchfork, RSISTO, OEX fib weekly, and MOSS.Note that we are close to,although not quite at, the upper 3.5% trading band on the theoretical DJIA.The market often reverses or marks time when price tags near the upper band occur.

But also remember that overbought oscillators will remain overbought in uptrends. Breadth charts such as McOsc, NYA, ADHL, and NHNL don't paint such an overbought scene, in fact they are still oversold to neutral. Now that most of the year end tax loss selling is behind us (famous last words) we may have seen the low in New Lows which should help out the NHNL, McOsc and ADHL indicators. Thus, the intermediate term buy mode is likely to remain in effect for a bit longer. Equity Call/Put ratio has not risen as fast as the OEX in the last few weeks. This could be interpreted either bullish (wall of worry) or bearish (lack of conviction) or it might just be a lack of participation volume thing during the holiday season. HROEX summation has not given an affirmative sell or buy even as the stochastic momentum is peaking or entering trend mode(don't let the oscillators fool you). Even the Sentiment indicator is in midstream. The VIX volatility indicator has flashed a sell indication but Thursday was a very short day so we better give it some more time to prove itself. This OEX implied volatility can trend lower into the first of the year providing the odds remain with the longs. So, the scorecard is: overbought on short term price oscillators, trend channels and implied volatility; neutral on breadth and option sentiment; oversold only in the XAU and commodities. End of month seasonality, payroll seasonality, beginning of month seasonality will be with us for another two weeks. Final words, overbought markets can get more overbought. The effect of lower yields has an immediate effect in the financial trading markets, but it has a delayed effect in the day to day business world. The best guess here is there is some minor pullback the next few days and then another run for the money into the end of the week.

Here are some more charts:

INDU CHART. OEX 30 MINUTE CHART. OEXFD CHART. OEX PIVOT CHART. OEXPF CHART. OEXWM CHART. OEYAT CHART. OEYMA CHART. OEYMT CHART. TXCP CHART.

MomentumCycles commentary for the open of Tuesday, December 29, 1998:

XAU attempting to form a bottom,but momentum of price 7 days versus 35 and 5 versus 21 not yet turned up from negative.XAU STO and RSI in the cellar where rallies form.Above 63 was resistance as mentioned yesterday.When momentum turns up and volume and STO are in concert,we will get a tradeable rally.Above 63.81 could give us 68.Trying to get the bottom here on this index has been frustrating.XAU components are prime tax sale candidates this year.

On to Monday's action and the game plan for the week...

Oh No! Look at the Sentiment and Equity CP charts and see what joined CODI,DJIA theoretical near the upper 3.5% band, and other overbought indicators. These two are now flashing caution flags and the accompanying StochasticMomentums on the same charts are on a razors edge turning the yellow caution arrows into red. A down pivot in the Sentiment and CP would cinch a short term sell. Must be what happened today for those in the know who made a "before the close evaluation". You see, we as retail users of data are the last ones to see the important stuff. Well, we did say to exit calls last Wednesday and Thursday and would look for another long entry this week, so be it, things are working in our favor. Let's let it work itself out and not jump the gun. We know that the payroll indicator is delayed this week because checks cannot hit the electronic depository until after the first of the year on Monday. So, lets look for a long entry maybe Wednesday, Thursday or Friday. There might just be some last minute tax selling that helps delay the commitment of fund money until next week.

Here are some charts:

ADHL CHART. CONE CHART. CYCLE CHART. FIBRET CHART. INDU CHART. ANOTHER INDU CHART. MCOSC CHART. MOSS CHART. NHNL CHART. OEX FIB CHART. OEX 10 MINUTE CHART. OEX PIVOT CHART. OEXPF CHART. OEYAA CHART. OEYMA CHART. OEYMT CHART. PITCHFORK CHART. RSISTO CHART. SUPERTIMER CHART. VIX CHART. XAU CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Wednesday, December 30, 1998:

One tier market Tuesday-bonds,stocks and XAU all up.

XAU is in an interesting position.It has spent a month with Stochastic 20 below the 20 level and just broke out Tuesday with a reading of 22.A prolonged spell below 20 set up the previous rally from the 48-54 level.Tax selling pressures from dumping losers is lessening.XAU issues have been prime tax sale candidates.Momentum of price of 5 versus 21 days turned up Tuesday,which is bullish,although 7 versus 35 is still dropping.More base building may yet be needed.First resistance near 68 is seen on the XAU charts below.Multi year resistance intersects at 78.5 to 80,above which a move to the upper trendline would be possible.

DJIA continues to rally ;8 days in a row in spite of 57.1% bulls.We are not recommending shorts here yet{see below}...

It should be obvious by now that a trader can't fight seasonality, nor a trend, nor sentiment, and has to be aware of a cycle length change on his favorite oscillators. Even NYA breadth improved and is also evidenced by the McOsc crossing above zero. Initial closing data has been replaced with cleaned up final data up to 12/9 and that shifts the McOsc up to the zero line from just inside the neutral zone at -50. Various oscillators are overbought and have the yellow caution flags attached, price has to break to turn them to red in a confirmed sell. But, as has been stated before oscillators can remain overbought as cycle mode changes to trend. One buy program can change the complexion of a thin market rather quickly. Wednesday is poised for a gonzo type day. Note the wide spread between support and resistance on the OEX pivot chart and the OEX Fibonacci Trader Day chart. Bullish moves don't provide the riskless entry by any means. So far we haven't had much weakness this week. From the breadth standpoint there is more room to go on the upside. 9400 looks like an easy target for Wednesday or Friday. The temptation is still to not try and be a hero with a put or short sell trade. The trend says to look for a pullback and get on board.

Here are some charts:

OEYMT CHART. FIBRET CHART. INDU CHART. ANOTHER INDU CHART. MCOSC CHART. CYCLE CHART. MOSS CHART. OEX 30 MINUTE CHART. OEXWM CHART. OEYAA CHART. OEYMA CHART. OEYAT CHART. CONE CHART. XAU DAILY CHART. VIX CHART. XAU CHART. OEXPF CHART. SENTIMENT CHART. EQUITYCP CHART. NHNL CHART. CODI CHART. ADHL CHART. PITCHFORK CHART.

MomentumCycles commentary for the open of Thursday, December 31, 1998:

Year end bonus money was funneled into all asset classes Tuesday,accounting for a rise in 30 year T bonds,XAU and stocks.Wednesday brought a short lived continuation of the XAU rally, with a 66.01 high and close at the low of the day,63.54,continuing the probable base building referred to on yesterday's commentary.Of course a break of the 60 low will bring the retest of 48-54,the previous low.Technically,momentum is still rising off the recent 60 low,noticeably on poor volume.

Several back to back closes at the high of the day on rising volume confirm XAU explosions.These two characteristics are yet missing.

Longer term investors have been buying 30 year T bonds near the tags of the long term downtrend in yields,where recently the support in price was seen near 5.4%,and selling under or near 5%.This MAXTYX CHART shows this strategy is still operative,as it has been for quite some time.3 consecutive closes under 5% would give more heart to the long term bulls,as buyers seem to be increasingly fading as yields approach 5%.A break of the long term downtrend in yields means that line will become new resistance,as now it behaves as support for bond prices.No shorter term trade is recommended until the previous low in yields is violated,or the discussed trendline is broken.

On to the end of year crosscurrents in OEX...

One more day to sell and one more day for DOW 10,000 in '98, no way brother! That goal fell as the winter chill set in. Now the word from RALPH A. is 11,000 in '99. How about being satisfied with a little more follow through on the downside Thursday morning, say to a lower green cone or S1 pivot, or Daily Fib Level...maybe down to 600 or 605 OEX to provide a long entry into next week. These quarterly and annual transitions can be full of surprises and attendant confusion with the DOW trust readjustments.In addition,a confluence of cycle dates appear periodically near the end and starts of years due to tax strategies. Yet, the mechanical trade has said to look for a trading low this week and so far it has been elusive. Thursdays have that depressive disposition to offer up such an opportunity. This Thursday in particular is a pre-holiday Thursday and thus has the positive holiday bias to counter last minute selling. Remember though, this is going against many overbought indicators that are developing into sell signals (still need price to cave in to confirm them). So let's look at some others that might give some support for risking capital on Calls into next week. The NHNL is improving as the selling dries up. McOsc is above zero. AMOSS has dropped back to dead center neutral and MOSS is on the upper edge of neutral. What we are seeing here is an overboughtness being worked off through sideways motion. ADHL remains in buy mode and appears it will stay that way into the new year. The plan in this camp is still to avoid the short side, even for a scalp, and instead is to make a call entry into year end selling momentum.

January is one of those short expiration months in which the first day of the month is on a Friday and that leaves only two weeks until expiration. The implications of this are more seasonal pattern conflicts. For example the week before expiration tends to have a down bias yet the first week of the month tends to have an upward bias. Just as there is stock tax loss selling and "pump priming" in the last quarter, there is "gain" selling in January to effectively shift gains into the new year to delay paying Uncle Sam. Of course futures traders have to mark to market and pay unrealized gains(declare losses) on positions held over from one year to the next. The main concern here is equity portfolio shifting after the first of the year can have a choppy effect making trading index options difficult.

What we are looking for here are two trades, a seasonal Call trade to carry us into a swing Put trade next week. Sentiment and Equity C/P say it is riskier to be long than short so it might just be adviseable to avoid the long trade and wait for the short one to develop.

Here are some charts...

CODI CHART. EQUITYCP CHART. FIBRET CHART. INDU CHART. OEX 30 MINUTE CHART. OEXPF CHART. OEYAA CHART. OEYAT CHART. OEYMA CHART. OEYMT CHART. PITCHFORK CHART. RSISTO CHART. SENTIMENT CHART. SUPERT CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

Intraday update 10:40 am:

Trail with a stop loss, or sell here. Probably not much more upside today. Use a 1.5 trailing profit stop on OEX calls or better yet you could convert to a calendar spread by selling the Feb 605 call for 23 5/8 against the Jan 605 bought at 10. That would lock in a 13 point gain instead of just a 50% profit.