MomentumCycles

MomentumCycles commentary for the open of Thursday, December 3, 1998:

30 year Treasury yield index back to the equilibrium level of 50.19,after flirting with 49.97 at the extreme of fear Wednesday{note we discussed this in November}.Recent reaction after the spike low in yields at the October extreme of fear was to head up to test the long term downtrend line in yields at 5.4%-which held.46.90 was the recent all time low in yields.A close above 5.4% is bearish for bonds{and bullish for an increase in rates},and a close below 46.90 bullish for bond prices for a yield target of 4.475.Right now,being at the equilibrium point between 5.4 and 46.9,the benefit of the doubt still goes to the lower rate scenario,but as a trade,the extremes that hold as support or resistance are where a position is best taken.

XAU still working the 83 sell signal,now 69.37,possibly heading towards 63-64.Sto 5 at 15,Sto 20 at 12,very oversold and ready to bounce, but momentum of price 7 days versus 35 still dropping, as well as 5 versus 21 days.All these closes towards the low of the day at this STO position are traditionally often reversed in XAU by a high volume close at the high of the day,breaking the trend.That has not happened yet,but it appears to be setting up.

Notice BKX was actually up Wednesday{+8.73}and NASDAQ versus DJIA strength was positive,a normally short term bullish situation.

A small cap we traded successfully before with excellent long term prospects came back alive the past 2 days{ASTN},rising to back to 2 7/8 {low Wednesday 1 11/32,high 3 3/8,close 2 7/8}on 50x average volume.All time recent high 4 3/8,above which it targets 7.Probably fueled by a rumored placement of one of ASTN's trading systems,a close above 4 3/8 could be bought for a spike move to 6 or 7.

On to Wednesday's and Thursday's action...

CBOE Equity C/P, Total Index C/P, OEX HROEX three day summations have pulled back from the overheated speculative levels. The 3 Day Summation of the T Index C/P pullback has given decent buy signals since the October lows. It may be premature to call for another buy, but nevertheless, a buy arrow has been placed on the chart. ADHL new high strength and DJIA strength oscillators actually improved on Wednesday. New Low strength is still quite a distance from causing a problem. New highs increased from 71 to 88 on Wednesday despite the downdraft in indexes. NHNL changes are a sensitive indicator and this chart has been running above 0% since the rally off the October lows. Now if the indexes do trend into new high territory, then it is mandatory that the NHNL percentage increase. NYA breadth improved after the initial AM panic. SuperT is still looking OK and is a composite breadth indicator. We would be worried if the PT redline diverged below the index. CODIs are in the buy signal construction stage. McOsc finally reached the bottom of the neutral zone at -51. It's do or die now. If the institutions want to save the market from more deterioration, they better dump some cash into the pit. VOLATILITY as represented by the VIX has been inching upwards and is still in sell mode, but that can change in the flash of an order ticket. Its 5 day RSI looks to be setting up for a buy signal. We had another Red Cone down day on Wednesday with the low testing the centerline of the regression channel. Projection Oscillator appears to be hammering out a bottom. If you believe a rally is ahead of us then the lower green or red cones would make good entry points as S1 on the Pivot charts. Also the OEXWM shows some S/R levels that emphasize some inverse head and shoulders that project to 600. Watch for a move up to the yellow line at 582.91 then a minor pullback and then a blast up through the yellow line. Of course this is wishful thinking. The 30 minute pitchfork is looking at 588 on a firm break above 580. RSISTO has reached oversold and retracement levels. Also the INDU low today tagged the 21 day exponential line near 9000 again. OBV has actually been going sideways as price dropped,and this is somewhat encouraging for price to move up again. A more worrisome state would be if the OBV dropped while the index moved up. If that happens on the next rally puts would be in order. These one hundred point swings or more each day make end of day forecasting virtually impossible. The feel here is that the beginning of month buying has been postponed and may exert itself once the post Thanksgiving indigestion has passed. Or...maybe it is just going to require a full harvest mooon.

Here are some charts:

AMOSS CHART. CYCLE CHART. DJIA FIB CHART. S AND P 500FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. OEWLO CHART. OEWLP CHART. OEWXQ CHART. OEX FIB CHART. OEX PIVOT CHART. OEXPF CHART. XAU CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Friday, December 4, 1998:

XAU still working the 83 sell a while back,closing at 66.17.Next target is 63-64,then possibly the previous spike low of 54-48.Sto 5 is 10,and Sto 20 is 10,about as oversold on this indicator as you can get.However ,momentum of price 7 versus 35 days as well as 5 versus 21 days is still dropping.As mentioned before,recent action and price -time suggests we are near to a bottom on XAU.Reversals are seen by a close near or at the high of the day on large volume,as seen at the last explosion off the 54-48 low.We will await a close above the descending top pattern {see chart below} or a change in downside momentum to go long.

DJIA 5 day rate of change -5%,RSI short term approaching the reversal level,possibly after a quick tag near the lower 3.5% trading band.The status of many other indicator parameters are discussed in detail below.

30 year T bonds were tremendously overbought short term a while back at 46.90,and as a result declined until finding support at the year long trendline near 5.4.Now they are resuming the oscillation above and below the 5% area,with apparently still a bullish bias longer term.At present 30 year T bonds are near the equilibrium point between the extremes of recent support and resistance,and they are a longer term hold with a probability of further rally into the new year,but not comfortably in a position for a short term trade{in the same way as XAU near 70-73 was too near the center of the recent trading range for taking a position.}

On to Thursday's index action,and Friday's prospects...

ADHL remains on an intermediate term buy. It has been said repeatedly here that this system will be late to generate a sell and a price stop should be used rather than a "breadth" stop. New highs increased from 88 to 92 on Thursday despite the downdraft in indexes, but new lows increased from 56 to 68 so the spread narrowed from 32 to 24. We need an increase in the spread. NHNL changes are a very sensitive indicator. NYA breadth was negative from the get-go and climaxed at the close. SuperT is still in consolidative mode and hasn't reached "crash" mode proportions yet. CODIs moved closer to the buy signal stage. McOsc is dipping into oversold levels at -84. A few days back we said to look for -100 at the trading low. Of course it can go lower. Many trading lows are made in the vicinity of -100. VOLATILITY as represented by the VIX remained in sell mode on Thursday. It is so close to generating a buy signal now. All it needs to do is tag the upper band and turn down. Same is true for RSI of VIX. This could happen in one more day. We had another Red Cone down day on Thursday with the low dropping below the centerline of the regression channel. Projection Oscillator appears to be hammering out a bottom. OEX did hit S1 early on, and then when the rally failed it dropped down to S2.{ Data feed problems prevent a display of some intraday charts in this update.} The INDU dropped below the 21 day exponential line. Usually the 21 day average provides some support. Time will tell if it is tested from below or moves back above for support. OBV is now dropping with price. Weak breadth and weak price spell for a down market. AMOSS chart is reaching the oversold side of neutral after peaking at the extremely overbought side. The seasonality time cycles and breadth price trends have caused wide ranging price swings and an elevation in volatility, making a confident trade recomendation difficult. The above indicators have been basically advising the short side, and are nearing a long recommendation. Again, if you believe the technicals, then a safer entry is at the lower pivot and cone levels. Today's selloff fits with the "terrible Thursday" syndrome discussed here in past months where VIX has a 70% probability of closing in the high end of its day's range. That it did, and it is helping to set up the buy configuration for possibly Friday or Monday. CBOE Equity C/P, Total Index C/P, OEX HROEX three day summations peaked and turned down prior to the profit taking. There is still a pretty high level of speculation in equity call volume which may just keep any rally attempts subdued. As we saw on Thursday, and mentioned here yesterday, they can be shorting opportunities but you have to be rather nimble and have a reliable data feed with a real-time system to take advantage of them. An end of day trade appears to be shaping up as discussed below. Drops like we saw intraday today usually have a catalyst that precipitates them. Today it was an analyst on TV with a multiweek RSI oscillator of a major equity index. It showed how overbought price looks compared to previous months and years. Like many other analysts who hedge their comments with an alternative view,this analyst allowed for another move up, but as happens in many cases, advance notice of his appearance is spread among the trading floors. Thus you see spike drops before the analyst appearance and then stabilization or bounce when he is finished. In this case all anyone heard was "overbought" and "correction". That was sufficient to take out tight stops and set us up for a buy signal in breadth, volatility, and standard deviation as is presented in the AMOSS and MOSS charts. The Momentum Cycles chart does show the weakening dollar which is a major component in the trading/investment equation.

Here are some charts:

DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. OEWLO CHART. OEWLP CHART. OEWXQ CHART. OEX CHART. RSISTO CHART. XAU CHART.

MomentumCycles commentary for the open of Monday, December 7, 1998:

Note with today's CODI chart{seen below} that rallies which occur from a deeply oversold CODI position{deep in the buy zone}and reversal lead to very large point gains,but rallies that occur from only a marginal tag of the buy zone{like Thursday last week} lead to somewhat less powerful gains.Notice on the RSISTO chart{seen below} how short and longer term RSI and STO bottoms close to the extreme of oversold lead to powerful uplegs, but that only slightly oversold positions have less "snap back".Shorter term STO and RSI were oversold Thursday, longer term not so much.Note also that rallies that occur from multiple IBD option premium ratios of .40 or under take longer to form {with usually complex bottoms},but lead to thousand point gains.Recent OPR readings were nowhere near .40.So late last week showed oversold indicators,but not deeply oversold indicators,so that the "snapback" effect should be logically somewhat diminished compared to October 8 of this year.Sentiment polls show Investors Intelligence 56.9% bulls,Consensus 56% bulls,AAII 49% bulls, and Market Vane 60% bulls,all very bearish.

Nevertheless we are long OEX with a trailing profit stop{1.50 from the highest price achieved after the initial entry is one suggested method}.

The market has some additional risk this week due to possible Brazilian currency devaluation.Brazilian instability has in the past lead to global equity downside volatility.

XAU has a scheduled price/time "hit date" scheduled for December 7,which looks like a low.As mentioned before,we showed a sell on XAU a while back at 83 {Friday low 65.97}.Price "hits" show 63-64 ,then 48-54 as significant levels where upside reversals have started.STO 5 and 20 are set up for the usual start of the typical XAU rally{explosive price and volume action closing at the high of the day for multiple days}.We'll go long XAU as soon as downside momentum turns up.Shorts should cover.

Thanks to Gitanshu Buch for longer term comments based on the positions of commercial hedgers versus speculators as follows:" The most glaring situations this fortnight: a. Heavy Commercial buying into European currencies as hedge funds short these equally enthusiastically - regardless of technical support from moving averages and regardless of affiliation with the EMU on the first of next month. This is evidenced by strong accumulation of both the BP and SF in addition to the D-Mark, amidst completely neutral position on the Japanese Yen - which implies Yen price stability. b. CRB continues to fall into an abyss, and gold is being sold into rallies by Commercials. This combination implies that the market does not fear inflation and is actually pricing in deflation - even as no tradeable conclusions can be drawn from COT activity in Bonds. The S and P liquidation by commercials over the past 6 weeks has finally resulted into the market making very little progress on the long side, as short term trading gets increasingly choppy. The rival forces of commercial supply and hedge fund demand are presently in a state of equilibrium. The best trading guidance from the above composite is to watch currency market action for rapid short covering by the Hedge Funds, or bank capitulation if technicals fail. Banks have deep pockets, and therefore staying power - but are not always the best of traders. This will nevertheless impact the US Dollar, which seems to be in the process of being abandoned in favor of European currencies going into the new year. The best trading vehicles in US equity markets that capture the above trading action are ADRs of Unilever, Daimler-Chrysler and the European Banks. Unilever is best positioned to gain on the long side from this, since it is based both in Britain and The Netherlands."

On to Friday's OEX trading and the start of next week...

CBOE Equity C/p, Total Index C/P, OEX HROEX had signalled a short sell the week before last and then last week reached an oversold level producing a bounce on Friday. These option volume charts enter next week in more of a neutral posture, except for the IBD OPR at 0.81 which is moving into a level of the low to mid .80's that historically has often preceded corrections. {The IBD OPR is a bit more complicated in its interpretation since it requires certain levels for a certain number of days or a pattern of levels and days. Nevertheless a reading of 0.81 is cause for caution.Levels of .83 to.85 on slightly negative or unchanged days have often preceded violent corrections.So a loss of upside momentum here at an OPR ratio of .83 to .85,close to where we are now,would be a concern.} ADHL reinforced its buy trend by having the new highs and A/D relative strength indicators move into the buy trend mode. Percent NHNL remains above zero as both new highs and new lows increase in year end portfolio adjustments. Note that the DJ Industrials is forming a down channel with hundred point plus daily ranges. This can be deceiving if the Low is made early in the day on heavy volume and negative issues, only to reverse later in the day with light volume and a narrowing of the A/D spread. It makes things look better on a closing basis, yet the weight of the early morning trend keeps the channel in a downward trend. SuperT made a strong rebound on Friday as though the long awaited beginning of month seasonality finally kicked in. This belated seasonality would normally end on Monday 12/07 but now might be extended until 12/11. It appears there may be a compression of buying that confounds the shorts and other diverging technicals. CODIs are at the Buy Alert levels. McOsc moved back up into the neutral zone at -35. Complex bottoms in the McOsc consist of a low, rebound, lower low, rebound, higher low, then sustained rally. Sometimes "V" bottoms are formed rather than the complex bottom. Seasonality could take the McOsc up to the zero line at which time a safer short might be implemented. VOLATILITY system closed out the short sell on Friday but did not get oversold enough for a longer term buy. Cone Projection oscillator is still working on a bottom. The INDU came close to tagging the -3% band,as we discussed mid week last week, and rallied back to the underside of the 21 day average where some techtypes would be looking to short again. OBV is now dropping with price confirming the downtrend. AMOSS and Moss plots are back inside the oversold neutral zones. Best shorts are entered in the upper zones and longs in the lower zones. Consolidations occur in the neutral zones from which new trends emerge. Both OEX pitchforks are pointing downwards yet the larger fork allows for a move up to 586 on the 30 minute charts. That could happen in a one day follow through from Friday.

Here are some charts:

CYCLE CHART. DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. NYA CHART. OEWLO CHART. OEWLP CHART. OEWXQ CHART. OEXFIB CHART. OEX PIVOT CHART. OEX 5 MINUTE CHART. RSISTO CHART. VIX CHART. XAU CHART. XAU DAILY CHART.

MomentumCycles for the open of Tuesday, December 8, 1998:

XAU is at the intersection of price/time that suggests the bottom could be in.Momentum of 5 versus 21 days just turned up,although 7 versus 35 days not yet.Stochastic 5 is near the reversal level of 20;a crossover of which signals a short term pop.Admittedly,XAU is working against tax selling and a very,very long downtrend that presently shows ferocious resistance at 78.5.Accordingly,a small position long XAU could be taken on any weakness here with a stop at 65,the recent low.Or conversely,a trade with a greater probability of riding a larger trend change would be to go long any close above 78.5,with a stop at 76,anticipating a breakout to the 87-90 level.

Those who went long OEX on any weakness either Friday {or even Monday} are ahead of the game.On to Monday's action,and the projections for Tuesday and following...

Equity Call/Put and Total Index C/P sentiment is heating up again as the indexes push higher. OEX HROEX has not peaked again yet. The ideal short occurs when all three hit the stratosphere. It is best to wait until they peak and turn down in a reflection of change in sentiment before activating certain aggressive short positions, as the indexes can trend upward in a heated environment. Also, the ratio highs may occur closer to expiration which is two weeks away. McOsc is closing in on the zero line from below. A test of the zero line will occur on Tuesday and some aggressive traders will short it on the emergence of weak breadth. They might just feel another squeeze like the one that occurred last Friday. Monday was the official end to the mechanical seasonality system and it remains to be seen if the belated buying concept is valid or not. This week is named for another type of seasoality and that is the "Pre-Expiration Week" seasonality. Bias tends to be down in this week in other months,and December has additional capital forces influencing it. AMOSS is in the neutral/consolidation zones. CODIs made buy pivots and the OEX hit the center line of the CODI regression channel. SuperT is projecting higher prices supported by new highs, issue and volume breadth. RSI and Stochastics are oversold. Sentiment and valuations are environmental conditions and not precise timing tools. Even Breadth is not a precise timing tool as divergences can carry on for weeks and months. Nevertheless it is prudent to monitor them and be prepared. The OEWLO 570 calls have doubled from last week.Trendline or trailing profit stops on long OEX positions can be used to take you out mechanically,as in this example,if you can't decide when to exit.

OEX pitchfork met the upper objective of 586 on the 30 and 60 minute charts. We now need to look at the daily pitchfork. The upper tine is at 593.28 and both forks are pitching upwards. OEX point and figure made a consolidation breakout today. It would not be surprising to see half of Monday's gains given back on Tuesday. Note the height of the green columns across the chart. There appears to be a certain height that occurs before a few reversal boxes show up. There are all kinds of ways to look at price projections, another novel one is this 591.27 chart of the OEX. There are a couple of fib retracement lines inside some High Low channel lines with suggested targets for support and resistance.

Here are some charts:

ADHL CHART. CONE CHART. CYCLE CHART. DJIA FIB CHART. S AND P 500 FIB CHART. INDU CHART. ANOTHER INDU CHART. NYA CHART. OEWLP CHART. OEWXQ CHART. OEX FIB CHART. XAU CHART. S AND P 500 FUTURES CHART. Those who went long OEX on any weakness either Friday {or even Monday} are ahead of the game.

The OEWLO 570 calls have doubled from last week.Trendline or trailing profit stops on long OEX positions can be used to take you out mechanically,as in this example,if you can't decide when to exit."

MomentumCycles commentary for the open of Wednesday, December 9, 1998:

Our bullish longer term bias towards 30 year T bonds seems to have worked out recently ,as Tuesday saw rates at 49.89,back below 5%.Historically a great proportion of the enter late November -exit late December cycles have a bullish bond bias,into the period right before Christmas.

The stock index price action late Tuesday was partially influenced by Brazil,mentioned yesterday as a potentially negative factor,down 3.98% on fears of a delay or problems in IMF funding.This resulted in BKX down 1.8%,due to U.S. banks holding Brazilian paper.

On XAU,cycles called for a low in this time period,and we tried to buy XAU on weakness Tuesday,with a stop at 65.The specialists must have had a lot of protective sell stops on their books at 65, because price hit 64.97 Tuesday,for a loss of a few points from the entry.Momentum of price of 7 versus 35 days and 5 versus 21 days are now both dropping again.We will try another entry when momentum turns up again, or when the long down trendline is violated by a close above 78.5.

Those who chose to let the mechanical trendlinestop them out of long OEX call positions entered at Friday or Monday could have exited near 588.On to greater detail about Tuesday's OEX trading,and Wednesday and following...

Ha! Another CNBC guest analyst tanked the market in the same way as last Thursday, just as the zero line on the McOsc was being challenged from below. What an intraday opportunity for those waiting for the breadth failure to manifest itself! ADHL is beginning to show some weakness but is still far from an intermediate term sell. McOsc still in neutral. AMOSS still in neutral. CODIs in "neutral" whipsaw zone. Indexes are range bound. OEX pitchfork did move up towards 592 and fell shy of it by 1.8 points. SuperT looks like it is making a short term double top in the breadth composite. RSI and Stochastics are oversold, Cone Projection oscillator is tagging the neutral line from above,and could bounce up from here on Wednesday. NHNL has been stalled at 108 NH and NL at 43 reflecting the range bound indexes. Perhaps Wednesday will be a repeat of last Friday....that is not a prediction of course since there is nothing in the tea leaves to call for it, except that Wednesdays have a reputation of lifting moods of buy and hold types. Equity C/P sentiment is running at max levels. Tuesday is a warm reminder of what can happen when sentiment changes. HROEX is more reflective of the neutral mode of the above indicators. As of the close, the overall equity trend is still consolidative.

Here are some charts:

DJIA FIB CHART. S AND P 500 FIB CHART. S AND P 500 PIVOT CHART. INDU CHART. ANOTHER INDU CHART. MOSS CHART. NYA CHART. OEWLO CHART. OEWLP CHART. OEWXQ CHART. OEX FIB CHART. OEX PIVOT CHART. OEXPF CHART. SUPERT CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, December 10, 1998:

XAU momentum of price for 7 days versus 35 and 5 versus 21 still falling and negative,on low volume.We thought a bottom was in a day or so ago when momentum turned up momentarily in the cycle time frame it was due,accompanied by an extremely low Stochastic reading,admittedly on very low volume.Below the 63 -64 area,price "hits" are 54-48.Downside momentum does appear to be slowing.We will look to enter XAU as a long trade on a close at the high of the day on large volume accompanied by a change in momentum.So far the ideal set up has been elusive.So more patience is required here.

30 year T bonds historically do well between late November and the day before Christmas,and this year appears to be no exception-up.54% today.30 year T bond rates now 49.62.

BKX downside price momentum appears to be slowing,and although breadth for the DJIA smoothed by 3 days and volume smoothed by 3 days is still dropping and negative,the rate of downside momentum is slowing.5 day rate of change is neutral,neither overbought or oversold.

On to Wednesday's and Thursday's action...

Wednesday had little change from Tuesday. In fact the OEX closed indecisively on its Thursday pivot line. You might be getting the feeling that the professional money managers who are paid on quarterly performance might just be praying that there are no sinking spells until Jan 1 or later. The odds are high for a year-end rally just because of this. Buying and selling seems only to bring the DOW back to 9000 and the OEX close to 585 for the time being. Well, we are in the pre-expiration week period where there is a certain amount of back and forth in a rangebound manner until Friday. The mechanical trade is to catch a low in here, maybe Thursday PM maybe Friday AM or PM. Because of the riskiness of the Dec options, you might want to go out to January to catch both the Dec expiration and the end of year power boost. Dow 10000 by the end of 98 will soon be forgotten as a promotion that did not quite sell. Remember the cheery faces on the business channels last summer and the repeated 10,000 forecasts. Oh, come on, it's only 1,000 points away now and with 150 point days that's only 6 days. Of course this is said in jest but we are in a consolidation period from which a trend should develop very shortly. Technicals are holding in neutral across the tape. RSI and Stochastics are oversold and rising. On NHNL, New Highs are beginning to slip and new lows inching upward. Note the ADHL indicators are weakening. McOsc is hanging in the neutral zone waiting for something to trigger a stampede up or down. Triple witch will see to it that it does not remain here much longer. HROEX has a more neutral sentiment appearance than the equity C/P. HROEX is a sentiment reading of all the OEX call and put volumes and open interest. The flattish appearance is remarkably like that after the peak last summer, but the outcome is expected to be different for a few weeks. CODIs are directionless in the whipsaw zone. The S and P 500 and OEX pivot charts do have rather narrow ranges for Thursday. This could make for some volatile trading as the buy support sell resistance moves across the narrow trigger levels. The guess from this camp is that there is a trade coming up Thursday/Friday that could last into 12/18. The guess is also that you might want to make multiple entries in an oversold condition each day. This is just expiration seasonality speaking and not derived from the technical condition which is more than just a bit cloudy.

Here are some charts:

AMOSS CHART. CODI CHART. CONE CHART. DJIA FIB CHART. S AND P 500 FIB CHART. INDU CHART. NYA CHART. OEWLP CHART. OEWXQ CHART. OEX CHART. OEXPF CHART. PITCHFORK CHART. SUPERT CHART. XAU CHART.