MomentumCycles

MomentumCycles commentary for the open of Monday, December 6, 1999:

Wow, now, that is what I call trading. I hope some of you were on board for the OEZLK triple or more from Tuesday/Wednesday lows and took some profits as price ran into resistance at the summer highs.Not only that,but we nailed the short term high with advance notice for November 26,the short term predicted low on December 1,as well as the midweek T bond rally{albeit with some nervousness into "report Friday",and the resulting rally in the financials,which include FNM as a "tag along". You have some Christmas shopping money now. That was an example of end of month/beginning of month seasonality in the fullest sense. Most of the breadth technicals looked good on Friday, except for the new lows at 201 which are keeping the Red Trend Exhaustion from turning down. This can only mean that tax loss selling continues.{Just look at the XAU components!} One major bank released a report today that said such selling would continue into next week. Quoting from "The California Technology Stock Letter", "All the signs of extreme overvaluation are still there. If you subtract the inflation rate from the earnings yield on stocks (earnings divided by price instead of the usual price/earnings calculation), you get a real earnings yield well under 1%. Historically, this has happened prior to most bear markets since Iíve been in the business. There were lots of good reasons every time why "this time itís different" but it never was....The DJIA now is at 73.5X dividends(a yield of only 1.36%). At market bottoms the Dow sells for about 17x dividends and will again. At 26.2x earnings, the DJIA remains well above the high end of the historic P/E multiple range...The stock market is entering a blow-off. Expect a brief decline to set up a big move from mid-December through January."

The question everyone wants answered is "what do the technicals and seasonals indicate for next week?" Where might the OEX roam? Will the jollies continue right up until Christmas? If you believe they will, then, boy do I have an IIX tree to sell you! We want you to take a close look at the IIX and NDX formation. It is believed here that it will take more than three days of corrective action to balance out the 60% rise from the September lows. A 50% correction in momentum stocks would help form the right hand side of the "tree". Sometimes CNBsee gets it right and has a guest who has "been here before". We are of course speaking of Richard Arms, the originator of the Trin or Arms index, which the CODI indicator is based on. His analysis today was in full agreement with the OEX CODI and in particular with NDX CODI. We like to repeat ourselves this time of month and say that pre-expiration weeks have an overall downward bias until sometime on Friday. For now we are three days into beginning of month seasonality which officially ends on Tuesday 12/07.

The Time and Price statistically based Zones have been zeroing in on the last pivot low and also performed nicely for Friday's pivot high. If we assume Friday is the pivot high for this swing and force a pivot, then the next swing low has an overlap zone on Monday between 747.98 and 761.39. Keep in mind we are using 30 minute bars here and not daily bars. Thirty minute bars work nicely because they are not so short as to be "in the noise" and yet not so long as to miss out on price advantage at trend changes. Using the two pivot and three pivot swing time projections it looks like Monday and Tuesday will be exciting. The Cones did a nice job with the upward sloping Projection oscillator providing direction and the cones providing implied volatility targets. My trader's intuition says it is a reasonable expectation for the OEX to drop back to the high on 11/26 near the lower red cone implied volatility level of 758. That would fall within the historical statistical view of the TPZ technique. The first expectation is for a pullback to the Classical Pivot at 765 and if that fails to hold, then the green cones at 762.5 will be tested and if they fail then the red cone at 758 is the intraday target. The lower Cyan channel line on the OEX CODI chart is near 750. If you've been reading this site for very long you know this writer has the perpetual "contraryitis" disease... so much so a www intraday exit on the OEZLK calls was posted just when stocks could not be bought fast enough by others. Puts were not officially recommended due to the remaining seasonality, and indices don't generally turn on a dime. However, you might want to be prepared in your own timing to enter into an at-the-money or one strike out-of-the-money put on a retest of Friday's high on Monday or Tuesday. Implied volatility targets the green or red cone resistance, whichever prevails. Alternatively, the OEX daily fib resistance zone is 774.86 to 777.06.

To quote from the Astrikos site at http://www.astrikos.com:

"Friday's strong open created a large gap in the S&P futures between 1412.50 and 1429.00, and generally gaps this large will get filled, so it wouldn't be surprising to see a little profit-taking begin next week. If the market does correct on Monday, it would tend to indicate the recent Bradley turn on December 2nd related to Friday's high. This would then become a key high to monitor, for a break of that high would have bullish implications. The TICK hit a high +637 during the morning rally, the first time we've seen such a reading in almost a month. Generally when two or more +600 TICK readings come within a few days of each other, it's indicative that a correction could be around the corner as buying pressure is just about exhausted. If the market runs up early on Monday and it's associated with another +600 TICK reading, be on the lookout for a general market pullback to fill that gap in the S&Ps, particularly if we close lower."

There are some important technicals to consider here. We came close to the TYX target on the bond rally today at 6.25 near the WMSID and Gann angle line. The INDU is above its +3.5% band and its 5 day RSI is at Sell Alert levels. TICK made it into positive territory briefly and then retreated to the negative camp. VIX dropped into the Sell Alert zone and CV started rolling over at the top of the rally. It was nice to have this gift, but now the market should start worrying about the next FOMC meeting on 12/21. We also have the negative trend of pre-expiration week next week and continued tax loss selling. Remember the advance/decline line has been going down for years and there are lots of losses to be taken. EquityCP and Sentiment are back to the Put buying levels. Flow Rate had very good positive volume and ADV/DECL had good positive breadth early in the day until the declines moved above the 1200 level signifying an end to the rally. McOsc has rallied up to the zero line and if the bears reassert themselves next week then it should turn down again. Some channel and band work says price is in resistance and next week will tell just how much conviction was behind the rally or if price will drop back to test the breakout levels...a very real possibility.

The wide range in price on Friday sets up a wide fibonacci support and resistance range for Monday as shown on the OEX daily and OEX weekly fib charts. The INDU 60 minute chart has become popular by some for defining a trading range. The new range now is 11365 on the upside and 11112 on the downside. The Nsync indicator on the Indu hourly is overbought so we should at least expect consolidation and a 50% retracement of Friday's moves.

The following is interesting from a cycle standpoint. Each year the DOW runs up in late Nov/early Dec to the summer highs. Then it sells off for two weeks, and then rallies into the end of the year. This seasonal cycle is supportive of the notion to buy some puts on any retest of Friday highs. Odds have it this decade that some sort of minor correction will occur starting this week and run into mid-month.Supportive of this is the price rate of change projection looking at December 16 as a favorable buy point.

Since we are looking at the internet index, IIX, you might also want to read this article in Businessweek, http://www.businessweek.com/bwdaily/dnflash/nov1999/sw91130.htm.

For short term 30 Year T bond traders,our FNM oscillator perfectly signaled Friday's FNM/T bond rally.Being close to the short term target on the T bonds,we'd take profits Monday on the T bond short term long position.FNM longs can use the entry point as risk for a stop loss.FNM STOCHASTIC 20 barely peaked above the 20 level.

XAU/HL is suffering from tax selling.We saw this decline coming from 72 at the upper band {see down arrows on the XAU chart}.On the other hand,we are now at the lower 14% band,which often supports price,as well as being at an oversold STOCHASTIC 20 position.

We are holding a small position in HL as a long term call on the sector.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. FRIDAY'S CONE CHART. MONDAY'S CONE CHART. FNM OSCILLATOR CHART. FNM S20 CHART. OEX 30 MINUTE CHART. OEX NSYNC CHART. SUPERT CHART. VOLATILITY CHART. XAU 14% BANDS CHART. XAU OSCILLATOR CHART. XAU S20 CHART.

MomentumCycles commentary for the open of Tuesday, December 7, 1999:

That was a market you just had to short. Large range days like Friday are pretty much guaranteed to have some retracement. It doesn't look like the retracing is finished yet, either. Monday was actually a very bad day from the breadth standpoint. NYA advances were well above declines and down volume well above up volume. TICK returned to its relentless declining ways after a morning failing rally to a +395. Then it went on to make a -1117 low after a steady liquidation and distribution downtrend. At other times of the year this extreme negative tick might lead one to believe a rally was around the corner, but with Y2K, FOMC, PPI, weak dollar, yields that may back up, profits to claim before year end, the negative tick might be a warning of more downside. In fact it has been going on for such a long time it feels like a crash is in the stars. History just doesn't have them in December, though. A few select issues kept the indices in positive territory,thus masking the rotting internals. New Lows increased again. The common belief is that fund managers are not about to commit much new money to positions before the end of the year, and will be glad to hold onto current gains. They are also expected to continue to weed out the underperformers and losers. This means you might be able to short every rally until the end of the year, oh joy, jingle coins. Folks used to complain about the DOW and S&P not reflecting the new technology. Complaints are being answered and the result is more volatility to be. Just wait until Yahoo is added on Tuesday close. It has had such a run up in advance of being added that they had to upgrade it by another decade of earnings anticipation in order to avoid a collapse. Wanna bet that this week marks the Yahoo high, a change in trend and a more stable price? Then what happens to the SPX when profit- taking in Yahoo occurs and Yahoo gets clipped by 50%, jingle coins. Reminds me of Stuart on the Ameritrade commercial shaking the imaginary market upside down and mumbling something about coins. Anyway, it looks like the INDU hourly is working inside its new channel and the McOsc was turned down at the zero line. We officially have one more day of positive seasonality. J Favors sees a high on 12/9 plus minus one day then a short term low on 12/13 and remains steadfastly bullish. For me the delta and gamma and premiums are in the two week favorable period for scalping. Cadbury's Option Premium ratio 12/10 target of 1419 SPX was hit intraday on Monday. It is doubtful that he will raise it this week and will expect 1419 or lower by 12/10 close. The INDU daily chart shows weakness from Dec 1 to mid Dec every year as tax loss selling is finished off. Not a bad time to do some hit and run put trading. Just do it on failing TICK rallies when premium expands and doesn't get cash follow through. Then bail when TICK momentum bottoms, or better yet use this in conjuntion with the CONE targets. Equity and Sentiment still indicate to trade puts off of rallies.

Remember that the rate of change of price cycle analysis indicates December 16 as a probable buy point.This fits in with the general mid-December low point often seen when dumping of losers starts to abate.

The 30 year T bond rally long position signaled by the FNM oscillator midweek of last week was recommended to be closed out Monday due to the hitting of the trendline on the TYX chart.Turns out that near the open was the price high of the day.This time the correlation trade worked out much better than the primary trade it was based on.FNM oscillator is now looking less bullish,along with FNM momentum looking ambiguous.FNM longs should use the entrance as risk for a stop loss.

XAU/HL is looking like a ride along the lower band is in the cards.In past years,damaged mining issues have started to improve about December 15.We feel that for those with a longer time horizon,the XAU component HL is a good long term call on the sector.Meanwhile,both the short term XAU oscillator and the XAU momentum oscillator are declining into further oversold.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. ADVANCING/DECLINING VOLUME CHART. CODI CHART. MONDAY'S CONE CHART. TUESDAY'S CONE CHART. FLOWRATE CHART. FNM MVM0735 CHART. FNM OSCILLATOR CHART. INDUB CHART. INDU DECLINE CHART. MOSS CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX NSYNC CHART. RISK CHART. SUPERT CHART. TEI CHART. TYX CHART. VIX CHART. VOLATILITY CHART. XAU MVM0735 CHART. XAU OSCILLATOR CHART.

MomentumCycles commentary for the open of Wednesday, December 8, 1999:

What a day! Now we know why the TICK and cumulative volume have been running downhill for so many days. Blame it on the Yahoo rebalancing of the snp. Call it fear-inspired selling and anticipation of something worse that could have been triggered. Tuesday was the official end of positive beginning of month seasonality. What these two influences mean is that the weight of selling should abate on Wednesday and there is the possibility of a memorable rally. The December seasonal as indicated on the DOWnsync chart still has weakness into the middle of the month. But, if we look at the TPZ chart we see the pivot low requirements have been met in time and price. This could also be argued from the INDU 60 minute chart as its Nsync indicator has bottomed. The 5 hour RSI has been plotted below the Nsync for comparison and the RSI bottomed and turned up. If the cycles hold, then there is rally potential at hand. Additionally, if we assume Tuesday is a pivot low and force a pivot then the next pivot high is timed to occur on Wednesday between the prices of 768.17 to 789.51 for the OEX. If we take the conservative expectation of 768.17, then that falls within the upper red Cone for 12/08 and within the topping formation from last Friday. The first expectation for the Cone Projection Oscillator is to bounce at the 50% line just as the McOsc bounces at the Zero line. Wednesdays are sometimes called hump days for more than one reason as there is a push to make gains for the week before selling off into Friday. This Wednesday may benifit from a reflex rally due to the anticipated and realized selling of big caps into the Yahoo adjustment. Pray that Yahoo does not collapse now, but even if it did, the upward action in the remaining 499 stocks should minimize any clipping on Yahoo. If we assume the Bull is still charging, then the current pullback in the MOSS and AMOSS to neutral is a license to try for another charge as is a move back to neutral in the EquityC/P. The negatives still abound in TEI, Advances and declines, new highs new lows, 5 day advancing volume. Even OEX CODI is in a sell trend and has moved into the whipsaw zone. BR momentum has been at the Sell Alert zone for two days and correctly we've had two days of selling. A positive and potential negative is the OEX is at the lower side of the CODI cyan regression channel where it could legitimately bounce and make a run for the center channel line again just below 780. That would make a nice tweezer top as a prelude to continued tax loss selling.

Talk about gyrations due to tax loss selling...well, we were stopped out of the FNM long at breakeven from the entry as that price was suggested as risk for a stop loss.The correlation T bond trade was profitable,although it appears we left the party early.Now,Tuesday saw strong 30 year T bond prices and yet FNM down-unusual.However, if you realize that many FNM longs have unrealized tax losses for the year due to long periods of price above 70{FNM is 64},this divergence makes sense.{Sell FNM at a loss offset against AOL,for instance,as a gain.}See the FNM charts below for the current readings.Assuming readers did both trades,the large gain on the closed out T bond trade more than offsets the breakeven on the FNM.

Oversold XAU led to a rally from the lower 14% band tag.HL is still suffering tax selling.This one is for patient holders.Action may begin to improve after December 15,if history repeats.Examine the XAU charts below.

Here are the other charts:

CODI NDX CHART. TUESDAY'S CONE CHART. CV CHART. EODCV CHART. FLOWRATE CHART. FNM OSCILLATOR CHART. FNM S20 CHART. INDU CHART. INDU FIBRET CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX NSYNC CHART. SENTIMENT CHART. SUPERT CHART. TPRZ CHART. VIX CHART. VOLATILITY CHART. XAU OSCILLATOR CHART. XAU S20 CHART.

MomentumCycles commentary for the open of Thursday, December 9, 1999:

Wednesday was another repeat performance in regards to negative issue and volume breadth. INDU NSYNC continues to hold the negative seasonality for early December. The pre-expiration week also continues its negative trend. Remains to be seen if the index portfolio adjustments will be over in time to produce a "buy the Friday of pre-ex week". If you look closely for anything of a positive nature you might see that the NYSE TICK (not shown) seems to be exhausting itself as it spent the entire last hour above -600. Hope you recognize that as humor as well as technical perception. At some point TICK will return to a positive life above zero. For now the big cap correction continues. Also the OEX classical pivot line is laid out across the tops of the November OEX on the CODI chart and Wednesday's action was centered about that line. Maybe it will become support for an expiration rally, maybe not. The Projection oscillator is now below the 50% line, facilitating a potential direction change. Red TEI is still in an uptrend reflecting the continued tax loss selling and "Yahooitis" index fund adjustments. ADVDECL is still quite negative concerning the oft-discussed 1200 and 1500 levels. Recent days have consistently been negative trend days as classified by issue breadth. FlowRate is still negative but less so than the previous two days, which is a positive. Price is now negative, so at least the tape is synchronized. The megabuck question is if the S and P will benefit from a correction in the NDX, or instead will they both go down in flames in panic selling that produces a buy on the put volume indicator with volume twice the ten day moving average. In spite of the recent OEX price action and price indicator action of the SMI and 3INDX, the Equity Call to Put ratio has increased a bit but not to the put buying level. The Sentiment indicator is reflecting optimism for higher prices. The OEX is resting on the lower side of the regression channel line on the Sentiment chart and in the CODIoex chart. The question remains if we will see a break below the channel or instead see a bounce to the centerline near 780. The oscillator aficionados will argue that the DOW hourly RSI is oversold and due for a bounce within days;and yes, the INDU 60 minute Nsync also reached that glorified status on Wednesday as the INDU dropped back to the lower side of its recent trading range and corrected last Friday's excesses. Surprisingly, the SuperT has turned up from near the correction level and the NYA on the Mcosc chart is sitting on the WinMidas support line as the McOsc hangs out on the oversold side of neutral. EODCV, end of day cumulative volume has dropped back below the 20, 50, and 200 day averages as the RSI of EODCV leads RSI INDU down and the volume oscillator goes negative. It is hardly a situation for bull fans to chear about. I will be one flabergasted trader if this situation resolves itself into a positive issue and volume breadth and hourly uptrend by Friday close. Bottom line is long term seasonals are not favorable, short term seasonals appear inverted and expiration weeks tend to have a positive bias. Who knows, maybe this week is positioning for a squeeze of gonzo proportions next week to capitalize on maximum leverage in the overhead teenies. Pure speculation, of course.

Five day RSI of End of Day Cumulative Volume has dropped down to 28.41 which is near a level from which price has reversed when it has been in a consolidation similar to December of 1998.

XAU continues to base due to tax selling.

Here are the other charts:

5 DAY ADVANCING VOLUME CHART. CODI NDX CHART. WEDNESDAY'S CONE CHART. THURSDAY'S CONE CHART. CV CHART. INDU CHART. INDUB CHART. INDU FIBRET CHART. MOSS CHART. OEX 30 MINUTE CHART. OEX NSYNC CHART. RISK CHART. VIXPF CHART.

To quote from the e-mail update at 12:44 pm:

"Extreme negative tick,Terrible Thursday before pre X week, huge Put OI at 750 strike, might be profitable to buy the 750 or 755 calls."

To quote from the e-mail update at 2:06 pm:

"The 755 calls now up from 7 1/4 to 9 1/2 by 10 per the www update. OEX is back to the daily pivot. Hold or take profits and smile at your significant other, even if it is your pet."

To quote from the e-mail upate at 3:48 p.m.:

"The 755 calls are up 50% again from the www update. It is beginning to look like the cumulative volume hourly may have put in a double bottom today and the indices may close above the pivots. This is looking pretty good for tomorrow and next week. Hopefully it is not premature. Just keep some perspective on the strike and premium difference as a market that goes flat or down will eat the premium alive."

MomentumCycles commentary for the open of Friday, December 10, 1999:

A reading of the sequence written before tonight's commentary {see above paragraphs!}will remind subscribers why they should pay attention to intraday updates,if it is feasible in their busy daily schedules.Not to say the end of day commentaries aren't useful,because they very often clearly set up the parameters of the next day's action,and are quite valid for end of day trades as well as intraday buy and sell points.But sometimes the market tips its hand and we send these www e mails out if it is useful.Remember,however,if you missed a trade there is always another opportunity just around the corner,just like the next bus on a busy city corner.Wait a bit and the next one will be by before you know it.On to today's action and a look ahead...

Let's get this straight. If IBM is sold off as cnbsee is rumoring and thus spreading fear, then the money will likely go back into other S and P stocks and boost the SPX more points than it loses. That kind of money stays within a certain class of stocks. Also consider this; granted the advance/decline line and End of day cumulative volume have been weak, but the reasons for tax selling will soon be over. The mutual funds are reported to have squirreled away a 20% plus cash hoard for Y2K contingencies. There will be no Y2K problem. The only Y2K problem is the one fear has created. Those who sucumb to Y2K fears will underperform. That represents massive buying power. Also consider that the DOW is forecast to end 1999 at 12,000. Bonds are going into their strongest season,normally implying an extension into the first quarter of 2000, meaning rates will drop and stocks should benefit. Then think about when this unleashing of buying power might occur in terms of when it will be the most profitable for those who control the market. Remember that last weekend {and every month} we posted the reminder that pre-expiration week has a downward bias until Friday. Then the second best Call trade of the month occurs. Well, here we are with three calendar weeks left in 1999 and about half as many trading days to cover the next 866 DOW points. The most leverage available will be next week when the balance of power should be to the buy side after weeks of selling and thus trying to keep the McOsc below zero. It is now analogous to a basketball forced under the surface of the water. Once released it is jettisoned above the zero line. Options and futures are used in conjunction with stock purchases to maximize leverage. The market is in a metastable state that would be very easy to tip to the buy side with a few programs. These programs historically come in on Friday of Pre X week. This will bring the McOsc above zero, TICK will track above zero, red TEI will turn down, bond yields will drop and next week will provide most of the point gains until year end. I think you want to be long next week. At this time one person's tax loss is another's investment and that will salvage any -1459 ticks {like today's close with a -129}. The last hour TICK has been improving all week even if it is still negative at the close.

Remember also,using even a different methodology, the price rate of change cycle projection looks for a buy point on or about December 16.At that point tax dumping of losers tends to abate.

Pogo typed on his keyboard, "I saw the new Millennium today, and it was I". That pretty much sums up the beginnings of the new industrial high tech age. The participants on the net are it. Perhaps DOW 30,000 is not such a far- fetched idea as commerce is rejuvenated and the SPX begins to act like an internet index. After all, the internet is just the superhighway conduit for the Fortune 500 and the less fortunate thousands.

Briefly looking at the technicals we see the 5 day advancing volume reaching a market bottoming level. FlowRate showed the appearance of volume buyers as the DOW tested the low side of its trading range on the DOW nsysnc chart. SuperT is still hinting at going long. Moss is still neutral, VIX may have given a buy signal from the Indeterminate zone, T bond yields are stable to lower. OEZLK was a profitable www trade {see the first paragraphs at the top of the page}.

XAU continues its tax loss status with other losing sectors {and there are quite a few with this A/D line !}.

Here are the charts:

OEX CODI CHART. NDX CODI CHART. THURSDAY'S CONE CHART. FRIDAY'S CONE CHART. EQUITYCP CHART. INDU CHART. INDU60 CHART. INDU FIBRET CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX MIDAS CHART. OEXPVT CHART. SENTIMENT CHART.

This internationally known website has an article that features the seasonal research of our good and brilliant friend Gitanshu Buch. Here is the article: http://moneycentral.msn.com/articles/invest/models/4950.asp?special=msn