MomentumCycles

MomentumCycles commentary for the open of Monday, February 1, 1999:

What's the name of that famous rule book?When they quote its "...according to Hoyle". Well, we are having a perfect end of/beginning of month scenario. Money rules and valuations be damned. If a trader used valuations for timing he would be in money markets so long he couldn't transfer the balance to his final resting place. Yet, there are times, such as at the most extreme of extremes that it pays to be a little more careful{remember January 9-11 !}. Almost everyone knows "momentum" is the name of the game, and those who care about valuations are underperforming the market.

Ouch, note that the new lows are now at 97 and new highs at 99(both early counts). It is most unusual to have such a high number of new lows with such an advanced index. Perhaps it has something to do with the strategy of selling the low relative strength groups and buying the strong ones. NYA breadth was positive but not enthusiastically so. McOsc is still below zero. In fact, it is just barely inside the lower neutral zone. Recall earlier in the week it was suggested we would have a glaring divergence between the breadth numbers and the price indexes, and that the McOsc might only make it up to the zero line at the begining of this month, after which we might hear something about a Valentine's day massacre. February 11th is the super duper cycle energy point. Mark the calendar.

The mechanical system exited the 615 OEX Momentum long trade today. Discretionary types followed Friday's instructions to not chase the market and wait for a pullback to keyline, which we got early in the AM, and at which time the 615 could have been had for 24 1/2 (just using this as an example,one could have used a closer to the money strike.) The ensuing rally took it to a high of 32 1/8. Don't you just love those deep in the money options? They certainly buy some breathing room. We even got a total of 8.21 OEX points. The goal was 5 or better. All readers should have enough to party with this Super Bowl weekend. If you still have the calls then root for the Falcons since that is what the football myth dictates.

Personally, this time of year always brings back bittersweet memories of January 1994 when this trader liquidated every stock he owned, from biotechs to drugs to golds to computers. It was the first time in his life he took such drastic action. Why? Because the timing signals said the market was over extended, Greenspan had a meeting coming up, and rates were on the verge of being raised a quarter point in a pre-emptive strike against inflation. If memory serves correctly,that year it was February 4th, 1994 that shook the money tree. Besides liquidating my portfolios, including IRA's, a purchase of $20,000 in put options in big cap, mid cap, small cap indices, and high flying biotechs was made. In THREE days the puts were all cashed in for $92,000, a gain of $70g's. Talk about a swelled head. Well, this isn't a forecast, but it does sort of feel like deja vu. Internets have replaced biotechs. Valuations are stretched thin. End of Japanese fiscal year is March 30 (this has a liquidating effect on US markets). IPO's are ramping up. Turkeys fill the air. If we get a big hit, it will most likely start on globex where it can do the most damage to the most people the next day. By the way, internet margins are being raised to 75%. Rising margins are a sign of tops. Just suppose margins on futures were raised? Equity C/P and Sentiment are inching higher in time for the next put trade.Last equity put/call was at a topping ratio,with a second in a row probable on Monday.2 consecutive topping ratios on January 20 were enough to turn the market down then near the upper band.Closing tick Friday was over +400,which often brings a pullback within one or two days.

Oh,remember... the 1994 experience was described as bitter sweet. The bitter part is that the drugs and biotechs eventually went on to doubles, triples, quadruples and more,on splits and takeovers, in the following years. In retrospect it would have been better to remain invested than becoming a speculator. Yet, we do what we have to do.The timing was perfect for the short trade at that time.

XAU has traveled up and down through 70 the past year,rallying around 63 and declining once a sufficient distance occurs to hit the declining tops pattern.Fundamentals are not inspiring for the gold miners.Technically,we have a series of bottoms at the same price level on higher STOCHASTIC 20 readings at each successive bottom.That is often the prelude to a rally.Momentum of price negative and falling,and resistance now at various previous support levels as shown on the XAU 30 minute chart below.Chart patterns of price{high,low, closes},however, look about the same as they did right before previous rallies occurred near this price level.

Here are some charts:

ADHL CHART. AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. DSP9H CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. MOONTIDE CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEYBC CHART. PITCHFORK CHART. RSISTO CHART. SPX FIBRET CHART. SUPERT CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Tuesday, February 2, 1999:

The last day and first day of the month can be deceptive as the DOW Trusts and others adjust their portfolio holdings. Positive seasonality doesn't officially end until Friday so I would not be too hasty in taking on short positions or put options until later in the week. Wednesday-Friday might be a better period to look for an entry. The 615 calls made money in two consecutive trades last week, so let's not be in a hurry to give it back.Note that even those who entered early Friday,held over the weekend, and then decided to sell into strength on Monday's two OEX spikes{one near the open, and a similar spike near the close at 642}did O.K. Option Sentiment and Equity C/P, AMOSS and a few other indicators favor the downside now.Note that it was the second consecutive day,as predicted, at market topping levels for the equity put/call volume ratio,the same as January 20,at the secondary top after the January 9-11 primary DJIA top.So waning pension money flow is intersecting increasingly excessive short term bullish sentiment.

There may be some good day trades in here for the nimble, but sustainable multiday trades are more likely to be elusive this week due to the conflicting overbought/oversold signals. Various advisory services had sell signals out for Monday at the open and on any rallies. Monday's damage was not too significant and there is no downside followthrough on globex so far. There are expected to be more probes at the recent highs, say 640+ on the OEX. The FOMC meets Tuesday & Wednesday which is likely to produce indecisive market direction overall until the meetings are over on Thursday. We should expect the pros to work it higher until the new money is absorbed and then pull the plug. So you might want to consider put positions on rallies to the 640 area and then dump them for 2 to 3 points profit on sharp snapbacks. Maybe maintain a trading position and a core position. So for now let's look at picking up the OEYNG as it dips to 10. Watch the trades and the Bid/Ask of the OEYNG as it approaches 10. That would be as the OEX moves up to R1 640 on the pivots or the Upper Inside Green Cone. The Feb 635 put, OEYNG, rallied 4 points from 9 3/4 to 13 3/4 as the OEX dropped from its high on Monday. The lower side of the Cone Standard Error bands is between 620 and 615 so if we can get the 635 for 10 then we have the possibility of a 5 to 10 point gain. Another consideration here is to hold some further out of the money "crash" puts.

As predicted,XAU came off its highly oversold STOCHASTIC position under 10 and rallied above first resistance at 63.63,closing at the high of the day at 65.72.Continued XAU strength at the high of the day to reach the descending price hits on the XAU chart below would fit the similar rally pattern that also began cyclically at month end ,August 1998.Continued XAU strength during any further OEX weakness would also give longer legs to the nascent XAU rally.

ADHL CHART. CODI CHART. CYCLE CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. MOONTIDE CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEXPF CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Wednesday, February 3, 1999:

Front running the Barron's readers worked well this past seasonality cycle,as it was suggested on Saturday,January 23 to enter long OEX calls on Monday,January 25,or Tuesday,January 26, before the crowd entered on Wednesday,January 27 {where we saw that a take profits opportunity occurred !},and again to enter long OEX calls on Friday,January 29,with an exit the same day,or Monday ,February 1,at the latest,with two chances near 642 OEX during the day,before the seasonality crowd exited,Tuesday,February 2.

Indeed,our mention of the eerie similarity of almost exact consecutive equity put/call multiple topping day ratios culminating on January 20 {the last secondary top} and again on January 29-February 1 almost assured this Tuesday as having a negative bias,that fit our recommendation for an attempted put entry.Unfortunately,rather than the ideally overbought OEX 640 area ,only 636.21 was tagged Tuesday.Still,the sell bias was correct for Tuesday,and the closing tick of +505,and the equity put call ratio still close to topping values says more decline is likely in the next 3-4 days or so,but likely not without intermittent rallies.After all,did you ever try to kill a bull? Not easy. They don't die without a good fight. The intermediate term system, ADHL, says this one is on its last charge...if we get another very negative breadth day with expanding new lows. The indicators are about as close as they get to generating another sell signal. Note that ADHL did not generate a buy yet since the last sell. Short term , meaning one day, we could easily see some snapback(up) in the morning as the technicals (not fundamentals) held the 50% retracement from the recent lows and highs on the DSP9H chart. The yellow triangle is converging, and in a few days to a week we should see something more significant than what we saw on Tuesday. On a price cycle basis, we have just come off overbought back to neutral on the AMOSS chart. CODI and the EquityCP and Sentiment all appropriately forewarned of some selling. The big money players with big positions to liquidate know they can't just dump stock or bonds on the market willy-nilly without killing their own porfolios, so they wisely sell the S and P and T-bond futures, and then follow up with the equity and bond sales. Once the equities and bonds are sold, the futures are covered. Going along for the trend ride are the speculators. This is quite an interesting time because the market supposedly discounts the future. The Utilities do lead bonds and equities but the Utility index does not have precision timing; the lead can be measured in months when speaking of long term trends. Right now the yields are pressuring the valuation levels of equities, and once a yield trend is in motion it is hard to change it. So the feel here is that breadth has not been confirming any equity index rallies, yields are creeping up,and that only spells one thing. It more or less dictates that the play should be to enter puts as rallies fade.

The INDU tested the 50 day average today. Next support is the -3.5% band and resistance is of course 9400. Unfortunately for the INDU the OBV failed at its midband resistance. Note that the OBV bands are arching over with a downward curvature. That is a clue that the preferred side to be on is the short side. Let the rallies play out and then when they fail take short positions in puts below the peaking point. The latter are very often levels on the Pivots and Cones and Fib charts. Note how well the OEX works the Fibonacci Trader zones and levels. When the lower support level failed on Tuesday at 630, the OEX went on down to test Monday's lower fib level at 623.10. Note also how well the blue lines provide trend indication. Globex has a way of modifying the closing perspective though.

XAU had a disappointing day for such a weak intraday NASDAQ and S and P.Failure was seen at the downsloping colored trendlines on the XAU 30 minute chart below.

Here are the charts:

ADHL CHART. TUESDAY'S CONE CHART. WEDNESDAY'S CONE CHART. CYCLE CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. MOONTIDE CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEXPF CHART. OEYNG CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Thursday, February 4, 1999:

The last 4 consecutive equity call put ratios were at{ or very close to }topping values. Multiple days,4 or more, very often lead to tradeable declines. Closing tick was +894 Wednesday. High closing ticks often lead to corrections within one or two days. For Thursday or Friday, a little more followthrough on the upside on globex should provide a lower entry price on the OEYNG. Friday is the official end of this month's seasonality. The breadth divergences are still quite obvious, as are the diverging utilities, bonds,and the dollar. Next week is pre-expiration week, which tends to have a downward bias through Thursday. The main question here is what happens at 9400 DJIA and 640 OEX. Has buying been held back awaiting the FOMC results? Or did buying come in in advance of the meeting, and is it now exiting? Only a few more days will tell. In the meantime the INDU OBV is not supportive of the move on Wednesday, nor is the SuperT or the McOsc. The recommendation remains the same; to wait until the upward momentum stalls out and then to enter into puts near the money. The OEYNG dropped back to 11 1/4 today, near the 10 recommended level.

XAU short term STOCHASTIC at 78,near overbought;upside momentum stalling.Low volume,and strong resistance was seen near 67 Tuesday.We need to close above the downsloping trendlines and hold present support to give the bull case credence.

Here are more charts:

ADHL CHART. AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. EQUITYCP CHART. INDU FIBRET CHART. MOONTIDE CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEXPF CHART. PITCHFORK CHART. RSISTO CHART. SENTIMENT CHART. VIX CHART. XAU CHART.

3:oo p.m. update ,Friday,February 5,1999:Move the stop up or consider taking some off the plate on the OEX puts {OEYNG} as readers have a 100% gain.Liquidate all at the 100% profit level if tagged from your entry. To quote from MomentumCycles commentary for the open of Thursday, February 4, 1999:

"The last 4 consecutive equity call put ratios were at{ or very close to }topping values. Multiple days,4 or more, very often lead to tradeable declines. Closing tick was +894 Wednesday. High closing ticks often lead to corrections within one or two days. For Thursday or Friday, a little more followthrough on the upside on globex should provide a lower entry price on the OEYNG. Friday is the official end of this month's seasonality. The breadth divergences are still quite obvious, as are the diverging utilities, bonds,and the dollar. Next week is pre-expiration week, which tends to have a downward bias through Thursday. The main question here is what happens at 9400 DJIA and 640 OEX. Has buying been held back awaiting the FOMC results? Or did buying come in in advance of the meeting, and is it now exiting? Only a few more days will tell. In the meantime the INDU OBV is not supportive of the move on Wednesday, nor is the SuperT or the McOsc. The recommendation remains the same; to wait until the upward momentum stalls out and then to enter into puts near the money. The OEYNG dropped back to 11 1/4 today, near the 10 recommended level.

XAU short term STOCHASTIC at 78,near overbought;upside momentum stalling.Low volume,and strong resistance was seen near 67 Tuesday.We need to close above the downsloping trendlines and hold present support to give the bull case credence."

MomentumCycles commentary for the open of Friday, February 5,1999:

XAU bull case came alive again and closed above the first downsloping trendline on a return of fear-note the weak NASDAQ relative to the relatively "safe haven" of the DJIA in percentage terms Thursday.When measuring fear we look for a bottom as expressed in CODI,VIX or excessive put buying,or perhaps a sold out option premium ratio;Thursday's equity put call ratio was only at median levels.Multiple equity put call basing level days give tradeable short or long term bottoms,and Thursday's ratio wasn't even close.5 day rate of change was 0%,not the oversold -4 or 5% that have so well signalled long OEX entrances near lows.Admittedly,some bottoms come at less than ideally oversold conditions,and some tops come later than expected into extreme overbought,but conditions such as Tuesday's and Wednesday's 4 consecutive topping ratio days are rare,especially after a similar 5 day series prior to the called January 9-11 top.What that means is the "buy the dippers"are still bullish,and that's cautionary,to say the least.

The price action of the OEYNG,for example, speaks for itself and says a lot about the market, in addition to justifying the negative stance of MomentumCycles this week. There was always the possibility that the "seasonality" could assert itself into Friday, but it was also suggested that the cycle had shifted itself into the previous week with some front running and the liquidation was occuring a few days earlier.The CODI position on Tuesday and Wednesday this week was in itself a clue the bulls were in danger.In fact,we suggested on Sunday,January 23,that early entries into long positions,and early exits out of long positions,were the way to go.Noting 2 weeks ago that Tuesday,February 2 was well publicized in Barron's as the seasonal exit day,we thought Monday,February 1 was preferable.Coincidently,that was the high.

This Thursday ended with a pretty bleak view of the immediate future, and this time there is early followthrough on the downside on Globex for Friday;for the first few hours anyway. Last week it was suggested to buy the OEX 635 puts near 10 on rallies as momentum failed, and that the OEX target was 615 to 620,which would give readers a profit of 50% to 100% as the OEX neared the lower Standard Error Band. That target is close at hand, and there may be more profit in it on the Friday open. The put is now 13 points in the money and the delta is increasing the further the OEX drops. Remember a few days back we said there was a significant cycle date on 2/11. It actually is spread over a few days and may run to 2/17. This cycle is based on 1.618 and 2.618 multipliers of +,-50 bar pivots looking at as many as 100 pivots on the SPX dating back to 1/1/1970. The belief is that this is a significant turning point in this long bull market. How could it be anything other than that with yields creeping back up and the foreign repatriation of currency occuring?

Technically, the Moontide dropped below zero late in the day as the MoonTide-RSI drowned in the outgoing surf below 20%. We would be looking for a divergence on Friday for a put covering session unless this thing really falls apart, and then even the proposed crash puts will pay off(note, no specific strike was recommended as that is a real lottery game). Review the charts at your leisure; they all say pretty much the same thing. Support is about to be broken; breadth divergences continue.

Here are more charts:

ADHL CHART. AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. DSP9H CHART. EQUITYCP CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEXPF CHART. OEX PIVOT CHART. PITCHFORK CHART. RSISTO CHART. SENTIMENT CHART. SUPERT CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.