MomentumCycles

MomentumCycles commentary for the open of Tuesday, February 16, 1999:

The OEX ranged between 625 and 628 early Friday a.m.,both up and down,before selling off the rest of the day.Readers who followed the suggestion of a trailing stop{either trendline or trailing 1.50 profit stop from the high achieved price of the call}kept much of Thursday's gains and closed the trade successfully.We had suggested that the price action was not confirmed by the internals,and Friday's action was typical of a market that oscillates between market topping equity put/call readings one day,and basing readings the next.In fact,recently,topping ratio days have immediately brought selloffs,and basing ratio days have immediately brought quick,sharp rallies.In this last series of equity put/call ratios,the requisite number of CONSECUTIVE basing days is still lacking for a sustained rally based on a high level of fear,at least using this indicator.

We had suggested a short term sell last week for the XAU near 68-67 based on volume divergences during the failure at 69 two days consecutively.Short covering was recommended at the old lows at 63.Decline low was actually 62.88.

Tuesday's pre-opening update has some charts with a slightly different perspective than those that have been posted previously. Perhaps this is because next week is shaping up to be a period of historic price action in the stock indices. The attempt here is to be as objective as possible by looking at the market from different "angles". The two cycle charts, SPX cycle 1382 and cycle XXXX, are pointing at 2/17 and 2/19 as being the foci of data starting from back in the fall of 1987. Don't be surprised if you see an acceleration of price next week that makes a place for itself in the annals of stock market history. The next view is an intermarket comparison presented by the overlay charts, OEXXAU, OEXTYX, XAUTYX, NDXTYX. This view is complemented by the OEXAD and XAUAD. Some of these charts are weekly and others daily. Basically, what they show is the sensitivity of equities to interest rates that occurs at the end of mature trends. The NDX is particularly sensitive since it is commonly believed that growth stocks carry higher debt loads than senior equities and need to refund frequently. Many blue chips are either self funding or have sold long term bonds at low interest rates. Should the repatriation of foreign assets out of US treasuries continue to drive US yields upward, then the NDX will likely continue on a crash course to lower channel lines. The SPX and OEX should follow suit in a flat to down path. The general demand for mortgage money in the spring will also put upward pressure on yields. With the extended overvaluations and rising yields, the best the market can do is remain in a trading range. The worst it can do is to drop to lower levels. This is one of those times when you want to be on the sidelines or hedged,or else a very aggressive trader in tune with intraday trends.

AMOSS, CODI, and CONE are in neutral. ADHL is on a sell from last Thursday. The fact that EquityCP is dropping confirms the lack of upward progress in the index. It could drop as low as it did last fall. The same is true for the Sentiment. Even though the Sentiment has reached the "buy calls" area it can go lower. Both are at levels that could produce a tradeable rally during expiration. Sorry about hedging this analysis, but expiration week moves on dynamics that relate only to vested interests and nothing else. Both EquityCP and Sentiment should reverse under sold out conditions. Perhaps the Valentine's day massacre will be a belated experience.Remember our old seasonality saw " In by Thanksgiving, out by Easter" ? Moss indicator is forming another of those ominous contracting formations suggesting a "gonzo" type move with the potential for a breakout to Overbought or Oversold within a week.

Here is a longer term look at a gold and silver play for intermediate traders.

When buying anything it is advantageous to do so when it is at a discount. The Central Fund of Canada, CEF, is a closed-end mutual fund whose assets consist of 132,228 ounces of GOLD, 6,613,728 ounces of SILVER, and $1,064,014 of CASH and other assets. The breakdown looks like this:

CEF Net Asset Value/Share...: 4.09
CEF Closing Price...........: 3.69
Percent Premium (Discount)..: -9.8%

If you believe the XAU is bottoming and represents value at these levels then it has to be related in large part to metals prices in addition to other corporate management policies. Closed end funds can trade at a discount or a premium, depending on demand of course. It would seem that CEF is a low risk, low stress way to acquire a core holding in precious metals at a discount.This situation comes along once a decade or two. With the XAU and metals prices at multiyear lows, this looks like an opportune time to lay your claim to some of these shares,albeit with no more than five or ten percent of your investable assets. Consider it a long term call option on the metals;one that doesn't expire.


The current yield perspective for the equity indexes is one of yields comparable to what banks lend gold to mining companies for forward sales. Think about that for a minute and what it implies. You can buy metals at a 9% discount(undervalued) or you can buy an index that could lose half its value just to reach the low side of the historical levels. That is a sobering perception. Perhaps that perception is part of what Buffet recently saw in silver. The DJIA and S&P 500 have had a historical dividend yield range of 3%(overvalued) to 5%(undervalued). For the DJUA it is between 3% and 12%. The reality check comes when looking at the index values relative to various yields:

Here are the rest of the charts we examine nightly to form our commentaries:

MOMENTUM CYCLE CHART. MCOSC CHART. MOONTIDE CHART. NHNL CHART. OEX FIB CHART. OEX PIVOT CHART. SUPERT CHART. OEYBC CHART.

If any of the charts are misdated, please press reload. Your computer may have saved the old charts and pressing reload may solve the problem.

This is a Wednesday morning mid-morning update.

Cone chart shows OWX in a downtrend with the Projection oscillator still in overbought. A strong down day will drop the OEX to 605 and a really strong day will take it to just above 595.

MomentumCycles commentary for the open of Wednesday, February 17, 1999:

"Quick,sharp rallies...In this last series of equity put/call ratios,the requisite number of CONSECUTIVE basing days is still lacking for a sustained rally based on a high level of fear,at least using this indicator."...well,yesterday's comment hit it on the head.Characteristic of a market that oscillates between topping and basing equity put/call ratios from day to day.5 day rate of change dead center at 0%.Searching for direction are also bonds,XAU,CRB and market players' percentage allocation between various equity indexes.

Even CODI has been hanging around the Whipsaw level and thus we have been getting whipsaws in price as breadth has reached oversold levels. The Modified and Adaptive Option Strategy Spectrums have been in the neutral zones. Neutral, by the way is relative to 16 to 20 day periods. ADHL intermediate term price/breadth system remains on a sell, with a little improvement in the new highs and new lows on Tuesday. It would take a big improvement in the new lows to put the system back in buy mode. One or two really good days could do it. Even the INDU is hanging tight on its 21 day moving average, as the on balance volume paces out a sideways path. The super computers must be locking onto a trading range market right now;thus the preferred strategy is to sell resistance,and buy support.The market is biding its time until something happens to change course. Moontide ended the day trying to go into a daytrading buy mode. The RSI and TickVolInd were both strong late in the day. Tuesday's action appeared reminiscent of the "buy the Tuesday close for the Wednesday high" routine. NYA on the McOsc chart also reflects the decision point immediately in front of us. Implied volatility is still running at 30+ levels so we should expect more of the same wide ranging days until a breakout occurs. This is particularly true now that the Curb level on the DOW has been almost doubled. This doubling should make for an increased OEX range, and thus greater runs in option premiums. Better days are ahead for OEX traders. To cap off the neutral view, we have the Equity CP and Sentiment dead center neutral. Did you notice how the DOW rocketed upward early Tuesday after the Sentiment plot tagged the "Buy Calls" level on Friday? Neutrality is abhorred by market participants, as change is its lifeblood. It should be emphasized again that it is the price movement that is expressing a neutral view, as it characteristically does prior to significant changes in trend. Breadth has already spoken with a bearish, but oversold view. This is a real quandry. One big player dumped megashares on the pop this AM when the DOW was fighting fib zone resistance. Following that we had an extremely oversold cumulative tick that is often followed by significant moves upward in price. That does not appear to be the market place sentiment three and a half hours after the NY close. Globex is looking down strongly. We are going to post the Cycle 1.382 chart each day this week as we are right at that point in time where we are getting a concentration of cycle hits generated from a decade of data. The choppiness makes an outright call or put purchase a difficult decision currently,and maybe this is just one of those times that it is best to stand aside. We prefer to enter when the AMOSS, MOSS, Cone or CODI reflect a strong directional vote.

Here are the charts we examine each evening in addition to those linked above:

CYCLE CHART. INDU FIBRET CHART. MOONTIDE CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEXPF CHART. OEYBC CHART. PITCHFORK CHART. SUPERT CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Thursday, February 18, 1999:

S&P 500 CHART
Look at that opening pop! To quote the start of the week... "Quick and sharp rallies... No sustainable bullish trend can be seen until we have a sufficient number of equity put/call basing days in succession."

The "quick and sharp rally" seen Wednesday a.m.--one of several ephemeral daytrading flurries seen this week--seemed again to be an opportunity for large money to distribute overpriced retail NASDAQ issues.Last 5 equity call/put ratios {from February 10}.1.9787,2.7562,2.0114,2.1893,1.981.Under 2 is considered basing.The last reading under 2 on February 10 brought a snapback rally,ephemeral because an insufficient number of CONSECUTIVE basing days were recorded.So a snapback could appear with Wednesday's reading.Ideally,however, 4 or 5 or more in succession,possibly with a total {equity and index}put/call ratio of one to one,and multiple over -1000 ticks on successive days and on closing would set up the perfect oversold condition.After all,even 5 day rate of change is still +1% on DJIA.Best oversold readings come at -4% or -5% or more.{October 1998 was -17.5%!}.

So,it appears that a Bear has replaced the groundhog as a seasonality indicator! Rumor has it this furry imposter came out of his den and saw his shadow, which means spring is here and hibernation is over. More seriously, we in "retailsville" are the last to know the real reasons that big money makes trend changes. The current meeting of the G7 that is being publicized as a method to get a handle on the destablization of international currencies by hedge funds might also have something to do with this long period of stock distribution. Distribution is what we have been seeing when the McOsc and the NHNL and other breadth indicators don't follow or lead price upward. It also helps to have the "Garz" expound some words of caution and the need for a ten percent correction from the highs {or about another 5% from current levels}.

Of course, the cycle-analyst-only types would say this has been building for months, nay, years, and is represented in cycles1382 chart.{Note that 2/18 comes up as an important cycle"hit" date using data up till Wednesday.} Whatever the reasons, our EquityCP and Sentiment charts are not at the low risk levels for either calls or puts. ADHL, our intermediate term system, remains in Sell mode.

Closing below a 50 day average is not to be taken lightly, as the following day some mutual fund types switch to cash. That appears to be what was happening today. Funds were selling in advance of the mechanical sell signals that needed to be filled on the closing net asset value. This could be especially true of the last hour collapse. Skipping the usual barrage of charts, we just want to point out that the bottom fishers came up with carp today and had to throw them back as the NDX is far from completing its correction. The other indices are a bit behind in their regurgitation as the so called flight to quality{read flight to liquidity} dumped money in the blue chips.{FNM, for instance,pays a dividend.Up to 74 on flight-to- safety- money Wednesday.}

Problem is,the blue chips are not immune to a reality check, head adjustment, or just plain old coming down to earth realism. In the end "Dividends Don't Lie". { In case you haven't read it, the book is by Geraldine Weiss and Janet Lowe.} Of course, we don't want to espouse the transition from OEX option trading to stodgy old dividend -paying stocks; heaven forbid, that's not our mettle.

Speaking of metal, the XAU seems to be holding up well, in view of the publicly known fact that Germany wants to dump tons of gold on the market. Come on now, since when does any government that plans to sell metric tons of the stuff let it become public knowledge before the fact? No way, Jose. It doesn't hurt to have the economic advisor to the World Gold Council promoting the increased demand for the stuff either, but I bet there is a Gold mining company seminar coming up shortly. Back in 1987, it was fun to trade the gold stocks because they traded like the internet stocks of today. I remember when Newmont Gold was 16 and it doubled, Lac Minerals doubled, tripled, and I was writing calls like mad on the volatile gold stocks to recover from the October '87 debacle. Seemed like a good way to rebuild assets after being blessed with a brief view of trader's nirvana prior to October. Well, maybe this isn't '87 again, but it sure is beginning to feel like it with a little bit of phase shift in time built in. Just remember how 9400 is providing strong resistance and remember last weekend's update comparison of dividend valuations.

Looking at the DJIAAD and the NDXAD gives the feeling that 8700 on the DJIA and 1800 are conservative downside estimates.{And below that the oft tested 7400,but let's not get to far ahead of current price...} The OEXAD was thrown in to show that its summation index is now below zero, and has been trending down since December. 1999 prices appear to have to go down big time before they can rise again, otherwise price will continue the horizontal trading range that is developing. A lower risk call entry would be at the -3.5% band and the oversold AMOSS zones. With CODI in the Whipsaw area, it's a bit indeterminate currently.

So,since the last long trade that netted about a double on the trailing profit stop{depending on your entrance or exit},we've basically been standing aside to avoid getting YOU whipsawed!

Here are the charts we examine nightly.

CYCLE CHART. DSP9H CHART. INDU CHART. INDU FIBRET CHART. MOONTIDE CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEXPF CHART. SUPERT CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Friday,February 19,1999:

One problem with cycle analysis is that verification of a cycle hit only comes so many bars after the the hit. Cycle 1382 has been saying that 2/18 or 2/19 would be a trend change date. Breadth did make trend change, and price appears to have also. However, only history will show if this change has much significance after it develops further. EquityCP and Sentiment are in the vicinity of an outright call recommendation. This is as we would expect, as these measurements tend to precede the price indicators. ADHL and JBOC remain in sell mode for the intermediate term systems. The market can rally some and still retain the Sell mode. Moontide also gave some encouragement for an upside expiration. The Thursday positioning set the NDX and SPX up for the Friday morning settlement. After that, we still expect the mid-day slump and then the late PM rally for the OEX. That is where you might want to buy an in the money call if everything else is in go mode. Most of our short term price indicators remain in neutral with the breadth indicators stuck in oversold. There is potential here for some rally.

XAU price below the oversold level of the 3.5% band,as STOCHASTIC 5 and 20 both below 20.Momentum of price declining,but strangely,on balance volume shows the probability of underlying accumulation of the components of the index by longer term,patient players.In contrast,FNM is at overbought levels,with STOCHASTIC 5 and 20 near the top of the 3.5% band.This issue shows on balance volume declining as price is presently rising.Probably longer term lightening up by longer term holders near previous resistance in the mid-70's.

Here are the charts we look at nightly:

AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. INDU CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEXPF CHART. SUPERT CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.