MomentumCycles

To quote from the update for the open of January 26, 1998:

"Gold and silver were exceptionally strong last week, so a pullback after the next several days should be looked for."

Momentum Cycles Update for the open of Wednesday, February 4, 1998:

If you are prepared in advance, you have time to take action.As you can see from the above quote, we gave plenty of advance notice for the recent XAU weakness.Indeed, momentum to the upside began to flag EXACTLY 2 days after our Monday, January 26 update. Wednesday, January 28, the XAU made an intraday spike near 80.Today the XAU again closed down 5 1/2 % to 70.87.

We MUST attempt to be early here, since many readers CANNOT be glued to a Quotron for 24 hours a day.

Likewise, the OEX.Last week, in advance of the rally, we scaled readers in EXACTLY on the open of Tuesday when shorts were covered and longs initiated.That's precisely when the rally started.More longs were advised for Wednesday.Scaling out was advised for the end of the week and Monday into strength, and again Tuesday for the remaining longs.

Again, in advance , we advised that there was rising risk in ZTimer, Z Score, CODI, and the position above the 3.5% trading band with shorter term oscillators now highly overbought.We advised AGAINST a short position Monday and Tuesday, seeing the specialists were probably going to run the shorts and hit those buy stops.We stated last week that the best probable % chance for an OEX put trade cyclically would be from midweek into Thursday, February 5 and possibly Friday, February 6.Please examine the chart below for the timing of this trade.Remember to risk at most only 10% of trading capital with a risk position of less than 50% of the initial price.

You can draw intraday trendlines with 3 minute delay at this link.

5 day rate of change is +4%, overbought, 5 and 15 day Oscillators are screaming overbought,the closing tick was +541, with a 3 pm +530 and a 230 pm +500 after a series of upticks Monday.10 day moving average of down volume is rising slightly.Talking heads on Yahoo today called for 1090 as a near term price target.

Breadth:

NYA breadth is beginning to falter as advances retreat from Monday's high and declines begin to increase. This is the reverse of last week as price trended down and breath improved until price reversed to the upside. Now we have breadth beginning to deteriorate as price trends up. Soon price will also reverse to the downside. McOsc issue and volume oscillators are extremely overbought and subject to going with the intraday breadth changes. CODI Old CODI(cyan) went sideways today in a divergent manner from price and New CODI dipped further into the sell alert region. If risk exposure is your concern, it is time for some insurance in the form of put options. Wednesday high noon ET is eastern equivalent to the western showdown on Main Street in Dodge City from the Wild West days. It would be typical for the indexes to make a marginal high Wednesday and then begin to retreat. Now, positive seasonality does not officially end until Friday afternoon, but don't get greedy, just expect the middle 80% of a move.

Remember, statistically Thursdays are painful and by Friday there is no one left to sell to except specialists and market makers. They do not pay up for products.

Volatility:

MVIs are the first to issue another sell in this trend by closing under their upper band again. If we are truly in a new trend era then price will track the upper band without pulling back inside very far. %b is hugging the overbought line also. Z Timer has found resistance at zone 3 and urges caution. Z Score is as skeptical as can be about the last few days. Both are armed for generating sell pivots.

RSI, SMI:

See charts.

Fibonacci Zones:

Many have closes between the upper weekly fib zone and the upper resistance line in the early part of this week. Ratio oscillators are beginning to turn down as a prelude to testing the lower zones, if not tomorrow, then later this week or early next week. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMR Still waiting on drill results.

Stat Pivots and Momentum Cycles cone:

The chart to take a close look at is the OEX Classical Pivots. Again we have a very tight price range between the pivot lines. They are even tighter than on Monday. Now if price and breadth are beginning to wane and the lower pivots are penetrated tripping off protective sell stops, we could see an undoing of Monday. Before heading down for real, price should make a quick failing rally intraday. That would be the ideal time to pick up some at the money or one strike below put options. Time decay is going to be accelerating in the next two and a half weeks. Some huge gains are possible in this period, but risk in the February series is higher and March options have a different dynamic but can still be profitable. DJI OEX SPX

Momentum Cycles Update for the open of Thursday, February 5, 1998:

Warren Buffet must be a subscriber!{Just kidding.}Apparently Warren noticed the longer term value in this commodity as we did earlier in 1997 and has been patiently accumulating about a billion or so,roughly 20% of the world's yearly output.

Our shorter term bullish or bearish trade comments on XAU are designed for options players with a time frame of several days to a week, where we have no bullish or bearish bias, and instead just monitor overbought or oversold oscillators{albeit with a warning the entire sector is longer term oversold}.We, however,noted many times that the slow,big money has been buying silver on weakness for about a year.{Witness our recent comments on George Soros's brother and his position in Apex Silver}.Sunshine Mining was up 40% just today due to leverage.A 1$ stock, it used to be 20$.If silver continues a longer term uptrend,Sunshine has good leverage as a proxy.It lost money last year.With strong longer term silver prices, Sunshine would be quite profitable.

On this note, perhaps other metals may come back to life soon.They are all very oversold.A lot of big money players see value longer term in plays like Canmine, which has struck shows in its recent drilling at Binco that correlate strongly with already existing mines in the Thompson belt.Other players are having a staking rush around the Canmine properties.Noranda recently sold some of its non- mining properties to concentrate on base metal exploration and accumulation of cheap claims.

We are holding an OEX put position from mid- day Wednesday. A day with more declines than advances at the upper band{where we are} will lead to a volume nonconfirmation of recent highs.The option premium ratio is in the 80's where good declines can take place.Shorter term classical oscillators are jammed overbought.Weakness is cyclically due tomorrow and/or Friday.Read the comments on the charts on the links below to see the overbought position of ZTimer,Z Score ,Codi and Mvi.

Breadth:

NYA breadth continued to deteriorate on Wednesday. Six to nine days of rally contains 80% of most moves. This one is nearly out of time. McOsc issue and volume are overbought and rolling over. Price has worked above resistance and CODI has been in the Sell Alert region for several days now. Yesterday it was advised to buy puts near noon time Eastern Time. It turns out that a post lunch move to nearly unchanged immediately after lunch provided an opportunity to buy the OEX Feb 480 puts OEXNP at 5 3/4. They closed at 7 bid 7 1/4 ask. With the OEX closing at 481.33 this could turn out to be a decent trade.

Volatility:

MVI dropped below the upper band for the second day as the beginning of month seasonality winds down. Z Timer is rolling over after having visited the edge of the Extremely Overbought zone and Z Score is beginning to rise off of its trendless state.

RSI, SMI:

See charts.

Fibonacci Zones:

Equity charts closed Wednesday with a Doji like candle between the weekly upper Fib level and Fib Zone as their respective Ratio Oscillators are rolling over in sell mode. XAU close near the weekly balance on a decent move today as war sounds echo across the globe and on word that someone has 20% of the worlds silver. DJI NDX OEX SPX TYX XAU

Pivots and Momentum Cycles Cone:

Pivots have narrowed again creating the potential for an interesting Thursday. The DJIA pivots in particular have an interesting configuration as the Stat pivots are almost unchanged from Wednesday and the Classical are really closing in on the Keyline. The OEX Classical pivots have a zone 4 close for Wed and a zone 4 open(assumed) for Thursday. This gives high probability of reaching zone 3 and finding support in zone 2. With breadth breaking down as discussed above and Thursdays having a propensity to be the equalizing day of the week, the vote is for zones below the keyline on all charts to be hit. The Momentum Cycles Cone chart gives another view of the probable OEX levels to be hit. The S&P premium continued to drop into sell mode after the close, but it is a long night until the mkt opens tomorrow, so we will just have to wait and see. OEX

Momentum Cycles Update for the open of Friday, February 6, 1998:

We said late last week that the most probable day for cyclical weakness was Thursday and possibly Friday, and that midweek{Wednesday} would mark the ideal day to enter put positions.The rally was expected to show slowing momentum Tuesday,February 3.We are still at the 3.5% upper band area with not much index price damage yet,but note that put prices have done well since Wednesday's entry.Another large uptick was recorded near the open Thursday.Our PRE indicator gave a fairly neutral reading Thursday, not giving a clear direction for tomorrow's economic reports.Traders sometimes see the initial market reaction to a good or bad report on Friday reverse later in the day.Due to our put position, a poorly received report would be beneficial from the open.

Betty Curry, the President's press secretary, is apparently giving testimony unfavorable to Bill Clinton's version of the story involving Monica Lewinsky.This may help cause some additional bearishness.

Breadth:

NYA declines increased to slightly over the magic 1200 level as the day progressed while advances were rather constant after the initial opening move. That meant the additional declines were coming out of the unchanged numbers. Equity indexes rallied on the open for thirty minutes and then went flat giving those who believe in a correction another chance to buy puts one strike below the OEX for under $6. The Feb 480's could have been had for as low as 5 1/4. They reached $8 today which is at a profit taking level for those observing the 50% guideline. Keep this option premium in perspective by noting there are two weeks until expiration and 3 to 5 point moves in one day are rather common. Not only that, the VIX has been running in the overbought levels for some time and any significant selloff will be accompanied by a rise in volatility giving put holders a ride on a two stage booster rocket. By the end of the day the McOsc issue oscillator was flat for another day and the McOsc volume oscillator rolled over. Both of these have diverged from the index this week prompting the advice to consider puts as the beginning of month seasonality winds down. It officially ends Friday afternoon and fund selling typically hits in the final hours of the day as a switch takes place from equities back to money market funds. This simple strategy has been more successful than any in existance over a multidecade period. It has missed all market crashes and compounded gains by switching from money markets to aggressive growth at the end of the month and then back to money markets at the end of the first five trading days. We at Momentum Cycles prefer to play this with call options and then put options. Flow Rate was pretty choppy today as TICK spent most of the time below zero showing the weakness in breadth. CODI made an official sell pivot in the sell region by the close.

Volatility:

Z Timer continues on its sell pivot from the extremely overbought zone. Z Score is finally coming alive as it rises out of its horizontal trend and price peaks. MVIs continue their sell mode for the third day. Note they were one day early as is their nature since they are anticipatory.

RSI, SMI:

See charts for commentary.

Fibonacci Zones:

DJI NDX OEX SPX TYX XAU

Ratio oscillators continue to warn of impending downturn in the equity indexes. The daily Triple Switch stop loss lines are easily within tomorrows reach. Yields and XAU are picking up again as crises disrupt presidential domestic and foreign tranquility. Gold and XAU type stocks are also contrary indicators for impending market pullbacks. Rising yields are not a help to an overvalued market at all. Once yields get locked onto a trend change, the trend tends to continue to the other extreme. So a real reversal in yields here will have rather significant consequences to the major indexes initially once it is recognized and accepted. Back in February 1994 when the Fed raised short term interest rates a quarter point it was possible to get a four to one gain in put options in three days. Thursdays and Fridays have been weak recently because of the unknowns that can happen over the weekend. Modern day wars are scheduled for weekends when markets are closed to avoid instant panic and turmoil. The guess here is that every Friday will be weak until things settle down in the Persian Gulf. Buffet's play in silver may be more than just an industrial one. It could very well be a currency one as the dollar drops from its lofty levels. The main thing to note about this Wednesday and Thursday is that rallies were being sold. Watch for it again on Friday.

Stock of Interest:

CMR was recently put on a buy watch by 2 stock analysts who specialize in undervalued and worthy mining issues.Click here to see the latest news release.

CMR

Pivots:

Statistical pivots are pretty much unchanged from Thursday whereas the Classical pivots have spread apart somewhat. This could very well mean there will be more sparks flying on friday with a wider range in prices. The odds favor resistance in zone 4 and support in zone 2 on the classical pivots for a zone 3 close zone 3 open(assumed). DJI OEX SPX

Momentum Cycles Cone:

Important indicator on the cone chart is the rolling over of the projection oscillator after peaking 4 days ago. This alone should have been a clue to enter puts on rallies. No doubt the economic reports out tomorrow will have a temporary directional affect on the index. Seasonality favors a weak close.

Summarizing the cone levels and their meaning for Friday:

If major trend is down:

475 reached would be a moderately down day and a reversal point
470 to 473 would be the most a pit trader expects on a strong down day
465 would be a crash down day.
If major trend is up:

483 reached would be a moderately up day
487 to 489 would be the most to expect on a strong up day
496 would be a crash up day.

Momentum Cycles Update for the open of Monday, February 9, 1998:

When examining any market it is wise to start with the longest length charts and work down to the shortest length charts.Our 1997 look at silver as a vastly undervalued asset started with the longest chart available of Sunshine Mining, our silver proxy.At its high of 20$ ,20 years ago, it was vastly overvalued.At its low last year,under 1$, it was vastly undervalued.We explained that the big ,patient, slow money accumulates any asset that is greatly undervalued regardless of temporary paper losses.It was recently revealed that last year Warren Buffet was buying silver at prices ranging in the $4.18 to 5.50 area.Late last week,silver made a daily spike high over 7.50 with a close Friday at 7.06.Sunshine Mining was up 40% in one day on 20x normal volume.In this week's Barron's, silver is mentioned 5 times in different lengthy articles with a bullish bias.That's too much for one issue.Longer term,as other big money silver buyers Bill Gates and George Soros have demonstrated,the metal is a value buy, perhaps at the 6's where longer support is seen.Near term,Friday February 6 was likely a spike high.We might look for a value buy about February 26.

On the other hand,Warren Buffet is not finding a lot of value buys in most equities these days.He is holding long positions accumulated at prices he considered values during the periodic pullbacks in the 60 year long term chart.We appear to be at an area that normally would imply a slow down in the rate of appreciation on this chart.On the 5 year chart,we are at an area that seems to be resistance.On the 4 month chart, tops line up on the SPX and DJIA at the end of the monthly money flow pattern with cyclic regularity,showing the post money flow distribution pattern.Accordingly,February 6th could very well have been a short term top in both SPX, DJIA and silver.Normally with those sorts of patterns, a selloff is required to start almost immediately{Monday February 9} without a new daily close above the old highs on increasing breadth and volume.If the present rally was to extend in time into what is normally the distributive phase of the month,new highs would likely occur in the indexes for 2-4 more days.

Notice on the 4 month chart how the 2nd week is usually a retracement week.Also note that yearly cycles usually find the February 7 area as a high and the last week of February as a low.

What behavior should we expect if the OEX breaks the present rhythmic pattern and enters a strong bull trend with strong A/D action?{note Friday was only 1735 up to 1152 down}.On the long term chart, if the new highs are broken decisively,a brief pullback will likely occur to test the breakout. The DJIA will then ride the channel between the upper 3.5% band and the 21 day moving average and target the 9000-10000 area.

On Friday the 5 day rate of change was +4%, very overbought.The option premium ratio at .73 is lower than the .85 that occured earlier last week, and volume slowed Friday at the new highs.Shorter term oscillators are still jammed overbought.

In summary, we are holding puts bought near what was found as resistance late last week.Click here to see the current status of those suggested put purchases.

Breadth:

NYA breadth is precariously close to reversing the index trend as prices run into a valuation problem. They were pretty flat after the inital rise on Friday. Each move back to resistance was met with more churning of stock, read as distribution. Even Richard Arms(creator of the TRIN or ARMS index) was on CNBC today pointing out the massive volume that it is taking to move the indexes a few points. He likened this current equivolume formation to that of 1987 and 1929. The McOsc of issue and volume are overbought and subject to turning down any day with the index price accompanying them. It is just possible that the seasonality end has been delayed due to political interference, causing a wait and see attitude amongst money managers. Pre- expiration weeks {February 9-13}tend to have a downtrend. If we in fact get that downtrend, the 480 puts should jump into the money rather rapidly. CODI remains in the Sell Alert Region, and New CODI is saying to sell the rallies.

Volatility:

Z Timer and Z score are extremely overbought and advise protective measures as well as speculative shorts.

Fibonacci Zones:

Equity indexes start next week at the upper weekly fib resistance bands. This would lend some credence to next week having a downtrend if the resistance holds early on.

DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMRis due to report on new findings at Maskwa soon.

Pivots:

Rallies of the last two days were stopped at the R1 or Classical R1A pivots. This is reflective of the "weakness" of the trend and the distribution that occurs as prices hug the pivot lines the remainder of the day. A zone 4 close and zone 4 open sees resistance in zone 4 and support in zones 2 and 3 for Monday. DJI OEX SPX

Momentum Cycles Cone:

The cones have been extended out to expiration on 2/20/98 for probability assessment. Note the Feb 480 puts are almost straight across from today's close. By adjusting the probability cone on the Cone2 chart so that 480 lies on an edge of the cone shows that there is an 86% chance that the index will be outside that cone between now and expiration. Further, the grey dotted line shows a probability of 68%(one standard deviation) that the index will lie outside it also. That means the index has a 68% probability of being above 497 or below 473 at expiration based on current implied volatility. Now if we get some serious selling next week, volatility will expand and the index will trend down and the projected prices will change significantly. See oexop and oexnp charts for a comparison of the time decay characteristics of an option with two weeks left versus a month and two weeks. The left Y axis is the profitability the colored lines are for Mon, Wed, Friday of next week. If the OEX index drops next week then follow the curves up to the left. If in fact it does drop then volatility should expand and the profits should be higher than shown.

Momentum Cycles Update for the open of Tuesday, February 10, 1998:

Characteristic of runaway bull trends on a price breakout above a flat top is a huge volume surge that runs along or above the upper 3.5% trading band on a/d action of 2 to 1 or more.Recent a/d action in the present market has been neutral to poor,especially since last Thursday through this Monday.

One down day in a strong bull trend is quickly followed by multiple up days. So another down day tomorrow with stronger negative price action will be important to see here.In wild runaway bull trends any down day or days are buying opportunities.A/D action usually immediately reverts to 2 to 1 up or so.

A/D action can be monitored at this link{3 minute delay}for traders without live feed.

OEX puts are about flat from the initial position taken last week.

Breadth:

NYA advances edged out the declines in what looked like a delayed end of seasonality that should have occurred on Friday. McOsc volume oscillator is leading the issue oscillator in rolling over. The indexes will soon follow if breadth continues to deteriorate. CODI remains on a sell trend.

Volatility:

Z Timer and MVIs are still in sell mode.

RSI, SMI:

XAU, TYX, SPX RSI are all still increasing as they coast into overbought. SPX SMI is the only one of the three that is overbought.

Fibonacci Zones:

See charts. DJI NDX OEX SPX TYX XAU

Stock of Interest:

CMR is perceived as completely vulnerable to weak nickel prices in the same manner as Inco and falconbridge.Market rumors are being floated that indicate the 2 majors may merge to save costs, although both companies deny this.However,Canmine's immediate cash flow will likely come from extremely high quality cobalt from Werner Lake, which is in tight supply.We might reasonably expect management to seek a contract this winter to sell their coming cobalt production. This would provide immediate cash flow projections that will interest institutions.

Classical Pivot Update:

Probabilities for Tuesday are for Zone 4 Resistance and Zone 3 Support for all three indexes. Monday was a very indecisive day with the indexes closing right on the keyline. Classical Pivots are based on one day historical data. The reason they have value is their popularity amongst floor traders. The Momentum Cycles Cone chart shows support and resistance levels based on implied volatility. DJI OEX SPX