MomentumCycles

MomentumCycles commentary for the open of Monday, February 8, 1999:

Open ten day trin is in a position where OEX price should begin moving back up shortly. The main problems are the other views of breadth divergence that you hear so much about in the media. For example, the cumulative new highs minus new lows never recovered from the divergences last summer.Looking at some other indicators, ideal long entries often take place at 1} the lower 3.5% band of price 2} on positive cumulative breadth 3} at multiple equity call/put basing day ratios 4} on option premium ratios under the .60's,preferably the .30's on high volatility. 5} at STO,RSI and 5 day rate of change readings in deeply oversold areas 6}at times of the month that money flow is about to reverse to positive.

Presently DJIA is at the 21 day moving average-neither at the lower or upper band,but in between.Cumulative breadth and volume are negative.We have had only one basing day on the equity put/call ratio,allowing for a short pop up,but not giving the "all clear" signal for sustained long positions.Option premium ratio is in the .60's.STO ,RSI and 5 day rate of change are not deeply oversold.

Admittedly,if typical money flow is followed,the market will be taken up prior to a short term dump into the Thursday pre-ex 2/11 date discussed below.That's often a chance to get positioned for a long trade into ex week.But Thursday is a long way away,especially when markets are getting faster and faster.

For new readers,we had bought puts {OEYNG} near OEX 636 last week.That position is discussed below.

The OEYNG has some nice gains now,approximately 100% or over,depending on the individual time of purchase, and is deep in the money with a better premium to time value and considerably up from the entry between 10.5 and 11.25 at its recommended level. Generally profits should be taken at the 50%,75%,and 100% level, as it isn't often these sorts of returns occur in such a short period of time {less than a week}. Time decay will be accelerating in the days ahead with two weeks remaining until expiration. We have a cycle date coming up on 2/11 and with the price velocity of late it isn't possible to determine if this will be a high or low. Pre-expiration weeks tend to have a downward bias but don't count on this to increase the value of the OEYNG's. It's best to take some protective action at this point with a stop,if readers did not do so on Friday's 3 p.m. special intraday update{in red},or partially at the oft recommended levels of 50%,75% or 100%. The mechanical Volatility and RSI models tripped off buy signals on the OEYBC for Monday, but as has been found in the past, the models are a day or two early and other technicals need to bottom and turn up. The Haurlan indicators have not quite reached the levels where corrections end. Perhaps in another day or two these Haurlan indicators will. Various other indicators have not reached oversold levels nor begun to base yet. So basically it is too early to enter calls and it is getting chancy to retain the puts.

Stix is another breadth measure that reflects the present buying potential that could come at anytime. These indicators are the basis for the above recommendation for exiting the put position on a stop. The breadth readings could become more negative, but when the McOsc is near -100 you want to be exiting the puts and considering the entry of the calls as the first push up from -100 can be swift.

It is interesting that although the XAU made a price low recently at the oft visited 63 area,and has now rallied to tag the upper 3.5% band of price at 69,longer term measures,such as on balance volume,did not confirm the 63 price low.On balance volume is near the top of its recent ascending channel,and so an XAU retracement in price should not be unexpected soon in concert with an oversold OEX rally.A continuing XAU rally that is strong enough to close on higher volume above 69 will target 72.3.

Here are more charts

ADHL CHART. AMOSS CHART. CODI CHART. CYCLE CHART. EQUITYCP CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. MOONTIDE CHART. NHNL CHART. NYA CHART. OEX FIB CHORT. OEX FIBRET CHART. OEX PIVOT CHORT. OEXPF CHART. OEX WEEKLY CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. MCOSC CHART XAU 30 minute CHART NHNL CHART

MomentumCycles commentary for the open of Tuesday, February 9, 1999:

One of the systems we use shows a short term sell arrow present from Monday's high for the XAU,at the double failure at 69.This system does not make judgements on the longer term XAU trend-it only looks for volume,momentum or price nonconfirmations near the outer trading bands.

We stated on the weekend update that Monday would probably bring a short term equity index pop,due to the single equity put/call basing day seen Friday.Liquidating the remaining OEX put position was recommended for remaining holders,which ideally should have been finally closed at the 614.51 retest lows Monday.{OEX low to high Monday 614.51-623.35,close 621.70;NDX 1986.25-2034.21,close 2034.21.}

Monday's equity put/call ratio was again above median levels,but not quite at topping levels.For the bulls,we would have preferred to see another basing day on rising prices,implying disbelief in the bull case.Historically,multiple days,5 or more,at basing levels, give multimonth rallies;one day basing values give oversold pops,as seen Monday.2 to 3 consecutive days give good rallies in oversold bull trends.

Other indicators are presently mixed,as discussed below,depending on the time frame they examine.Keep in mind the cycle date of February 11.

Looking at end of day index price and breadth data, the market is still in a downtrend. ADHL is an intermediate term system that combines relative strengths of NYSE advances, declines, new highs, and new lows. It is still in a sell mode. JBOCOEX is an end of day view that says if the OEX closes below 613.45 then more selling should occur and if it moves upward, then it has had a reprieve. JBOCNYA is the same system applied to the 1/2 hour NYA. It paints a picture of a broader market about to turn up. Additionally, the Moontide has made a quadruple bottom on Friday and Monday. Other breadth indicators such as McOsc, OpenTrin, Stix, and Haurlan are oversold and still in a downtrend. OEX on the CODI chart has moved below the regression channel originating from October 1998. Trading convention would have the OEX move back up to the lower regression channel line at which time short sellers would jump all over it if the test of the line were half-hearted. The potential for downside movement here should not be underestimated. Dynamic CODI is within one day of generating a real sell by crossing above its center band. That is also a potential reversal level, so rather than go into sell mode, it could go into buy mode. OEX Trades tripped off another signal in the momentum model. The mechanical system buys one strike below the index and one month out. Since we are close to the action, we trade the front month. AMOSS made a small pivot at the edge of neutral and oversold. So, basically it looks like price and breadth are oversold, but could become more so. There is no pain yet, just apprehension due to indecisive market behavior. The OEYNG has been stopped out with nice gains. The OEYBC could have been traded between the swings today for nice gains, but it has not been officially recommended yet. Perhaps Tuesday will provide another entry opportunity between 13 and 15, preferably at a lower cone or OEX pivot support.

Here are the charts:

CYCLE CHART. EQUITYCP CHART. INDU CHART. INDU FIBRET CHART. JBOC CHART. JBOC OEXX CHART. NHNL CHART. MOONTIDE CHART. NYA CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEXPF CHART. OEYBC CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. VIX CHART. XAU CHART.

To quote from the MomentumCycles commentary for the open of Tuesday, February 9, 1999:

"One of the systems we use shows a short term sell arrow present from Monday's high for the XAU,at the double failure at 69.This system does not make judgements on the longer term XAU trend-it only looks for volume,momentum or price nonconfirmations near the outer trading bands.

We stated on the weekend update that Monday would probably bring a short term equity index pop,due to the single equity put/call basing day seen Friday.Liquidating the remaining OEX put position was recommended for remaining holders,which ideally should have been finally closed at the 614.51 retest lows Monday.{OEX low to high Monday 614.51-623.35,close 621.70;NDX 1986.25-2034.21,close 2034.21.}

Monday's equity put/call ratio was again above median levels,but not quite at topping levels.For the bulls,we would have preferred to see another basing day on rising prices,implying disbelief in the bull case.Historically,multiple days,5 or more,at basing levels, give multimonth rallies;one day basing values give oversold pops,as seen Monday.2 to 3 consecutive days give good rallies in oversold bull trends.

Other indicators are presently mixed,as discussed below,depending on the time frame they examine.Keep in mind the cycle date of February 11."

MomentumCycles commentary for the open of Wednesday, February 10, 1999:

Believe it or not,on a -3.91% NASDAQ day,Tuesday's equity put/call ratio was slightly ABOVE basing values.The last 3 values were basing on Friday,near topping Monday, and near basing Tuesday.This series does not yet fit the multiple basing days consecutively that mark sentiment bottoms.

The XAU short term sell from yesterday's commentary was correct and tradeable,as the XAU was the weakest of all the indices Tuesday,falling from 67.4 to 66.2 in the first half hour,then rapidly deteriorating to the low of the day at the close near previous support at 63.63.Total open to close -7.14%.XAU shorts could cover on further weakness Wednesday.

The OEX trend is down and "oversold" when measured by the 16 to 21 day cycles. Longer cycles still have it in a downtrend. Mechanical trades have picked up another buy alert,but remember they are historically several days early and we need to wait until the breadth stops deteriorating. ADHL system is improving a bit but still on a sell. JBOCNYA voted with a retreat from the Moving Average early this AM. OEX fib zones provided temporary support until the last hour when the pre- closing analyses are made, and the big money consensus at that point was to exit at any cost. When there are no bids,Tuesday's close is an example of the kind of market you see. So, the moral is to either be short or wait until the bids begin to return and the Moontide bottoms and turns up. So far, the pre E week trend matches the historical trend and we did not expect the low until 2/11.The market was taken up on the Monday pop,as discussed on the weekend commentary, in preparation for normal second week of the month professional shorting of the declining money flow. {Remember the Valentines Day Massacre reference!} Still, we have no official trade. The INDU closed below the 50 day MA. The market is looking more bearish every day,so talking heads{Dick McCabe,Ralph Acampora,Barton Biggs,and Larry Wachtel}are afraid to be the last on the bearish bandwagon.

Here are the charts:

AMOSS CHART. CODI CHART. CONE CHART. EQUITYCP CHART. HAURLAN CHART. INDU FIBRET CHART. MCOSC CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEX TRADE CHART. OEX WEEKLY CHART. OEYBA CHART. OEYNG CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, February 11, 1999:

Last 4 equity put call ratios were basing,near topping,near basing,and basing.One more day or two of basing ratios would give us the 3 to 4 days consecutively that could set up the oversold bounce discussed below.Not there quite yet on this indicator.Option premium ratio last in the .39 area,a neccessary but not sufficient condition for an oversold rally.More buy relationships will be generated if the OPR stays in this area, or lower,on either extremely high or low OPR volatility.We are nearer now to the lower 3.5% trading band;not there quite yet.5 day rate of change -2%;but note that -4 or 5% often mark good oversold conditions.

But looking at the longer view,there really is very little reassuring news to report for Wednesday's market. Perhaps this is where we learn that oversold markets can get more oversold, or this is where we take some risk and trade the long side into expiration. We have been saying it would be down until Thursday, so here we are. Stochastic momentum could turn up on Thursday for an expiration trade. Feb 11th is the change in trend date we have been anticipating. Unfortunately, this can be an acceleration of the current down trend, or it can be a change in trend to the upside. All we know is something significant will happen. Once the impeachment vote is behind the market, this choppy sideways action should resolve itself. SMI can be seen on the Equity and Sentiment charts. MOSS has made a tiny pivot upward in the oversold zone but most of the indicators look horrendously bearish (isn't that always true at lows?). Dynamic CODI is touching the Buy Alert line but regular CODI is in the Whipsaw zone. NHNL, McOsc, Haurlan, and other breadth indicators are truly oversold. The INDU 50 day average appears to be providing resistance now, with the 200 day just below. There really is nothing in the breadth numbers that would encourage a trader to take a ride on an OEYBA or OEYBC for a few days. Price can move a lot faster than breadth if stimulated by buy or sell programs. Moontide seems to be saying the surf is up, and intraday it has picked up the lows in Feb calls and is still long into the close. The mechanical trades now have the momentum, TRIN, RSI, and volatility models all holding calls, albeit early, as pointed out before. Since the models trip off under different circumstances, the end result is an average of strike entries. Since we want some price confirmation and breadth improvement, we are reluctant to follow the mechanical models immediately and wait a few days for price confirmation. That could come on Thursday or Friday. We believe that the expiration cycle, just like the beginning of month cycle, can override other factors. In fact, this week has been playing out the pre -ex week portion as it has many times previously. Given that, we are looking to enter at the money or one strike in the money calls in the next day or two. The intermediate term system, ADHL, remains locked in sell mode as the New Low strength joins the New High strength in sell mode. It is entirely possible to have a trading rally on a short term basis with the intermediate term system in sell mode.Note that going long here appears to be a countertrend play.

Here are the charts:{No trade on XAU recommended for now.}

CYCLE CHART. INDU FIBRET CHART. JBOC NYA CHART. JBOC OEX CHART. MOSS CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEXPF CHART. PITCHFORK CHART. SUPERT CHART.

To quote from the MomentumCycles commentary before the open of Thursday, February 11, 1999:

"We believe that the expiration cycle, just like the beginning of month cycle, can override other factors. In fact, this week has been playing out the pre -ex week portion as it has many times previously. Given that, we are looking to enter at the money or one strike in the money calls in the next day or two. The intermediate term system, ADHL, remains locked in sell mode as the New Low strength joins the New High strength in sell mode. It is entirely possible to have a trading rally on a short term basis with the intermediate term system in sell mode.Note that going long here appears to be a countertrend play."

MomentumCycles commentary for the open of Friday, February 12, 1999:

As a market timer and option trader, it is easy to get sucked up in the enthusiasm of a momentum run when you bought an OEYBA call option at 13 one day and it runs up to 26 the next day. In fact, it is a constant battle to fight getting enthused to the point that objectivity suffers. The "man" says to trade what you see moving, and avoid the news and read the tape. The tape was indeed kind today, handing us all a very nice valentine gift... that is, of course, if you believed yesterday's commentary and acted on it. As always with a 100% gainer, you want to protect those profits now with a trailing stop. Remember, yesterday we said price can move faster than breadth. Those who were waiting for breadth to improve were looking at the wrong breadth. It doesn't take a sixth sense to see what is happening, but it is seldom crystal clear. Today was one of those momentum cycle dates repeatedly posted here over the last two weeks.

"Where to from here?" has got to be the question. Holiday and expiration seasonality says this congestion mode we have been in with deteriorating breadth has run its course temporarily. Surprisingly, the intermediate term system, ADHL, generated another SELL signal today. Remember, though, we said we could have a countertrend rally with price and breadth oscillators so oversold. It looked like the market was having a reality check up to a half hour before the close, when suddenly five more points were added to the OEX and the INDU closed above its 50 day moving average. If Friday's momentum is anything like Thursday's, then 9400 is history (not a forecast by the way). During the last hour to half hour "look ahead" measurements are taken and decisions are made to hold or fold. The ER99 is one example of what the tape said. We have been misled by this software before, so we are watching for a failure of the OEX at the regression channel line on the CODI and CONE charts, which use standard error bands. EquityCP is inching upward just like we want as the rally unfolds. Then, we want to see it peak and drop a few tenths of a point as the stochastic momentum peaks. That is where we would like to enter puts. The calls will be history before that point. Hopefully, the Sentiment indicator will also be above 0.4 at the same time. Then we will have another dynamite trade on the books.

Here are the charts:{Note no XAU trade since the short term sell at 68}

CONE ID CHART. DSP9H CHART. EASY MOV CHART. INDU FIBRET CHART. JBOC OEX CHART. MCOSC CHART. MOONTIDE CHART. MOSS CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEXPF CHART. RSISTO CHART. SUPERT CHART.

To quote from the MomentumCycles commentary for the open of Friday, February 12, 1999:

"As a market timer and option trader, it is easy to get sucked up in the enthusiasm of a momentum run when you bought an OEYBA call option at 13 one day and it runs up to 26 the next day. In fact, it is a constant battle to fight getting enthused to the point that objectivity suffers. The "man" says to trade what you see moving, and avoid the news and read the tape. The tape was indeed kind today, handing us all a very nice valentine gift... that is, of course, if you believed yesterday's commentary and acted on it. As always with a 100% gainer, you want to protect those profits now with a trailing stop. Remember, yesterday we said price can move faster than breadth. Those who were waiting for breadth to improve were looking at the wrong breadth. It doesn't take a sixth sense to see what is happening, but it is seldom crystal clear. Today was one of those momentum cycle dates repeatedly posted here over the last two weeks."