MomentumCycles

Momentum Cycles Update for the open of Thursday, March 12, 1998:

More nonconfirmations of new DJIA highs that should within 3 days at the most bring at least a tag of the 21 day moving average.Many charts which are seen in the NDX index look like retracement rallies shorter term.Charts such as INTEL and DELL look distributive here{they are selling the rally}.The long term MICROSOFT chart looks somewhat toppy here also.Copper, on the other hand, after a pullback here to a higher low,is starting to look longer term bullish.

Breadth:

Please take a look at the NYA chart. There are several points of interest there. One is the rising wedge and the trend change as the NYA exited the point of the wedge. The other important relationship is the decline in Advances(@NA) and the rise in Declines(@ND) since last Friday 3/6. Next, take a look at the McOsc issue chart and note that the oscillator is stuck in the "neutral zone". Not quite so obvious is that the oscillator has crossed the zero line three times in this week long rally, up, down, up as breadth cannot establish a firm direction. The fourth crossing is the dramatic one and in this case it would be a downward crossing as price corrects. Sustained movement in price is going to need the aid of the underlying issues and volume. The combination of the NYA and the McOsc chart indicate that a trend change is at hand, sideways or down. CODI is back in sell alert region and the price action represented by the squat candle is "terminous" in nature.

Volatility:

Z Timer extended further into the overbought zone. Z Timer is a derivation of price and volatility.

RSI, SMI:

It looks like the SPX RSI and SMI are making a last gasp stab at overboughtness as the pros get short and the public gets long. Caveat Emptor.

Fibonacci Zones:

Upper weekly Fib resistance is restraining the DJI, SPX, OEX. TYX has reached weekly fib support and is 40% on the above RSI chart(potential reversal area back to 6%). XAU is still in an uptrend. Now if the players buy the gold stocks on a pullback to the uptrend line as they have been doing the big cap equities, then the XAU is in for another boost in a day or two. NDX is still in a downtrend after running into the weekly balance(red dash line) and retreating. If the NDX is entering a bear trend, then it will be sold again off of the green stair step.

Stocks of Interest:

Both CMR and ASTN had some selling today down to the lower edges of their recent breakout points.You will note the rollover in the phase indicator and va% on the two following charts preceded the profit taking.Continued rising volume on rising prices are necessary to move to 1.65-1.85 on CMR{selling presently occurs at 1.65 and above} and 3.00-3.50 on ASTN.Both issues are within months of generating cash flow and/or likely to announce good news, such as positive drill results{CMR} or a successful implementation of the new electronic trading system{ASTN}.Both have the potential for value{ many times the current share price} in a longer time horizon. CMR ASTN

Pivots:

Wednesday is considered an NR4 or the narrowest day of the last four in the DJI, SPX, OEX. This is represented by a narrow range set of support and resistance lines for Thursday. What this means, is the market is set up for a gonzo Thursday and or Friday. Add the upcoming cycle convergence and Friday is guaranteed to be full of excitement. NDX

Momentum Cycles Update for the open of Friday, March 13, 1998:

Foreign markets have an upside bias late Thursday p.m. as this is written,setting up for what may be a spike into what is normally a seasonal high that occurs about March 13.We are still looking for another test of at least the 21 day moving average, which was almost tagged Thursday intraday.

Breadth:

Divergence between NYA breadth and the NYA index continues. McOsc volume has rolled over and the issue oscillator is flat. CODIs are both in Sell Alert Area. OEX is struggling to stay above its trendline.

Volatility:

Z Timer has risen to the Extremely Overbought zone again just as the new Modified Volatility Index is about to cross its lower band. Note that it doesn't have to cross the band. All it needs to do it pivot upward in the vicinity of its lower band for a sell. It is within a few days of generating a sell that could amount to as much as 30.00 points down on the OEX. This sell could come as early as Friday, Monday, Tuesday. Granted it might not come at all. Conditions are ripe for a sell within 3 trading days.

RSI, SMI:

Yield RSI is nearing the oversold line. Also it is nearing the lower side of an upward sloping channel on the TYX chart. SPX RSI, SMI appears to be making its last gasp breath. XAU.

Fibonacci Zones:

DJIA - sandwiched between the two upper Fib zones with overbought ratio osc.
NDX - closed right on the weekly balance line and ratio osc is turning up. Short big caps, buy the NDX.
OEX - working the upper weekly Fib zones. Ratio osc is overbought.
SPX - tagging the uppermost weekly Fib zone. Ratio osc is overbought.
TYX - closed on lower weekly Fib support. Ratio osc hitting oversold.
XAU - daily up trend is being challenged. Ratio osc turned down from overbought.

Stocks of Interest:

CMR testing the lower regions of the recent breakout on relatively low volume.Higher volume will be needed to punch through the 1.64 area,and another basing period may be necessary.Much attention was given to Canmine at a recent investor's show by visiting geologists highly interested in drilling samples from the claims north of the present Thompson belt.The similarity of samples to those found in presently producing deposits in Thompson is striking.ASTNalso testing the lower area of the recent breakout.ASTN's president is looking for full implementation of VWAP in the Philadelphia exchange by about April 15.ASTN gets a commission on every transaction done with the VWAP system.This issue may require another basing period as well.

Pivots:

Closes are near the keylines and R&S lines are stepped up a few points. The gonzo move anticipated on Thursday did not happen. Traders were on strike awaiting the PPI on Friday. Or were they? Perhaps no one wants to be the last one to buy the top and no one wants to be the one to bring the fairy tale to an end by triggering the stop losses. PPI reports are usually good for a a wild gyration unless it is way beyond expectations, which would then be trend inducing for the indexes. Thursday did close with a strong premium of the futures to the cash. Will be interesting to see how this works out in the morning. Buying the Friday close(pre expiration week) might not work this time. Just when everyone gets clued into a technique, it backfires, just like cliches that become popular.
DJI NDX OEX SPX

This cumulative volume chart shows we may be running out of steam to the upside here.

Post 1:15 pm

To quote from the Momentum Cycles Update for the open of Friday, March 13, 1998:

Foreign markets have an upside bias late Thursday p.m. as this is written,setting up for what may be a spike into what is normally a seasonal high that occurs about March 13.We are still looking for another test of at least the 21 day moving average, which was almost tagged Thursday intraday.

Momentum Cycles Update for the open of Monday, March 15, 1998:

Our call for a tag of the 21 day moving average was almost realized on the DJIA,which was much weaker than the general market Friday after the early a.m. spike high.NDX performed well versus the DJIA, which was our projection Thursday p.m.There is a torrent of cash still coming into mutual funds,which makes a straight down decline difficult.We were looking for weakness late last week and the start of this week.So far in this late winter rally, prices have found support near the 21 day moving average, after which they oscillate between there and the upper 3.5% trading band.

In recent years, quick declines sometimes, but not always, occur after multiple readings of the option premium ratio in the range of .83 to .85.The last 3 readings of the ratio were .83, .87, .85.

For longer term investors, the natural resources area has been a poor place to try for outsized returns.When companies can purchase these resources,including infrastructure,much more cheaply on stock exchanges than they can discover and develop them on their own,these issues begin to attract attention due to extreme undervaluation.Witness the recent purchase of ALUMAX by ALCOA,and AVENOR by BOWATER.We expect this trend to continue, especially for target companies in this area trading at or under book value.Cheap assets in any sector are accumulated by the big money- witness Buffet's purchase of silver at 4-5$, where it was trading at 3.5X 1926 prices.You may wish to read Buffet's recent analysis of value at this link.

Breadth:

For a change of pace in the breadth indicators let's take a look at the Split Volume Moving Average.(SVMA). SVMA is the equalent to a moving average of On-Balance Volume. Nonconfirmations between price movements and movements of the SVMA provide direction clues for price by noting the direction of the SVMA. Also, when the SVMA moves from positive to negative, it is considered a sell signal and vice versa. Late February and March have seen the divergence setup and the zero crossing is easily within reach next week. NYA chart shows the continued intraday breadth narrowing and divergence as price drifts with indecisive direction after having left the wedge. McOsc issue and volume add to the noncomfirmation picture. CODI made a Sell pivot in the Sell Alert Region on Friday.

Volatility:

Z Timer made a sell pivot in the extremely overbought zone. Not to be left out, the MVI made a sell pivot at the end of a long series of decreasing momentum bars(red) on the OEX. The Japanese fiscal year ends March 31st. Booking profits before 3/31 in T bonds and equities can have a volatile and sometimes detrimental affect on our markets. We should expect to see increased volatility next week due to the Triple witch expiration on 3/20.

RSI, SMI:

See charts.

Fibonacci Zones:

DJIA - closed below the daily stoploss(red stair step) and starts the week below the weekly balance line(red dashes). It would seem that at least a retest of the 8450 level is in the cards to confirm the fortitude of European and US public "buy the dip" mentality. Remember, the majority are wrong at the major turning points, and correct in the trends. With the CBOE equity put to call ratio running at twice as many calls as puts for some time now, and the above illustrated divergences, a top of significance appears to be forming. New Highs peaked last week over 300 and are now off over 10%.
NDX - was stronger on Friday and starts the week with its Ratio oscillator pointing up.
OEX - starts the week in an overbought state.
SPX - also starts the week overbought and the Ratio oscillator breaking down.
TYX - T Bond yields bounced off the lower side of the upward sloping channel in concert with the CRB.
XAU - is working its way higher.
Stocks of Interest:

CMRfound support again near 1.45-1.55 and closed at 1.59.Pre-opening asks seem small in the 1.60 area. ASTNfound support near 2.75 again.Resistance is at 3,then 3.25-3.50.The SEC final examination of the working VWAP system is to take place at the Philadelphia exchange this week.

Pivot Zones for 3/16:

DJIA starts the week off below the key line with S3 support at 8454 (note, this matches the above Fibonacci weekly support). The rest of the equity indexes also start the week off below the keyline. NDX, OEX, SPX.

Momentum Cycles Cones:

Starts next week with the Projection Oscillator in overbought and pointing down on Friday. The OEX candlestick pattern is one of a trend termination. The green implied volatility cones represent a +,- 0.5 standard deviation movement from Friday's close. The red cones are +,- 1 std dev. The grey cone is +,- 2 std dev range. The majority of days have price confined to the green cones. Strong days see price reach the red cones. "Crash" type days see price extending to the grey cone.

Momentum Cycles Update for the open of Tuesday, March 17, 1998:

Can we call the DJIA our version of the palladium market?The hot metal being run into the stratosphere these days,slaughtering the shorts, is palladium,on news the Russians are not committing to expected firm delivery dates.Speculators buy at any price, knowing it will be higher tomorrow,and run some more buy stops in scared shorts.New highs, and especially all time highs,in any market make it difficult to pick a shorting or exit price.

The transports {up 2.12% today}are a mirror inversion of the action in oil,which was last this low in November of 1988.CRB looks like a retest of the 52 week low near 221 {presently 224.60}or of the August 1992 low near 198.17, is in the works.

Long term value players are nibbling at the smaller oils, some of which are at 25%of their recent highs.Trend followers buy the transports hoping for 12$ /barrel oil.

The only energy long play that has worked recently{we mentioned it here at lower prices} has been natural gas, on cold weather concerns.We'd take long profits in that presently,as it's probably temporary.The cold, wet spring may however be setting up for a grain bull later in the year, if the weather continues.Let's keep an eye on that.S and P's don't like screaming beans.

Pressure towards the end of the quarter to be fully invested by mutual funds could run us up to the next pitch level of 8900.The rally is very overextended in time,and the internals{see below}are not as strong as index price.If the squeeze to be invested becomes overwhelming,the action after the last day of March may be very interesting.

Very adventuresome traders may wish to place a small contrarian bet on OEX April 495 puts Tuesday,exiting on any intraday downtick in the region of -1000 or so,using LESS than half of the initial position as risk. Expiration week can have wild swings,which do not have to all be in the direction of the primary trend.

Breadth:

NYA advances were indisputably stronger than declines on Monday. In spite of that the McOsc issues remains in neutral zone and is not following or leading the index upward. This is price momentum at its purest. CODI moved back into the sell alert region. Thirty minute and sixty minute charts are presented of intraday cumulative net issues and volume. Cumulative net issues are more sensitive than the cumvolume and tend to lead changes in price trend and cumvolume trend. Cumvolume trend tends to lead changes in price trend. The situation as of the close on Monday is one of a weakening cumulative issue indicator. If the deterioration continues then cumvolume should soon follow and then price trend, but as of Monday close the trend is still up. CODI's adaptive(yellow) and combo(cyan) trendlines are still up also.

Volatility:

Z Timer is still overbought and can stay there as price trends upward. MVI backed off somewhat from the center line.

RSI, SMI:

XAU - back to 50% RSI level where prices sometimes reverse
TYX - back to RSI oversold level
SPX - back to RSI overbought level

Fibonacci Zones:

DJIA, OEX, SPX, NDX closed Monday in or near the upper weekly fib resistance zones with ratio oscillators overbought. XAU is challenging the daily uptrend by closing on the red stair step. TYX closed on the lower weekly fib support zone. Kind of interesting how all these are set up at extreme levels where reversals have a higher probability of occurring.

Stocks of Interest:

CMR is retesting the 1.45-1.50 level.Papers,mining and oils were all weak today.Notice the earlier tests of 1.64-1.70.That is where a lack of follow-through occurred.Now on light volume,a few determined buyers or sellers can have an outsized effect.This issue may need to rebase.So far, there is still demand at or above the breakout point. ASTN has buyers at 2.75 and sellers at 2.95.This issue, being related to eventual income derived from stock trading,has presently a higher VA% than CMR.

Pivot Zones:

All closes were above the respective keylines. Pivot zones have shifted upward a bit continuing the uptrend. Will 8700 be resistance once again? Who knows. This is a crazy market. WB says stocks are fairly valued. A major brokerage firm's economic model says the S&P 500 should be in the 900's to be fairly valued when considering interest rates and earnings outlook. Not one talking head on the business channel sees inflation in view. How about the inflation in stock prices? As with any commodity when too much money chases too few goods, prices rise. It is that simple. The difference here is the demand psychology for stocks can change in a few downward ticks of the DJIA and masses of wealth can disappear faster than it was created. Newbies will ask "where did all the money go and how can it happen?"
DJI NDX OEX SPX

Momentum Cycles Cones:

Today saw a + one std dev move in the OEX after a laxluster Friday. The Projection Oscillator closed on the Overbought line at +80. Expiration weeks are seldom a one way affair. Sometimes, not always, the pre expiration week has the opposite bias of expiration week, implying that this week might be a down one, granted -it isn't starting out that way.

Buying the Friday close of pre-ex week,and selling into strength in the beginning of ex week worked once again. Risk just seemed to be too high to take on that trade for us this time as individuals, but readers here who are disciplined mechanical traders could have done well with a long 5 point day trade move in the OEX from the pre-ex Friday weakness near the close till Monday's exit into closing strength.

Momentum Cycles Update for the open of Wednesday, March 18, 1998:

We are holding a small April OEX 495 put position with an average entry between 4.35-4.60, with a maximum stop loss of 1.50 from the entry price.Exit should be done at an intraday tick of near -1000.Please read additional comments below on this position.

CRB fell as predicted,closing at 223.72,close to testing the yearly lows at 221.56, and possibly the January 91 220.00 area,and the 12 year low of August 92 at 198.17.CRB action is still bearish.This index,and even oil and grains{not neccessarily at the same time} will someday turn and slice through resistance levels as the DJIA is presently.We guarantee they won't go to zero !

Palladium, the hot metal recently, fell in concert with silver's break under 6$, which touched off a lot of stop losses once price tagged 5.99.The Russians have not yet signed the palladium delivery contracts with the Japanese, which gives the palladium retracement the likely status of weakness within a continuing bull trend{at least until those contracts are signed}.

Oil tagged 12.80 today, nearing the 1988 low of 12.28.Venezuela is attempting to get non-Opec producers to cut supply in exchange for quotas from Opec nations.If they can get an agreement, or appear to be nearing one prior to the March 30 Opec meeting,oil may firm prior to the meeting.

Readers who were long natural gas took profits today on a slight pullback.

Weather patterns still support a possible grain move later this year.

Breadth:

TICK spent most of the day below zero until the final hour. Call it a consolidation or distribution day depending on your overall view. McOsc issues and volume are still rolling over even though the OEX was pulled up on the close. That is part of the smoke screen that is played out daily. CODI made another sell pivot in the Sell alert zone, but as we can see the index refuses to be attached to the CODI signal and remains above its trend lines. Early in the day the cumulative issue and volume indicators went on a sell mode(cumIV2). Then later in the afternoon after the completion of a cup and handle formation the cumissue, cumvolume and OEX began a rally mode. This would be expected to continue into Wednesday morning at least with more selling at higher fib zone levels. Thus any nibbles at the April puts are now in question until further breadth deterioration on the longer term cumIV chart or at least should only be done on rallies into resistance(MCcone and upper Fib levels). In addition, a $1.50 stop loss on the option should be used.

Volatility:

Average volatility for Tuesday picked up marginally. The MVI may make another trip to the lower band if the late day rally continues on Wednesday. Z Timer is overbought. Serious selling might just not come into the market untill the Roth and IRA money has been placed.

RSI, SMI:

RSI - SPX looks maxed out, XAU looks topped out, TYX looks bottomed out. SMI - similar view as RSI

Fibonacci Zones:

DJIA, SPX, OEX - working the upper fib resistance
TYX - bounced off lower fib support and Ratio oscillator is turning up
XAU - working down towards lower fib support

Stocks of Interest:

CMRon decreasing volume, testing support in the 1.45-1.50 area.Asks in the 1.60-1.75 area appear to be drying up.One determined buyer could easily take price to 1.75-2.00.Mining issues are suffering from the "one size fits all" view of commodity related issues, some of which are trading at 1/2 book. ASTNnarrowing in range-support near 2.75, resistance at 3.00.

Momentum Cycles Cones:

Tuesday's OEX low tagged the dotted green line which classifies this as an average day. The day ended with the projection oscillator above +80, which is overbought, but it might just be saying the OEX is ready to resume its uptrend after a one day pause. Consolidation resulted in higher index prices and improving issue and volume breadth at the final bell, so the guess for Wednesday is higher prices once again.

Pivots:

A close above the keyline on Tuesday and an open above the keyline for Wednesday describes the pivot status for the DJIA, OEX, SPX. Their support and resistance levels are shifted up a bit also. The NDX is another story. It had a close below its keyline and is anticipated to open below it tomorrow. The NDX support levels are offset to the down side. Where these indexes find resistance depends a lot on what the TYX does the next few days.

It is coming off its lower fib support levels on top of the strongest housing starts number since 1987!! Low mortgage rates and good weather contributed to this record number.