MomentumCycles

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

Traders who bought the pre-ex Friday close long OEX monthly seasonal trade in spite of the mixed signals last week had a good Monday,up 7.21 points.The weekend commentary pointed out the mixed nature of the two option related indicators we had examined,as the option premium ratio of .83 from Friday's trading had very often in the past lead to short,sharp declines within two days,but the equity call/put volume ratio was clearly at basing levels.Tuesday's closing tick of +621 would normally lead to a correction within a day or so,but in this fevered environment,any price retracement seems to be met by "buy the dippers".Equity call/put Monday ratio was at median levels.

Those readers presently long the pre-ex Friday OEX seasonal call trade could use a trailing profit stop to protect their position.A 1.50 trailing profit stop has been suggested here in the past for readers.

Our call for the short term sell on the XAU at the upper 3.5% band of price Tuesday last week worked out quite well, as this Monday brought the third consecutive XAU close at the low of the day,to tag the lower 3.5% band of price at 61.40.STOCHASTIC 5 is at 25,not quite short term completely oversold,and STOCHASTIC 20 at 50,at neutral.The XAU option used as an example ,XAUDM , lost 19.35% on the day,as 3 7/8 was the previous close,Monday saw 3 1/8 as the close, and 3 is asked for Tuesday.In retrospect,taking long profits last Tuesday near the open of 35-45% on this option should have been followed by a reversal {short trade}.Readers could have thus had a total double on the 2 trades.However,we felt longer term the XAU was too oversold to risk shorting near the low 60's, where rallies for over a year have often started.

30 year T bonds again saw yield support near 5.5% {actual low 54.94,close 55.05}.Its now time to see if the spike to 5.719% was an aberration in the longer term trend, or if the lows in yields October-January were the lows for this cycle.We successfully caught the spike in yields to the top,and reversal,by using the buy signal in Fannie Mae to call the exact day.We also pointed out the recent significance of 5.5%.Until the market now makes a clear signal about 5.5% {support or resistance},we will stand aside from a short term bond position.Traders who have been using the 5.5% area as yield support for day trades should stand aside,as there is now risk of yield violation of what was previous resistance,before the recent spike to 5.719% called the longer term bond trend into question.Strong yield momentum below the pyschologically important 5.5% level will give bond bulls renewed heart.

To quote from the MomentumCycles commentary for the open of Tuesday,March 16,1999:

"Traders who bought the pre-ex Friday close long OEX monthly seasonal trade in spite of the mixed signals last week had a good Monday,up 7.21 points.The weekend commentary pointed out the mixed nature of the two option related indicators we had examined,as the option premium ratio of .83 from Friday's trading had very often in the past lead to short,sharp declines within two days,but the equity call/put volume ratio was clearly at basing levels.Tuesday's closing tick of +621 would normally lead to a correction within a day or so,but in this fevered environment,any price retracement seems to be met by "buy the dippers".Equity call/put Monday ratio was at median levels.

Those readers presently long the pre-ex Friday OEX seasonal call trade could use a trailing profit stop to protect their position.A 1.50 trailing profit stop has been suggested here in the past for readers.

Our call for the short term sell on the XAU at the upper 3.5% band of price Tuesday last week worked out quite well, as this Monday brought the third consecutive XAU close at the low of the day,to tag the lower 3.5% band of price at 61.40.STOCHASTIC 5 is at 25,not quite short term completely oversold,and STOCHASTIC 20 at 50,at neutral.The XAU option used as an example ,XAUDM , lost 19.35% on the day,as 3 7/8 was the previous close,Monday saw 3 1/8 as the close, and 3 is asked for Tuesday.In retrospect,taking long profits last Tuesday near the open of 35-45% on this option should have been followed by a reversal {short trade}.Readers could have thus had a total double on the 2 trades.However,we felt longer term the XAU was too oversold to risk shorting near the low 60's, where rallies for over a year have often started.

30 year T bonds again saw yield support near 5.5% {actual low 54.94,close 55.05}.Its now time to see if the spike to 5.719% was an aberration in the longer term trend, or if the lows in yields October-January were the lows for this cycle.We successfully caught the spike in yields to the top,and reversal,by using the buy signal in Fannie Mae to call the exact day.We also pointed out the recent significance of 5.5%.Until the market now makes a clear signal about 5.5% {support or resistance},we will stand aside from a short term bond position.Traders who have been using the 5.5% area as yield support for day trades should stand aside,as there is now risk of yield violation of what was previous resistance,before the recent spike to 5.719% called the longer term bond trend into question.Strong yield momentum below the pyschologically important 5.5% level will give bond bulls renewed heart."

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

We warned traders the 30 year T bond price short at the 5.5% yield level,which has been the short term trade of choice once the 5.5% yield level was penetrated to the upside,was about to end if yields violated the 5.5% level to the downside.We warned Monday p.m.that bond bulls would take heart once this yield level was broken.Notice the bond bears' last stance at 5.5% Tuesday at 10 a.m.,and how that the "magic" 5.5%,once broken,implied a big intraday rally to run in the bond shorts,as discussed Monday p.m..

Those traders who bought the pre-ex Friday close seasonal long OEX trade were able,if they wished, to close that out near Tuesday's open at about 656.5,which would have been a trailing 1.50 profit stop above the high that occurred near the open at 658{see yesterday's commentary on trailing profit stops,above}.Friday's close was 647,so the pre-ex seasonal trade ,if closed Tuesday,would have netted almost 10 OEX points.

The ideal OEX short occurs with overbought price oscillators and EquityCP and Sentiment indicators that reflect peaking optimism. By now everyone who cares to listen has heard the frequent references to price and breadth divergences and valuation levels that speak in favor of a significant correction. Perhaps it won't come until or after this Friday's expiration. ADHL refuses to go into Buy mode, McOsc and STIX are rolling over, EquityCP and Sentiment indicators are closer to the trigger point. Wednesdays tend to have a positive bias, so put afficionados should wait a bit longer.

XAUDM,our sample option on the XAU, lost another 12%,as expected from the sell still in force which was given near the upper 3.5% band of price last Tuesday,a week ago.Tuesday XAU gave a short term buy reversal at the 59.57 level,with Stochastic 5 at 19,and 21 day intraday volume % at an oversold -21%.Extreme oversold is -25%.We would lightly buy at 59.5 on the index or so with a stop,perhaps XAUDL at 4 3/4 or better,with a .75 stop loss.

CODI is having a flirtation with the Sell Alert level.

Here are the charts we examine nightly:

AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. INDU CHART. NYA CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEYCK CHART. OEYOK CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. XAU CHART.

To quote from MomentumCycles commentary for the open of Wednesday, March 17, 1999:

"XAUDM,our sample option on the XAU, lost another 12%,as expected from the sell still in force which was given near the upper 3.5% band of price last Tuesday,a week ago.Tuesday XAU gave a short term buy reversal at the 59.57 level,with Stochastic 5 at 19,and 21 day intraday volume % at an oversold -21%.Extreme oversold is -25%.We would lightly buy at 59.5 on the index or so with a stop,perhaps XAUDL at 4 3/4 or better,with a .75 stop loss."

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

XAUDL entrance was unfortunately not possible at 4 3/4 or better{see above} since the open was 5 1/8, the low was 5 1/8 ,and the close was 5 3/8.Most of the XAU components were up Wednesday.We had a plus 40% gain on the last long XAU trade,closed right at the top of the upper 3.5% band.We are only at the 21 day moving average presently.On the previous trade we looked for an intraday tag of the upper 3.5% band as the point to take profits.We could try again at 5 with a .75 stop.

The "magic 5.5%" level has been an attractor from below, as well as above,for 30 year T bonds recently.Short term T bond traders were warned not to short bonds 2 days ago at the 5.5% yield level,as a marginal penetration of that level was hinting that a "run the shorts in"operation was about to occur.Oscillation about the 5.5% yield level REQUIRED that the short covering rally that ended Wednesday at the 5.439% yield level be attracted back to that magic 5.5% level magnetically at the close {55.02%}.This is a market that has not yet decided whether 5.5% is support or resistance.Let's stand aside for now.Last bond call for the decline in price during the yield rise from 5.5% to 5.719%,and the FNM/ bond price rally and reversal from that level back to under 5.5% was exact.Traders are presently in too much danger of whipsaw/reversals,see TYX CHART.A rate rise from here that goes back to revisit the 5.719% area,in concert with more nonconfirmations at the upper band above DJIA theoretical 10000 would be perfect for setting up an OEX index short term top.

There is a lot of talk these days about nonconfirmations of price by breadth measures. CNBC had two of the "great" ones as guests today, Joe Granville of on balance volume fame and Richard Arms of equivolume charting and creator of the Arms or Trin index. By all technical and fundamental measures this market should be heading south, yet it essentially ignored both prognosticators and moved partly in sync with its closest relative, the bond market. As we saw today with the intraday hotline trade OEYCJ trade, it is possible to make 40% plus gains on the Call side even with a bearish view.That is why we pay so much attention to Fib and pivot charts.The intraday buy was 5 and the sell/profit stop was 8. The intraday view of the OEYCJ also illustrates how quickly an expiring option can change direction when the OEX is moving against it. At the money expiring options have a disproportionate amount of time value that evaporates with the intraday gyrations of the S and P premium. Basically this turns them into daytrading vehicles with high deltas. Position trades should be done with the next month and daytrades with the expiring month if you are in front of live quotes all day. EquityCP and Sentiment have pulled back from what we hoped would develope into a great setup for a put trade, but it looks like we will have to wait a bit longer as the expiration unwinds.

The Historical and Implied volatility chart seems to be following its seasonal tendency to rally into the spring. Three of the most influential forces are still at play. One is the end of the Japanese fiscal year on 3/31. Another is the end of quarter window dressing. A third is the IRA and tax reporting deadline in mid-April. We might just not get a sustained decline until after this period. The NHNL chart shows just how different the beginning of 1999 is from the beginning of 1998. In early 1998 the new highs expanded with a rising market. In 1999 the new highs are flat with the new lows as the SPX makes new highs. Also, the On Balance Volume divergence on the INDU chart reflects Granville's concern. The McOsc is rolling over and can diverge for a lengthy time, since tops are rounded and we might have to wait until MCOSC passes through zero before things get really exciting. On a shorter term basis we have the OEX Cone Projection oscillator dipping into oversold territory along with the AMOSS hitting dead center neutral. One of the failings of oscillators is their propensity to change zones with sideways movement or consolidation of price. On an intermediate term view the ADHL situation is turning more negative as CODI hangs out on the Sell Alert line. Our bias is to be prepared for a Put trade, but more immediately we have to go where price and cumulative volume take us intraday in a choppy expiration week.

Thursday we will be looking for NYA support near NYA 603.19 for a long entry going into Friday. Both the OEX March and April at the money calls will be used for the trade. We are looking for broad support in the NYA with cumulative volume supporting the move. It may not occur, but that is the criteria for this trade. The March call will be a Thursday day trade posted on the email update if it in fact materializes. We may repeat the process for a Friday daytrade. April calls may be used for a position trade.In the past,we have suggested a 1.50 stop loss from the entry price for correct money management,and/or a 1.50 trailing profit stop from the high price achieved for an exit strategy.

It should go without saying that daytrading with two days remaining is the second to highest risk venture with options that you can engage in. There is the possibility of total loss or substantial loss if the market moves adversly to the position. There may not be enough time remaining to recover the loss. The highest risk venture is selling naked options, which is left to those who can fund the margin requirements. Conservative types should use April options and forget about March at this point. It is also adviseable that you have realtime Opra and realtime indices when trading in this fashion.

Here are the charts we examine nightly:

CYCLE CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEXPF CHART. OEXSR CHART. OEYOJ CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. XAU CHART.

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

30 year T bond again found yield resistance at exactly 5.5%.Above this yield,5.5% was support;the past few days since 5.5% was violated,it has become resistance.

XAUDL entrance suggested was 5;not achieved.Today saw 5 1/4 low,5 1/2 high,4 7/8 bid.Recent XAU index action is showing what appears to be STOCHASTIC 20 nonconfirmations of each successive low near the 61 area;that is,the price seems to have signs of accumulation at the recent lows.Suggested for XAUDL was 5 with a .75 stop loss.

We have a "hit" date with 10 day DJIA rate of change analysis on March 19.This can be a short term top and reverse,or continuity rally pattern.

RSI 20 DJIA nonconfirmations and 5 day rate of change suggest possible short term topping action.

The plan for Thursday was to go long into expiration with March and April calls providing the NYA found support and had confirmation with the Moontide (cumulative volume). Hourly moontide was up continuously all day. The luxury of a pullback for a better entry did not occur. In fact, a rally on the open appeared to provide a short scalp with the March and April puts. Unfortunately the email system went down and the put exit and the call long entry could not be broadcast. So be it. A 1.5 stop was advised in the previous commentary as a safety device. So, tonight we have the "woulda coulda shoulda" charts with the 650 puts and calls. The long strategy laid out was not based on fundamentals or even technicals due to overvaluations and bearish technicals, rather it was based on the dynamics of expiration. Lately the pros have been strategically placing their bets on the high momentum periods to utilize the price and time leverage that exists. Expiration provides the most leverage with high delta and gamma options and minimum margin on futures. Thus, a little buying in a handful of stocks will leverage an options or futures position many times over. Notice the buying that came in on the close on the TICK chart after the TICK remained below zero all day. There is no doubt it had something to do with the SPX settlement on the open Friday. There is a rationale that drives stocks and indices to nearby strikes. Neither the Equity CP nor the Sentiment chart has a strong bias- bullish or bearish. Thus the implied and historical volatility implicatons of the Volatility chart from yesterday appear on track for higher prices into the spring. Stochastic Momentum says price is trending in overbought. History says the eventual resolution is to the downside when breadth technicals are weak as they are. But, as has been stated here before, we may have to wait until the three big influences have passed, end of Japanese fiscal year on 3/31, end of quarter window dressing by institutions, and IRA funding in mid April. We have also seen that divergences can carry on for weeks and months. In the end it is price we trade and not breadth.That is not to preclude the possibility of price retracement after expiration games are over.

Here are the charts we examine nightly:

ADHL CHART. AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. FIBRET CHART. INDU CHART. MCOSC CHART. OEX FIB CHART. OEYCJ CHART. OEYDJ CHART. OEYOK CHART. OEYPK CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. SUPRES CHART. XAU CHART.

MomentumCycles commentary for the open of Monday, March 22, 1999:

Another expiration has come and gone. Did we learn anything? The most obvious lesson should be that the OEX may close down hard, contrary to the probability of closing up. The action was fast and hard. MomentumCycles was long calls going into Friday and was stopped out with decent gains on the March and April 650, soon after the SPX settlement on the opening round.Opening pop Friday expiration action and a trailing profit stop or 1.50 trailing stop was clearly discussed Wednesday and Thursday. Moontide had a rather clear picture of the trend the rest of the day and insisted that rally attempts were shorting or put buying opportunities. This information is of course instructive in nature rather than belated trading advice for subscribers. We know the index can diverge from breadth, but eventually they get in sync, and when breadth is the weaker one, its direction determines the resolution. This is evidenced by the Moontide Volume and the OEYOK and OEYPK March and April Puts. Note that the strikes in play were one strike in the money to increase the odds of success. Whereas the 650 March puts expired worthless, the 655P OEYOK made some decent coins. This DOW 10K does look like a top for the time being. The INDU Equivolume chart shows the massive distribution of volume Thursday afternoon as the 10K barrier was tested. Thursday and Friday both had the classic distribution TICK pattern of sell the Zero tick and buy the -600 tick, that is, until the distribution was finished and the pros no longer needed to buy the -600 tick. That is when the floor fell out from under the 10K marathon. All the breadth weakness reiterated here in the past still holds true today. One new chart is the overlay of 5 day advancing volume and 5 day declining volume. If you look at this chart carefully and note what happens to the OEX whenever these two lines cross, you will see that we are one day away from what could be a decent sell signal. In fact, as the 5 day advancing volume peaks and turns down it warrants some concern about a topping formation. When the declining volume exceeds the advancing volume puts or short futures are the instruments of choice. The McOsc and STIX continue to roll over with trendline breaks. It would not be too surprising to see the McOsc drop through zero in full fledged sell mode next week. The ADHL intermediate system has remained short or in cash throughout this price breadth divergence. Our Change of Direction Indicator, CODI, is just coming off of the Sell Alert line. We have had several days of warning here.

We had tried to pick off the XAUDL at 5 or better,and Friday saw intraday 4 7/8 and 5.XAU is compressing at lower and lower tops{see charts below}and has intersected the first level of declining resistance.It is possible natural resource issues may show some strength prior to OPEC's Tuesday's meeting,at which point oil longs will probably sell the news{if not prior!}regardless of what action OPEC takes.We have listed XAUDL as 5 1/8 bid,5 5/8 asked,which is at least a good sign into Monday.Use a .75 stop loss from the entry of 4 7/8 or 5.

Here are the charts we examine nightly:

5 DAY ADVANCING AND DECLINING VOLUME CHART. AMOSS CHART. CONE CHART. CYCLE CHART. EQUITYCP CHART. FIBRET CHART. INDU CHART. NHNL CHART. NYA CHART. OEX FIB CHART. PITCHFORK CHART. RSISTO CHART. SENTIMENT CHART. SUPERT CHART. SUPPORT AND RESISTANCE CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.