MomentumCycles

MomentumCycles commentary for the open of Tuesday, March 23, 1999:

Monday was one of the narrowest range days in quite awhile. There is an expression for that, "Calm before the storm". Others have codified it as NR4 or NR7 for narrow range days. Logic has it that large range days follow narrow range days making breakout entry systems a useful tool for futures and option types. Breadth has been deteriorating to the point that the McOsc is 9 points away from dropping through zero, triggering a sell signal. In strong uptrends a tag of zero is a buy point where the uptrend resumes. Price has been in a strong uptrend but that also generates profits that need to be booked before the end of the quarter. Let's not forget that positive seasonality can start as early as 3 to 5 trading days before the end of the month. The end of quarter window dressing sequence should be sell first and buy later, i.e. sell the next few days and buy into the end of the month. What MomentumCycles would like to see is another day or two of dumping the losers, building cash, and then a reallocation of that cash into stocks that solidly drive the DOW over 10K into early April. So we are looking for an oversold condition this week in order to enter into a call position trade of say, a weeks duration.

Supporting this scenario is the 10 day rate of change time series analysis that called for a short term change,likely a top due to the overbought technicals and non-confirmations,on March 19,discussed last week,and Monday's continuing series of price nonconfirmations of the intraday rally.3 day cumulative breadth also turned down Monday.

Our call for a rally off the 69.5 area for interest sensitive Fannie Mae;then selling the rally near 72,and the subsequent decline worked quite well.FNM closed at 67 11/16 Monday,now oversold on a short term basis.

The recent XAU long trade into commodity/oil/XAU strength prior to Tuesday's OPEC meeting went as planned until the double failure of XAU at 63.57 Monday a.m.We e-mailed readers to try to get 5 1/2 or better for the XAUDL option bought earlier at 4 7/8 to 5.Unfortunately 5 1/4 was the price after the morning high of 5 5/8.We hope for a spike tommorrow to exit into -- 5 1/4 or so.This XAU rally seems to be failing at the 21 day moving average,so a trip back to the lower 3.5% band is possible here.Stop loss at 4 7/8.

Here are the charts we examine nightly:

5 DAY ADVANCING and DECLINING VOLUME CHART. ADHL CHART. AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. FIBRET CHART. INDU CHART. NYA CHART. OEX FIB CHART. PITCHFORK CHART. CHART. SUPERT CHART. SUPPORT AND RESISTANCE CHART. XAU CHART.

To quote from the MomentumCycles commentary for the open of Tuesday, March 23, 1999:

"Monday was one of the narrowest range days in quite awhile. There is an expression for that, "Calm before the storm". Others have codified it as NR4 or NR7 for narrow range days. Logic has it that large range days follow narrow range days making breakout entry systems a useful tool for futures and option types. Breadth has been deteriorating to the point that the McOsc is 9 points away from dropping through zero, triggering a sell signal. In strong uptrends a tag of zero is a buy point where the uptrend resumes. Price has been in a strong uptrend but that also generates profits that need to be booked before the end of the quarter. Let's not forget that positive seasonality can start as early as 3 to 5 trading days before the end of the month. The end of quarter window dressing sequence should be sell first and buy later, i.e. sell the next few days and buy into the end of the month. What MomentumCycles would like to see is another day or two of dumping the losers, building cash, and then a reallocation of that cash into stocks that solidly drive the DOW over 10K into early April. So we are looking for an oversold condition this week in order to enter into a call position trade of say, a weeks duration.

Supporting this scenario is the 10 day rate of change time series analysis that called for a short term change,likely a top due to the overbought technicals and non-confirmations,on March 19,discussed last week,and Monday's continuing series of price nonconfirmations of the intraday rally.3 day cumulative breadth also turned down Monday.

Our call for a rally off the 69.5 area for interest sensitive Fannie Mae;then selling the rally near 72,and the subsequent decline worked quite well.FNM closed at 67 11/16 Monday,now oversold on a short term basis.

The recent XAU long trade into commodity/oil/XAU strength prior to Tuesday's OPEC meeting went as planned until the double failure of XAU at 63.57 Monday a.m.We e-mailed readers to try to get 5 1/2 or better for the XAUDL option bought earlier at 4 7/8 to 5.Unfortunately 5 1/4 was the price after the morning high of 5 5/8.We hope for a spike tommorrow to exit into -- 5 1/4 or so.This XAU rally seems to be failing at the 21 day moving average,so a trip back to the lower 3.5% band is possible here.Stop loss at 4 7/8."

MomentumCycles commentary for the open of Wednesday, March 24, 1999:

The 10 day rate of change time series analysis "hit date top" of the 19th was bang on{see above}.So as a result, call it "Reality Check Tuesday". Technicians don't need reasons,and some don't even want to hear reasons. The technical analysis of the past week said a bath like today was in the cards. CNBC even had a ten year permabear interviewed to proclaim the August 3, 1929 price - breadth divergence comparison to today. For those who need reasons, we offer the following: end of quarter, end of peace, end of bull, end of seasonality (in by Thanksgiving, out by Easter), end of Japanese fiscal year, and dividend yield/interest rate relationships.That some short call traders might have been liquidating stock assigned on Friday could be another possibility. The late comer AT&T bond sale shook up the T bond market temporarily (TYX chart). IBM was a bit timelier in its bond sales at 4.75% last fall. Half the gains from March 3 have been retraced. Tuesday was a rare day that occurs only 4.6% of the time or less, as depicted by the outermost cone on the OEX Cone chart. In bull markets, this cone acts as extreme support, but on Tuesday there was no sign of bounce at that level, as the Moontide kept going out. In bull markets, even the first red cone provides bounce for a quick trade, but not on Tuesday, even though it looked like the Moontide was going to cross above the hourly average, but that simply provided another resistance for another move down. This does reflect a change in the nature of the beast. MomentumCycles indicators and commentary have been "bearish" for some time now. CODI has been near the sell alert level, ADHL remained short, McOsc has been heading across zero, etc, you've read it before. We've been looking for a low to occur for a long trade into April and suggested we might have a few days of selling this week. The 5 day up volume/5 day down volume chart was pretty timely in this period. The INDU is now back to the 21 day moving average. Whatever the reasons, whatever the technicals, we are still looking for a technical low this week for a call trade into early April. This war thing may just delay the seasonality trade and make it all that more powerful. Then, too, maybe the selling will continue as taxpaying traders have to come up with cash to pay the IRS for their fun and games last year. The technicals should display the hand of the pit gods as the action unfolds.

We have added a few other charts and commentary tonight for added perspective. On the email update today, reference was made to a "Crash" type day where the OEX was tracking below the -2 standard deviation cone. The ConeID chart illustrates the -2 sentiment lasted the entire day. Cone for Tuesday illustrates the tag of the -2 near OEX 630. Cone for Wednesday shows the probability expectations for Wednesday where we expect a bounce up into Tuesday's range. A -2 stretch is like a rubber band that cannot be stretched much further without breaking, so it is a high risk situation, yet the odds are that two consecutive days do not end down -2 std based on implied volatility. The cone for Wednesday assures that probability with a wider aperture because of increased volatility. Also note that the Projection oscillator is now firmly in oversold territory. We had expected a few days of selling for many previously mentioned reasons, but there is an additional options expiration-related reason. There was such a run up last week that short call holders were left with a boatload of stock they had to unload. The Equivolume chart shows the wide red candle where a momentum low was put in on Terrible Tuesday. A number of the other charts have price projection value. For example the FibRet charts for OEX and SPX show a 2/3 retracement between the channel lines....another good reason for a bounce on Wednesday. So far, there is not much downside action in Globex. An email update was made to buy the OEYDG or OEYDH at the red cone selloff when Moontide was about to reverse. Still the options were blown out of proportion even at that level and did not suffer much further on the drop to the -2 cone. So, we may have to wait a bit for the 30 to 50% gains expected. RSISTO chart shows a market that is tagging oversold zones. Additionally important are the AMOSS and MOSS charts that have finally dropped into the zone area where we like to buy calls. You might want to watch VIX and TYX intraday for the sensitive clues to market direction. Now that the AT&T bonds have been sold, we might see a recovery in US T Bonds on Wednesday to help stabilize the equity markets. There was some concern today that a protracted European Kosovo conflict might require the US Treasury to issue bonds to fund such an event, thus driving yields higher. The unforseen event here is the USSR's reaction to the threatened Nato Strikes. They have expressed opposition to Nato's involvement. All we need to have happen to really tank this market is for a US satellite to spot a Russian missile silo open its door.

When the DOW moves 200 points, we get a lot of action on complacent charts. VIX chart is one of those that also reflects that a short term low may be near. Note how the VIX high for Tuesday stopped at the +2 std dev band, just like the OEX low for the day was at the -2 std cone. This is no coincidence and is why it is important to monitor implied volatility during the day for directional clues.Note also equity call/put put in the first day of true basing values,so EquityCP chart is at a level where buying calls has worked previously, however Sentiment chart is still in midrange. Neither has an oversold Stochastic Momentum. That would take a few more days. Perhaps at that time put buyers will have driven these two indicators further into the buy calls area.

We got stopped out on the XAUDL,as a result of Monday's discussed double failure of the XAU at resistance lines at 63.57.Entry on this trade was 4 7/8 to 5.Exit today was a gap down to 4 5/8.{Tuesday's high,low,and close were 4 5/8.Tommorrow shows 4 1/4 asked,3 7/8 bid.}Loss was about 5 to 7%.

Here are the charts we examine nightly:

CYCLE CHART. INDU CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEYPK CHART. PITCHFORK CHART. SUPERT CHART. SUPPORT AND RESISTANCE CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, March 25, 1999:

Trend days and trendless days are produced by a relationship between the NYSE advances and declines. A look at the NYA chart identifies a strong up day when the ADV is greater than 1500 and DECL is less than 1200. Likewise a strong down day has the DECL greater than 1500 and ADV less than 1200. Trendless days have the ADV and DECL nearly equal. Today saw the OEX cycle inside the Green cone as the ADV and DECL spent the majority of the day between 1200 and 1500. The Moontide spent most of the day basing in a flat sideways trend, and then began curving upward in the last hour of the day. OEYDG and OEYDH were recommended on Tuesday and again on Wednesday morning as the OEX found its footing at the lower tine on the Pitchfork near 630. On the last weekend's update we suggested there would be a few days of post expiration selling, and then a low put in. From this low a quarter- end rally would take the DOW back towards 10K in early April. Just how far remains to be seen. There are many types of systems available to trade with, and reference was made on Monday to narrow range days and breakout systems. Breakout systems require a certain amount of movement in price to prove that the move is for real, so you miss some significant points before the entry. This goes against some trend followers' mindset.They want to catch entries closer to reversal points. These systems are losers in choppy markets, and tend to reverse at the buy/sell levels, but are great in multiday trending markets. Here is the SaChan system. It has been doing O.K. lately, so we thought we would present it to you tonight and see how it performs over the next week. It ended 3/24 flat after several profitable position short trades. With the dynamics we have been seeing lately, we should get another entry on Thursday. The JBOC indicator says the system should go long if the late day trend continues. Reviewing our other indicators, we have the Cone Projection oscillator nicely oversold. The McOsc is resting on the lower side of the neutral zone where we could see a bounce. CODI is at the Whipsaw level where we could have a bounce.Equity call/put has had 2 consecutive basing days. Basically, we have the oversold price and breadth situation that we had hoped we would have before the end of the month.This end of month seasonality facilitates a long call entry.Note that the 19th trading day of the month is Thursday,where prices often center around the monthly low point in investable pension funds,prior to the beginning of new monthly money flow.

XAU Expert Rating is now 98 with a rising onbalance volume. This suggests a Buy is at hand.

Here are the charts we examine nightly:

ADHL CHART. AMOSS CHART. CONE ID CHART. CYCLE CHART. EQUITYCP CHART. INDU CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX PIVOT CHART. OEYPK CHART. RSISTO CHART. SENTIMENT CHART. SPX FIBRET CHART. TYX CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Friday, March 26, 1999:

First it was profit warnings that the talking heads used to explain the 500 point move from above 10100 DJIA to 9500 or so{theoretical}.Next it was profit projections met or exceeded that provided the excuse for the run on Wednesday/Thursday.Remember the pros,like sharks,die when the market stops moving,and periods of low volatility prepare one for high volatility.Now that the artificially compressed collars are gone{that happened because the 50 point rule was like watching paint dry!},both bulls and bears will rejoice.

Thursday provided a 30% to 50% profit taking opportunity for the OEYDG and OEYDH. Email updates were provided for the exits as well as for an initial entry on the OEYPI 645 April put. The put recommendation came as the Moontide hit the 5 day resistance line and began to curl over. Late afternoon resurgance put the OEYPI at a loss on the close as Moontide climbed above the 5 day line. Either a 1.5 point stop should be used,or alternatively we may have a chance on Friday to get out even or in profits on this one as the index trades down inside Thursday's range.

Breakout system went on a buy Thursday morning as expected. By late Thursday the JBOC oscillator was forming a divergence with price suggesting that Friday may see some prices lower than the Thursday close.

Here are the charts we examine nightly:

ADHL CHART. AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. EQUITYCP CHART. INDU CHART. MCOSC CHART. NYA CHART. OEX FIBRET CHART. PITCHFORK CHART. RSISTO CHART. SENTIMENT CHART. SPX FIBRET CHART. SUPERT CHART. TYX CHART. VIX CHART. WEEKLY FIBRET CHART. XAU CHART.

MomentumCycles commentary for the open of Monday,March 29,1999:

End of month seasonality must be exercising its influence, or perhaps the hedge fund program traders are paying a bill to the Fed by their inactivity. By Moontide measures, the last hour Friday should have been down hard, but as we have said before, it is price that is traded and not breadth. The OEYPI did hit 14 7/8, close enough to the few points we expected out of it. Officially, it is still on the books, but an exit may be forced on Monday. In fact, a break even stop should be put in place. Personally, puts in the last week of the month have not worked too well. Other measures such as AMOSS argue against either calls or puts at the present. CODI is in the whipsaw zone, which also justifies exiting the put until we get a more overbought or oversold position. McOsc is sitting on zero. Overall, the technical picture is rather neutral. Seasonality has a positive bias.

Since we are entering the end of month/end of quarter, we want to be ready to enter calls for the anticipated positive seasonality. The OEYDI has an entry level of 14 to 14 1/2 or lower using closing data for Friday. OEYDH has a possible entry between 16 and 17 1/4 or lower. We will try to pick the levels more precisely,perhaps by e mail update as events unfold. These levels will change intraday for sure.

The OEYPI put looks similar to the calls, in that both closed Friday in a horizontal trend. The market could break either up or down.

Everyone knows by now that the current price breadth divergence and overvaluation levels have only been seen a few times in US history. The OEX Expert chart has a down 97 rating as of the close on Friday. It is based on the popular breadth indicators. We also know that seasonality often overrules technicals temporarily during the end of month/beginning of month period, just as it does during expiration week. Thursday saw the first onslaught of buy programs five trading days before the end of month. Then we saw weakness on Friday. Monday could see the serious beginnings of a stronger up move into April. Watch for weekend sellers to be filled first if the resolution is to be to the upside.

Using the slower methods of lagging indicators,the 3 day smoothed cumulative breadth and volume of the NYSE turned up for the first time since the March 19 cycle date short term top.Closing tick of -689 usually presages a short term bounce within one or two days.Unfortunately,intraday tick Friday was not extremely negative,however,as we like to see over -1000 intraday ticks,ideally multiple readings, for lows.

We should expect increasing volatility in the coming 3 week period.Crosscurrents of IRA funding,income tax refunds crossing beginning tax payments,quarterly reinvestment by individuals and pension funds,spring seasonals in tech issues,and the confluence of cycle dates mid April will be a bonanza for quick daytraders.Be flexible!

As an example,FNM made a one day trip from the lower 3.5% trading band to almost tag the upper 3.5% trading band on Friday,near resistance at the series of declining tops.We should begin to see more volatility of this sort,both up and down, in the coming 21 days.This will be a period in which tight stop losses and trailing profit stops are essential.

Here are the charts we examine nightly:

ADHL CHART. CONE CHART. CYCLE CHART. EQUITYCP CHART. FIBRET CHART. INDU CHART. NYA CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX PIVOT CHART. OEYDG CHART. PITCHFORK CHART. SACHAN CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. VIX CHART. XAU CHART.