MomentumCycles

MomentumCycles commentary for the open of Tuesday, April 13, 1999:

Most significant change for Monday is the increase in New Highs vs New Lows. Of course this is to be expected when the indexes are pushing on new highs. Big question is whether this is a new trend vs a mature trend. Even more importantly are the IRA implications to the recent strength and what happens in the next few days.Last minute contributions to IRA funds have been giving equities a shot in the arm. EquityCP, Sentiment, stochastic momentum, and a few other indicators are flashing warning signs.

XAU made a marginal STO 20 cross above 21,which portends a move to test the dropping trendlines on the XAU chart below.Volume doesn't have much "oomph" in this move.Resistance seems strong at the white trendline,which was previous support.

Here are the charts we examine nightly:

5 DAY ADVANCES CHART. ADHL CHART. AMOSS CHART. CONE CHART. CYCLE CHART. INDU CHART. MCOSC CHART. NYA CHART. OEX FIB CHART. OEX WEEKLY CHART. OEYPP CHART. PITCHFORK CHART. SUPERT CHART. TIDALWAVE CHART. TYX CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Wednesday, April 14, 1999:

One day does not make a trend,but interestingly,DJIA was stronger than NASDAQ and NDX.The NASDAQ has lead the market up with hot money,and the DJIA is traditionally the first refuge of money seeking safety or liquidity.As a result,technically the market began began consolidating the recent gains.

Time would appear to be running out as the fuel that has fired the advance abates. This doesn't mean it will leave the game so soon after entering, but anyone who has been through a serious correction knows that valuations can change rather suddenly. The market is truly an auction market in which products drop in and out of favor. Real valuations for the long term are valid as well, as position trades are found in fundamentals at the bottom of regurgitating corrections. The real question is what will turn a consolidation into a serious correction. Money supply, interest rates, and the US dollar are the biggest contributors to the answer. Now that the war effort is entering the funding phase T bonds are beginning to respond, resulting in yields backing up. This alone should produce a notable correction. Add less money flow from IRA funding and more support is removed.

Remember the nature of the market is one of price facilitation. Price goes where transactions occur. EquityCP and Sentiment charts now have completed the setup for Put buying. Option sentiment has peaked and turned in advance of price and price now has Stochastic Momentum on a sell crossover. Also, the VIX chart has two sell signals on the Virtual Mirror indicator at the bottom of the chart. Accompanied with a rising VIX is a sell condition. The OEX should test the lower Projection Band at 672 under these conditions.

MOSS and AMOSS are experiencing Zone crossings to the downside at a rate faster than normal time passage would produce. This is also a sell condition. Peaking 5 day advancing volume is in agreement with the CODI Sell Alert. Moontide is firmly into consolidation and a tick away from dropping into sell mode. A strong down day would take the OEX to the lower red cones. A crash down day would take it to the lower Grey cone. That gives you some price projections in case you are still holding the OEYPP puts. Finally, to support the put case, note the cycle bottom of the TYX T-Bond yield chart. A rise in TYX correlates well with a drop in the OEX.

Here are thr charts we examine nightly:

5 DAY ADVANCES CHART. CYCLE CHART. DSP9MD CHART. DSP9MW CHART. FIBRET CHART. INDU CHART. MCOSC CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX WEEKLY CHART. PITCHFORK CHART. SUPERT CHART. XAU CHART.

To quote from MomentumCycles commentary for the open of Wednesday, April 14, 1999:

"One day does not make a trend,but interestingly,DJIA was stronger than NASDAQ and NDX.The NASDAQ has lead the market up with hot money,and the DJIA is traditionally the first refuge of money seeking safety or liquidity.As a result,technically the market began began consolidating the recent gains.

Time would appear to be running out as the fuel that has fired the advance abates. This doesn't mean it will leave the game so soon after entering, but anyone who has been through a serious correction knows that valuations can change rather suddenly. The market is truly an auction market in which products drop in and out of favor. Real valuations for the long term are valid as well, as position trades are found in fundamentals at the bottom of regurgitating corrections. The real question is what will turn a consolidation into a serious correction. Money supply, interest rates, and the US dollar are the biggest contributors to the answer. Now that the war effort is entering the funding phase T bonds are beginning to respond, resulting in yields backing up. This alone should produce a notable correction. Add less money flow from IRA funding and more support is removed.

Remember the nature of the market is one of price facilitation. Price goes where transactions occur. EquityCP and Sentiment charts now have completed the setup for Put buying. Option sentiment has peaked and turned in advance of price and price now has Stochastic Momentum on a sell crossover. Also, the VIX chart has two sell signals on the Virtual Mirror indicator at the bottom of the chart. Accompanied with a rising VIX is a sell condition. The OEX should test the lower Projection Band at 672 under these conditions.

MOSS and AMOSS are experiencing Zone crossings to the downside at a rate faster than normal time passage would produce. This is also a sell condition. Peaking 5 day advancing volume is in agreement with the CODI Sell Alert. Moontide is firmly into consolidation and a tick away from dropping into sell mode. A strong down day would take the OEX to the lower red cones. A crash down day would take it to the lower Grey cone. That gives you some price projections in case you are still holding the OEYPP puts. Finally, to support the put case, note the cycle bottom of the TYX T-Bond yield chart. A rise in TYX correlates well with a drop in the OEX."

Momentumcycles commentary for the open of Thursday, April 15, 1999:

The nonconfirmations became blaringly obvious Wednesday.S and P futures topped Monday,NASDAQ topped Tuesday,DJIA topped Wednesday.Whether this is the start of something more significant is discussed below.The evidence is not overwhelming that the April 9-12 area was THE top, as it was last July 19-21 before the 20% decline.

5.5% became the "magic attractor" for the 30 year T bond,as we had pointed out before.Rates have been oscillating above and below this level.

Note that the way the market has been behaving since Sunday night gives the impression that someone needed to make a whole lot of money fast to pay some taxes. The only way to do it is with the leverage of the futures and options markets. Nah, it couldn't be...could it? Well, the Volatility chart suggests that once this current turbulence is over, we might enter the springtime consolidation before the summer rally. Wednesday was a good day for the predictive tools like the Cone and the Projection bands on the VIX chart, as well as the fib support and resistance techniques. Expiration week is notoriously choppy, and some folks take the week off just to avoid becoming someone's meal. There is a major split between breadth and price today. Breadth was so good it triggered a buy signal on the intermediate term ADHL system, yet today only a handful of DOW stocks were carrying the index to new highs. The S and P and OEX were, of course, going into springtime hibernation. OEYPP went on to nice gains and has met the 30% and 50% gains. It even came close to the 100% gain from the 6 entry level.

We had suggested XAU,in spite of the STOCHASTIC 20 crossover,would find resistance at the previous support seen at the white line on the XAU chart.That's where price failed,and a trip to the lower 3.5% band was the result Wednesday.Until we go above previous support,now resistance,and then come back and successfully test it again from above,all rallies are suspect.There is overhead supply at the white trendline.

Here are the charts we examine nightly:

AMOSS CHART. CODI CHART. CYCLE CHART. DSP9MD CHART. DSP9MW CHART. EQUITYCP CHART. INDU CHART. INDU FIBRET CHART. MOONTIDE CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEYDJ CHART. PITCHFORK CHART. RSISTO CHART. SENTIMENT CHART. SPX FIBRET CHART. SUPERT CHART. TYX CHART. XAU CHART.

MomentumCycles commentary for the open of Friday, April 16, 1999:

At 1:14PM ET, MomentumCycles issued an email update to exit the OEYPP immediately. It was trading at 20.XX and soon dropped to 10 and change. You might wonder why the exit was signaled. There were several reasons. The update stated that the lower red cone target was achieved for the day. Note the Cone Projection oscillator is oversold, so caution was warranted in not staying too long at the party. Another, and this is extremely important, is that the S and P futures came very close to lower daily Fibonacci support at 1314.88. See the DSP9M daily chart for this. Also see the DSP9M weekly chart for support at 1318.22. Having perspective on daily and weekly fib support/resistance/pivots for the futures aids in decision making. The OEX pit takes its clues from the futures, not the OEX index. Another reason is that the market tends to rally in advance of presidential talks, and one was coming up in 45 minutes. Additionally the VIX had pushed above its +2 std deviation band and then dropped way back inside. This is tantamount to a buy signal, so you must close out puts when this happens. To summarize, the market had met the probabilistic expectations (Cone), it met popular Fibo support levels, and volatility began to drop from a high of 29.4 to 24.77.

Wednesday and Thursday trading has been a lesson in not getting hung up on breadth measures. Price is what is traded. It helps to have breadth confirmation, but the bottom line is determined by the actual performance of price. The ADHL has issued a buy signal on Wednesday as new highs, new lows, relative advances, declines, and DJI vs. S and P have all lined up properly. Yet, the money was made in put options on the OEX, S and P, or short futures.

Now, tomorrow should be one of the most interesting days of the year. With the OEX closing at 668.98 on Thursday, we are looking at the 670 call and put. Late Thursday trading would have you believe that the preference is to be on the call side for Friday. However, the EquityCP and Sentiment are not strongly in favor of either. Sometimes it is best just to stand aside and watch and learn without the emotional involvement of having a position on. Short term the market is oversold to neutral, as indicated by the AMOSS and MOSS charts. Both give odds for some bounce tomorrow. Longer term as measured in days to weeks, we could see more selling and consolidation. When an index rises to an extreme above its two hundred day moving average as the INDU and SPX have, then a correction is the cards. The SPX is having its correction now, and as the narrowing of the bluechip leaders occurs, the INDU will follow. On an intermediate term basis, the McOsc is in overbought territory, but the selling does not pick up until it crosses the zero line. Five day advancing volume is peaking, suggesting that short term we should have more selling, with expiration being the exception. The public has come to expect upside expirations. Some price trend techniques as shown on the DSP9M1 and the JBOC charts hint at some upside retracement to the downsloping moving average before selling gets underway again. Now then, we could have the usual SPX and NDX pop on the open, flat to down mid-day, up on the OEX close. The selling pressures and the expiration might just make for a flat Friday. So, if the intermediate term trend has truly turned down, then we can still get a small rally on expiration day to the MA's, then they turn down again with a vengeance next week...just kidding, we don't really know if that is going to happen, that is just an expectation to look for. CODI is in the whipsaw zone so we have 50/50 odds tomorrow, maybe up in the AM down in mid day, up in the PM as usual, but don't count on it, Friday is a day to avoid or shoot from the hip with a quick trigger finger and keen eye. So, for tomorrow, we want to see what happens to the OEYDN 670 call and put. With the OEX at 668.98, i.e. one point below the 670 strike, the 670 call has no intrinsic value and 3 3/8 of time value. That is horrendous time value for one day, but as we know the OEX can move 6 to ten points in one day so there are some volatility and probability factors in the pricing, not to mention the market making supply demand factors with attendant premium stripping on the options on the opposite of the index direction. If we are to have an upside expiration, it is adviseable to enter the calls on weakness as the gamma and theta factors jerk the option bid and ask around in gut wrenching fashion. Which brings up the point that when you are trading options you want to monitor the bid/ask/ and last trade as the Bid/Ask could be a long ways away from the last trade. Don't get caught looking at just a plot of the OHLC on an option chart without being aware of where it is being priced. The bar close and the B/A could be quite different on Friday. Let's say hypothetically the OEX drops to 665 mid-day on Friday, then we would be looking at the 665 call and not the 670 for a run into the close. If the mkt rallies during the day to say 675, then we would be looking at the 675 put. Of course you can lose it all with an April option and Mays are subject to massive professional spread shorting the following week. This is just a very risky time for retail traders to trade.

XAU is continuing its uptrend from the STOCHASTIC 20 crossover which took place a few days ago,and today broke above the previous resistance line at 61 or so,which was previously long term support.Probably much of Thursday's move was expiration related short covering.A violation of the declining tops pattern on increasing volume after a retest of the 61 area would give weight to a longer term bullish scenario,especially after expiration is over.

Here are more charts:

CYCLE CHART. INDU CHART. INDUWM CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEYPN CHART. PITCHFORK CHART. RSISTO CHART. SPX FIBRET CHART. SUPERT CHART. XAU CHART.

MomentumCycles commentary for the open of Monday, April 19, 1999:

It's been a strange market since January.Numerous trips to the upper 3.5% band have brought tradeable and profitable declines,but none of those declines have had much followthrough.Over the last 35 years,multiple trips to the upper band{4 or more}within the space of a year with cumulative breadth negative have ALWAYS brought a bear leg before a new bull leg could start.We have had that number of nonconfirmations and more{in fact,more breadth nonconfirmations in the past 6 months WITHOUT a bear leg EVER}.But the market keeps rolling on,with last week seeing an unusual POSITIVE breadth breakout while price{as measured by several indices}higher on April 12 than the 16th.

One of the indicators we look at is the option premium ratio of Investor's Business Daily.When the OPR is making new highs above 1.04,the corrections are usually mild...2-3% or so.When the OPR drops substantially into the .71 to 1.04 area,while the DJIA makes higher highs, this nonconfirmation often spells trouble within 7 to 10 days.The all time OPR high of this leg was 1.66 on April 12,at DJIA 10339.51.Friday saw an OPR of .69 at DJIA 10493.89.The OPR normally leads the market up and down.

Externally,all is well,with laggards participating,cyclicals coming to life,normal rotation,even the XAU participating in a 2 day "rack the shorts into expiration".Even cumulative breadth turned positive after months of negative numbers while price tagged the upper band.Is it too much to ask the following question...If the bearish advisors that have shorted the market the last 4 months due to poor breadth can now turn bullish on positive breadth numbers,where does that place a contrarian?On to Friday's action and shorter term analysis...

Friday's expiration offered numerous opportunities for buying the OEYDN at one or lower and selling for a 100% gain,per our commentary and e mail instructions. That is the essence of gamma and delta as expiration winds down. It comes with high risk and high reward, providing greed does not blur your vision and profitability expectations are not targeting the big kill. Sometimes it is best to sell half on a double and let the remainder go for a free ride. Intraday volatility can be high, volume thin, and fills miserable. That said, breadth numbers are still looking so good that it makes you wonder if the gurus calling for a correction are living in denial of a breakout into a new trading range. This is a strange situation indeed, with breadth expanding and the OEX and SPX contracting. Price oscillators are oversold to neutral and breadth oscillators are overbought. It is very hard to imagine that the price oscillators will rise as the breadth oscillators drop. This spells sector rotation and broadening from blue chips to secondaries.

Here are a couple of new Cone charts on the June S&P futures. One is for Friday's activity and the other is looking at probabilities for Monday. The brighter white cone is a plus or minus one standard deviation range based on forward looking implied volatility. The outer boundaries are a plus or minus two standard deviation range. 68% of prices will fall inside the bright white cone and 95% will fall inside the larger outer cone. The center red line is the Close pivot and acts as support and resistance. The standard deviation cones act in the same manner. Crash type days reach the outer cone and move back inside. Strong days reach the bright white cone and average days reach the plus or minus 0.5 std dev.

Here are the charts we examine nightly:

AMOSS CHART. CODI CHART. EQUITYCP CHART. FIBRET CHART. INDU CHART. JBOC CHART. MCOSC CHART. OEX FIB CHART. OEX WEEKLY CHART. OEYPN CHART. PITCHFORK CHART. RSISTO CHORT. SENTIMENT CHART. TYX CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

To quote from the MomentumCycles commentary for the open of Monday, April 19, 1999:

"It's been a strange market since January.Numerous trips to the upper 3.5% band have brought tradeable and profitable declines,but none of those declines have had much followthrough.Over the last 35 years,multiple trips to the upper band{4 or more}within the space of a year with cumulative breadth negative have ALWAYS brought a bear leg before a new bull leg could start.We have had that number of nonconfirmations and more{in fact,more breadth nonconfirmations in the past 6 months WITHOUT a bear leg EVER}.But the market keeps rolling on,with last week seeing an unusual POSITIVE breadth breakout while price{as measured by several indices}higher on April 12 than the 16th.

One of the indicators we look at is the option premium ratio of Investor's Business Daily.When the OPR is making new highs above 1.04,the corrections are usually mild...2-3% or so.When the OPR drops substantially into the .71 to 1.04 area,while the DJIA makes higher highs, this nonconfirmation often spells trouble within 7 to 10 days.The all time OPR high of this leg was 1.66 on April 12,at DJIA 10339.51.Friday saw an OPR of .69 at DJIA 10493.89.The OPR normally leads the market up and down.

Externally,all is well,with laggards participating,cyclicals coming to life,normal rotation,even the XAU participating in a 2 day "rack the shorts into expiration".Even cumulative breadth turned positive after months of negative numbers while price tagged the upper band.Is it too much to ask the following question...If the bearish advisors that have shorted the market the last 4 months due to poor breadth can now turn bullish on positive breadth numbers,where does that place a contrarian?On to Friday's action and shorter term analysis...

Friday's expiration offered numerous opportunities for buying the OEYDN at one or lower and selling for a 100% gain,per our commentary and e mail instructions. That is the essence of gamma and delta as expiration winds down. It comes with high risk and high reward, providing greed does not blur your vision and profitability expectations are not targeting the big kill. Sometimes it is best to sell half on a double and let the remainder go for a free ride. Intraday volatility can be high, volume thin, and fills miserable. That said, breadth numbers are still looking so good that it makes you wonder if the gurus calling for a correction are living in denial of a breakout into a new trading range. This is a strange situation indeed, with breadth expanding and the OEX and SPX contracting. Price oscillators are oversold to neutral and breadth oscillators are overbought. It is very hard to imagine that the price oscillators will rise as the breadth oscillators drop. This spells sector rotation and broadening from blue chips to secondaries.

Here are a couple of new Cone charts on the June S&P futures. One is for Friday's activity and the other is looking at probabilities for Monday. The brighter white cone is a plus or minus one standard deviation range based on forward looking implied volatility. The outer boundaries are a plus or minus two standard deviation range. 68% of prices will fall inside the bright white cone and 95% will fall inside the larger outer cone. The center red line is the Close pivot and acts as support and resistance. The standard deviation cones act in the same manner. Crash type days reach the outer cone and move back inside. Strong days reach the bright white cone and average days reach the plus or minus 0.5 std dev."

MomentumCycles commentary for the open of Tuesday, April 20, 1999:

Contrarian's delight this Monday,with the previously much noted divergences tradeable and profitable{DJIA stronger than NASDAQ to the tune of 5% or so!}.{Trade419 illustrates the email sequence for trading the OEYQP today.} The 7 day option premium ratio nonconfirmation referred to above from the April 12 1.66 level hit with a bang.Now if we see the OPR get into the .30's,with CODI in the buy zone{and it's getting close!},we may be setting up for the retracement rally.On to more detail on the last 2 days...

Notice how quiet Friday was and how busy Monday was? Monday felt more like an expiration than Friday did. Rumor has it that the raising of margin requirements for growth stocks precipitated a panic liquidation on Monday. Very strong down days may be followed by two or three more down days as additional selling enters to meet margin requirements. The OEYQP was a classic trade today, with a top of the hour countertrend entry. When everyone was looking up except for a few, MomentumCycles was looking at the probabilities and Fibzone resistance. Odds were for some serious mean reversion during the day. The at the money 680 May put troughed out at 16 3/4 and then exploded to 34 by day's end. This kind of one day trade happens less than 5% of the time. Thus it is unrealistic to expect it again even the next day. The surprising factor in the current market continues to be the very positive breadth, new highs/new lows, advancing volume, etc,{which was noted on the weekend commentary}. The problem is, oscillators based on them have reached levels where corrections occur. The conditions again after Monday's close are price oscillators almost oversold, breadth oscillators overbought, option sentiment neutral. Conclusions drawn from this unsynchronized tape are bound to be shortlived whether they be bearish or bullish. So, we will just have to play it day by day until things resynchronize.

XAU STOCHASTIC 5 and 20 day are at 100,which is about as overbought as it gets short term.Some price retracement short term is highly likely.

Here are the other charts we examine nightly:

CODI CHART. CONE CHART. CYCLE CHART. DSP9M1 CHART. DSP9MD CHART. DSP9MW CHART. EQUITYCP CHART. INDU CHART. INDU FIBRET CHART. MCOSC CHART. MOONTIDE CHART. MOSS CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PITCHFORK CHART. RSISTO CHART. SENTIMENT CHART. TYX CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

To quote from the MomentumCycles commentary for the open of Tuesday, April 20, 1999:

"Contrarian's delight this Monday,with the previously much noted divergences tradeable and profitable{DJIA stronger than NASDAQ to the tune of 5% or so!}.{Trade419 illustrates the email sequence for trading the OEYQP today.} The 7 day option premium ratio nonconfirmation referred to above from the April 12 1.66 level hit with a bang.Now if we see the OPR get into the .30's,with CODI in the buy zone{and it's getting close!},we may be setting up for the retracement rally.On to more detail on the last 2 days...

The at the money 680 May put troughed out at 16 3/4 and then exploded to 34 by day's end. This kind of one day trade happens less than 5% of the time. Thus it is unrealistic to expect it again even the next day.

XAU STOCHASTIC 5 and 20 day are at 100,which is about as overbought as it gets short term.Some price retracement short term is highly likely.