MomentumCycles

MomentumCycles commentary for the open of Wednesday, April 28, 1999:

Today was fib day. Take that however you want, but also take a look at the NDX and OEX and DSP9M charts and note how well prices hit the fib levels. At certain times of the months, like during end of month seasonality when more traders hit the screen, these levels work quite well, as do other statistical things like probability cones. More on those in coming issues. So far, seasonality has kicked in on the early end of the week, which was given as a warning to shorts on the weekend update. Today was purely a DOW rally with the rest of the indexes chopping around; smart money selling to new money, if you will. The "tube" can talk all it wants about heavy up volume, but that is like talking about the party after it's over, i.e. 5 Day Advancing Volume Chart. VIX is holding to 24 in anticipation of the "sharp" down day that takes it to 30 or higher. Maybe it won't make it down to 21.47 where a confident sell could be made. Maybe the midband is all that it is going to take, so for Wednesday a move above 24.66 will be commensurate with a sell on Wednesday. This is not a prediction, just a benchmark. CODI is even tripping on down in preparation for spring cleaning. Just don't you be one of those getting cleaned. Everything's overbought; don't buy the new bull market concept. Be prepared for spring rain on the party that washes uncollected profits down the drain. The Cone chart is a handy one that enables the picking of price targets. Tuesday had prices confined to the green cones. A strong directional day will see prices hit either the upper or lower red cones. If you happen to be in calls or puts when you get one of those strong days evidenced by good breadth and volume, then if price hits the cone, take some profits. The origination of the cones was the selling of options outside the probability of going in the money, but research has also shown that the market community expresses a propensity to reverse direction intraday at certain "stretch" points. Should we get one of those "spring cleaning" days with more than a couple of hundred points on the downside in the DOW, then look for an exit near the lower grey cone. The reason is that prices drop below it only 5% of the time in one day. This commentary is to prepare you for what we feel will be a good put trade in the merry merry month of May. The Cone chart also has some regression channels that aid in determining long and short term trends. One suggestion is to take a look at this chart nightly or in the AM,and then place horizontal lines on your own chart as a reminder.

Check your calendar for the upcoming full moon. Mkt has a cyclical tendancy to rally into full moons and then sell off or underperform afterwards.

Here are the charts we examine nightly:

ADHL CHART. AMOSS CHART. BREADTH CHART. CYCLE CHART. DSP9M CHART. EQUITYCP CHART. INDU CHART. INDU FIBRET CHART. NYA CHART. OEX WEEKLY CHART. PITCHFORK CHART. SENTIMENT CHART. TYX CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, April 29, 1999:

We enter Thusday with some degree of trepidation. Will it or won't it hit 11,000 in the next few days? So what, if the S&P diverges like it did today, then who cares if 11,000 holds for a few days. The main thing is that we don't want the OEX to tank prematurely from the monthly cycles, even though technicals like the OEX JBOC chart as well as a few others say it is in sell mode now on a daily basis. The main reason we have avoided calls here is because when the DJIA starts tripping on down several hundred points a day, you would have bought someone more than lunch. The reason we have avoided puts this week is because with CODI in the whipsaw zone, our nerves would be shot unless we tried to trade every 30 minute swing. Now that AMOSS and MOSS have dropped back to neutral, there is a chance for one more bounce before seasonality is over next week. That is when we would like to enter into some puts. The EquityCP and Sentiment have again turned down from the "Buy Puts" area, so this commentary is overriding the technical picture and weighting the seasonality. Now then, the UC payroll indicator should strike Thursday or Friday and last more than a day or two. We saw the front running earlier in the week as the futures jacked prices up, just as a brick and mortar business does before putting the goods on sale. VIX did move above the mid band today, and 15 big S&P points were clipped off the day's high. Suspicion has it that Wednesday selling may be more sector rotation. If that is the case, then the monetary entropy (you heard it here first) of the market is not decaying, just rearranging itself.

XAU closed above the upper 14% trading band.The last time that was seen was the September/October 1998 rally;a subsequent move back inside the bands towards the moving average brought a higher high down the road.A similar result will likely be seen here as well.A retracement and then a higher high is therefore likely.We had many times previously noted longer term accumulation by the patient slow money at prices in the low 60's,as evidenced by on balance volume making higher highs on each price decline into the low 60's,unlike FNM,which we contrasted as showing declining OBV.FNM was therefore showing distribution at 76.It is now at 70.9375,and has seen selling at each tag near 76.

Other general musings on gold and the XAU....

  1. Gold stocks rise in concert with other equities prior to broad market collapses, and then they collapse with the other equities within a day or two of the initial drop.
  2. Gold stocks are best bought in winter and sold in summer. March usually sees a cycle low.
  3. Gold stocks are heavily promoted at quarterly mining conferences by the World Gold council and the stocks start rising a month before the conferences. Next may be in June in NY.
  4. Simply by default gold stocks will be showing up on relative strength searches and momentum money will flow into them for no other reason.
  5. Gold and gold stocks still seem to have an inflation sensitive following. With cyclical stocks picking up and mining stocks in general picking up the gold stocks rise also. Gold minining companies also produce silver which is more of an industrial metal than gold. Compare the XAU with the CRB futures and with the gold futures. In fact watch the gold futures contracts rather than the gold stocks for clues to the stock movement. Another indicator is the Toronto gold silver mining index. Vancouver mining index may be even more sensitive.
  6. Gold stocks tend to spike rather than trend. The few shares outstanding gain lots of momentum when the funds rush into them. The gold funds are best averaged into at basing levels than chasing them when everyone wants them. {remember our on balance comments at the low 60's?} Always best to keep a small percentage of assets in them and dump when they spike up.
  7. Here are books on gold. These may no longer be in print or available:
    1. War On Gold by Antony Sutton
    2. The Gold Book by Pierre Lassonde published by the Financial Times of Canada
    3. The Complete Book of Gold Investing by Jeffrey A. Nichols, Dow Jones Erwin
    4. How to Profit from the Coming Boom in Gold, Jeffrey A. Nichols, McGraw Hill
    5. The Prospect for Gold-The view to the year 2000, Timothy Green
    6. The Gold Problem Economic Perspectives, edited by Alberto Quadrio-Curzio fo Banc Nazionale del Lavoro and Nomisma, Oxford University Press.
    7. Paul Sarnoff wrote a few books on trading gold and silver. Used to be expensive books, may find them on sale now.

    This doesn't address the specific question about timing other than that gold is heavily traded on technical chart patterns. Which reminds me of the book by James E. Schildgen titled "Analytical Methods for Successful Speculation". It uses gold as an example throughout the book. When it comes down to trading gold and the stocks this book has more real world advice than most of the others.

    Years ago oil and gold used to have a strong correlation. Story was the Arab producing countries had little faith in a deteriorating US dollar, nor a non Arab banking system. Gold was the store of value into which surplus dollars went as oil increased in price. The more common notion is that oil is a component of inflation indexes and gold has a following that trades it in sync with the inflation trend. Since cyclical stocks are rising again gold is sniffing a touch of inflation ahead. So should T bonds.

Here are the charts we examine nightly:

ADHL CHART. CONE CHART. CYCLE CHART. DSP9M DAILY CHART. DSP9M WEEKLY CHART. INDU CHART. MOONTIDE CHART. NDX CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PITCHFORK CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Friday, April 30, 1999:

MomentumCycles went long the OEYEP May 680 call at 14 1/2 on a Thursday email intraday update. This is the entry for our end of month seasonality trade. It ended the day a point in the money. This is more a mechanical time of month kind of trade that is finessed into as the end of month week unfolds.In addition,we were within the time frame for an entry using the 1 week rate of change price indicator,which had Wednesday as the pension flow money low. Hopefully we will get to hold this position for a few days into May. The entry coincided with Thursday support at the lower fib level and Red Cone. Granted, the rest of the technicals are toppy looking, yet there should be some positive action that will produce some profits for this position. Then we expect a better trade on the put side late next week.

XAU has had 3 successive closes at the high of the day,with STOCHASTIC 5 at 95 and STOCHASTIC 20 near 100.Price is above the 14% trading band.A move back to tag the band or move within the band would be normal here due to short term overbought conditions.Previously, 3 successive closes near the high of the day while above the upper 14% band have brought some price retracement.

5 DAY ADVANCES CHART. ADHL CHART. AMOSS CHART. BREADTH CHART. CODI CHART. CYCLE CHART. DSP9M DAILY CHART. DSP9M WEEKLY CHART. EQUITYCP CHART. INDU CHART. JBOC CHART. NHNL 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.

MomentumCycles commentary for the open of Monday, May 3, 1999:

As we watch index prices move around each day, we are witnessing historical volatility being created. What we are seeing is a validation (or lack) of the forward looking implied volatility derived from option pricing. The implied is a guess about the future, whether the future is a few minutes away or days away. If we look at these two types of volatility on an annual basis, we see a rather distinct relationship pattern that repeats year after year. At the moment, the OEX should be entering a consolidation phase, and upside expectations should be lowered. This doesn't impact us too much, since we only hold a position from hours to a few days at best. This seasonal discussion is more for the fund holder who got excited about a year end/springtime rally and has projected that performance into the remaining nine months of the year. That just isn't how the map is drawn. For example, it is no big surprise to veterans of trading that the NASDAQ and high techs are getting hit right now. It happens this time every year, and the high techs go into a slump through the summer months and pick up again in the fall. The road sign reads like highway 50/50, which means 50% up starting in the fall quarter and 50% down the following spring quarter. Analysts make earnings forecasts at the end of the year, and by the second quarter the truth comes out and portfolios get a "head" adjustment. Lately the 5 day historical volatility has been bouncing like a yoyo. Such yoyo action is what is seen at bottoms and tops or at significant trend changes, so the conclusion is that the major uptrend we've seen should be entering a consolidation phase that lasts into the beginning of summer. A consolidation implies a trading range. For that we need to look at some charts with longer term support and resistance channels such as the ADHL or the INDU. The INDU has climbed to a precarious position after a very nice run with full confirmation from its on balance volume band chart. It is, as we say, "overbought". At least that is what it looks like to a trader with "indicatoritis". What it means is that we have had an auction and prices were bid up. When the auction is over, prices remain at last trade, or they begin to drop when buyers become scarce and bids are lowered. A specialist will drop his bid if there is no pass through and he has to inventory stock with his own money, or worse yet, borrowed money. They have deep, nay, very deep pockets, yet in a crisis they will only pay flea market prices for the golden idols of yesterday. Thus we have been preferring a put trade once this end of month seasonality wears off. A week ago the indicators said we would see a choppy week; that's history now. A week ago it was expected that buy programs could come in as early as Monday or Tuesday or as late as Thursday or Friday, and we saw some huge moves in both directions. Officially, the beginning of month seasonality starts on the close of the last trading day, but it has fits and starts in the previous week. This last week saw lots of minds change perspective on items in the auction market, and sector rotation became the "mantra de jour". When the trend stops, the game of musical chairs begins, because, of course, the industry survives on transactions. Trends are a bonus.

Looking at option sentiment by way of the EquityCP and Sentiment charts, we see an intermediate term top being put in place. We had hoped everything would come together at this time for a decent multiday put trade. What we would like to see next week is CODI dropping down to the Sell Alert along with VIX dropping to the lower band,and the two option sentiments remaining at Buy Put levels, and SMI of price remaining in overbought. The beginning of month seasonality still hasn't given the final boost to create these conditions. Perhaps by Wednesday it will. The AMOSS and MOSS have retreated from their overbought levels as price has returned inside of the up channel. CODI is still in the whipsaw area, making calls or puts risky (but aren't they always?). ADHL and NHNL show a market skating on springtime ice with new highs and new lows about to change positions. Two of three indicators on the ADHL are in sell mode. This supports the consolidation/correction thesis laid out above.

XAU on balance volume had been making higher highs while price had dropped to the low 60's,and then rallied.This implied a move at least up to the resistance levels seen on the XAU charts below.The XAU has gone above the upper 14% trading band, in a move reminiscent of last September/October.Consolidation,as seen and predicted for Friday,April 30,will eventually likely result in at least one divergent higher high,as seen last September/October.XAU is overbought with STOCHASTIC 20 still at high levels.

TYX is forming a clear channel as seen in the chart below.Note we are at the top of the yield channel,so the regular rhythmic action seen in the FNM/30 year T bond correlation suggests a move to the bottom of the yield channel may soon be due.

Here are the charts we examine nightly:

CONE CHART. CYCLE CHART. DSP9M DAILY CHART. DSP9M WEEKLY CHART. INDU FIBRET CHART. NDX CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX HOURLY CHART. OEX WEEKLY CHART. OEYEP CHART. PITCHFORK CHART. RSISTO CHART. SUPERT CHART. TYX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

Momentumcycles commentary for the open of Tuesday, May 4, 1999:

If you are superstitious, or believe in fibonacci numbers, then the S&P futures are headed back to 1380 reached on 4/27. Or if not, then we have seen the fibonacci high. Technically, the intraday inverted head and shoulders pattern projects to 1400. We had a good trade in the OEYEO May 675 Call today from 14.5 to 20,as entered and closed on the intraday e mail. For Tuesday we expect some pullback and then another run for the money. We will look for another call trade. By Wednesday we should have seen the high for this seasonality period, and may begin looking for a put trade. Technical conditions have not reached the stretch limit to facilitate a less risky put trade yet.For instance,Monday's equity call/put ratio is only 2.398,not the market topping 3.0 for multiple days seen last July 19-21. Monday's performance represents the aftermath of what we referred to as the UC Payroll Indicator.In fact,the pension funds of many institutions,such as the mammoth TIAA-CREF, receive cash centered around the one week rate of change date of last Wednesday.That date was where we saw the beginnings of accumulation that culminated in volatile,whipsaw up and down fashion,with Monday's move to spend that cash.

Note that the DJIA is presently stronger than the NASDAQ-for instance,look at 3M's performance.Cyclicals are strong right now,and technology is seasonally in its traditionally weak period.

We have also noticed that the market is well over 18% above its 200 day moving average,and so the propensity to correct after the pension money is spent fits the time scenario for profit taking we have discussed above.

We promised you a higher high in XAU after a consolidation,and we got one Monday.Notice the similarity of the September/October price pattern to the recent rally on the XAU chart below.That rally occurred from the accumulation lows with STOCHASTIC 20 at a reading of 10,and was engineered by the slow, patient money when price was in the low 60's.We had noted on balance volume making higher highs as price was dropping into those lows.What pattern reverses the current bullish closes at the high of the day that characterize XAU rallies? 2 closes at the lows of the day after a close at the high of the day ended the September/October pattern, with a lower,divergent STOCHASTIC 20 high.We'll be alert for these pattern similarities as we are approaching more overbought resistance lines for XAU.

We had noted that 30 year T bonds were oversold short term in price on yesterday's commentary,and that a move back to the bands was due{see TYX chart below}.Indeed,we got a good oversold price rally Monday,from open to close.FNM/T bond correlation has FNM increasingly oversold,but no FNM buy signal has been given yet,so today's oversold bounce in the 30 year T bond is not yet clearly the start of a T bond rally with legs.If bonds and the OEX resume the inverse relationship seen previously,it will take a good correction in OEX to draw money back into bonds.Right now, other than Monday's previously predicted oversold T bond price rally back to the bands,no longer term trade is recommended.

5 DAY ADVANCES CHART. ADHL CHART. AMOSS CHART. BREADTH CHART. CODI CHART. CONE CHART. CYCLE CHART. DSP9M DAILY CHART. DSP9M WEEKLY CHART. EQUITYCP CHART. INDU CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEXWM CHART. PITCHFORK CHART. SENTIMENT CHART. TYX CHART. VIX CHART. XAU CHART.