MomentumCycles

MomentumCycles commentary for the open of Wednesday, May 12, 1999:

Continuation move in AOL up another 10%,or 13 points,from the discussed Friday/Monday low,now between the mid-band and upper trading band,with STOCHASTIC 5 at 60 and STOCHASTIC 20 at 35.Long call buyers in AOL should consider taking some off here into the Wednesday/Thursday period{see below}or have a trailing profit stop on the whole position.Entry Friday/Monday to Tuesday close is up 22 points+.

XAU had an oversold bounce.A close above the support lines on the lower charts,now short term resistance,or even better,a close above recent highs,is needed to counteract the present downgrades and perception of government stifling of rallies.Support{a short term buy at the lower line on the XAU chart below ,with that line as risk} is presently holding.Lowest risk buys come at lower STOCHASTIC positions,but if the rally resumes,we may not get those extreme oversold readings.

The equity index consolidation and choppiness continues. CODI, AMOSS, and Sentiment have been reflective of the current indecisive market mood. EquityCP and Sentiment are beginning to rise again as representation of lingering bull fever. Such choppiness provided two swing trades on Tuesday. OEYEP and OEYQQ both netted some very nice profits. With VIX in the high 20's, it is best not to marry a position or directional belief for longer than the time between pivot points, as it can lead to an unhappy divorce. Bond yields continue to put pressure on rallies. Moontide ended the day again in Skip position for another attempt at catching a Wednesday morning wave. MomentumCycles' preferred plan for Wednesday is not to catch the surge of the wave, but to wait until it crests and then take the downward acceleration ride. The motivating factor behind this posture is the perception of overvaluedness in terms of time, price, breadth, and yield. One respected option sentiment analyst forecasts an SPX closing at or below 1321 on 5/14. That would be quite a drop from here. He has been incorrect in the past on occasion, but correct more often than not. The CPI and PPI both induce wild swings in the market, so it should not be a dull week. If these hint at inflation, then fear of the FOMC next week could easily make the 1321 target a reality by Friday close. The DSP9Mpd is showing lots of price clusters between 1360 and 1368. The DOW Industrials loves the fib levels so for Wednesday look for another test of resistance between 11098 and 11114.19. Ideally we would like to enter a put trade between 11114 and 11165.

Here are more charts:

CONE CHART. CYCLE CHART. DSP9M DAILY CHART. DSP9M WEEKLY CHART. DUS9M CHART. INDU CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PITCHFORK CHART. TYX CHART. VOLATILITY CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Thursday, May 13, 1999:

Sometimes it's best to stand aside when volatility increases too much. Besides the fact that option quotes are not available until the market makers know where the OEX is going to trade, that leaves you with the futures, and that leaves you with potential slippage. This is, of course, in reference to this morning's action when the OEX dropped to the lower trendline on the 30 minute chart. This trader was ready to send out an e-mail to buy the OEYEP below ten, and then decided to stick with the plan for buying puts in the resistance area. The fill would have more likely been near 11. As a consequence we missed a 60% gainer. The nice thing about this business is that there is always another trade later on, so we waited until things quieted down and VIX pulled back into its channel. We prefer not to pay a volatility premium. An hour before the close we went for the OEYQR 690 put as Rubin was announcing his resignation. Note how we do things in a contrary manner. What we are looking for on Thursday is some retracement of Wednesday's range to pull a couple of points out of the position. We aren't shooting for the moon; no big kill here, just a consistent few points per day.{With CODI in the whipsaw area,up and down whipsaws have made quick daytrades the order of the day.}

Technically, there were some negatives today. New highs dropped from 113 to 72. New lows increased from 14 to 26. Advancing volume dropped. Moontide ended the day in Hop mode rather than Skip mode. This might mean we will see some retrenchment on Thursday. Both MOSS and AMOSS ticked down from their center neutral line. TYX held its level even after the poor bond auction was completed. Turning points in the market are marked throughout history with significant events. IPOs are brought out at tops; we have had record numbers with record enthusiasm. Goldman Sachs went public. Rubin retires. War on Yugoslavia. You get the idea.

So far XAU has marginally held support at the lower line on the XAU 30 minute chart below.We suggested that area as risk for longs.

Here are the charts:

CODI CHART. WEDNESDAY'S CONE CHART. THURSDAY'S CONE CHART. CYCLE CHART. DJIA FIB CHART. DSP9M DAILY CHART. DSP9MPD CHART. DSP9M WEEKLY CHART. EQUITYCP CHART. HAURLAN CHART. INDU CHART. INDU FIBRET CHART. NHNL CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEXPF CHART. OEX WEEKLY CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Friday, May 14, 1999:

Friday should be a very interesting day indeed. The Volatility chart shows the 5 day Vol dropping below 10. This has coincided with significant moves lately. Reviewing the Fibonacci charts for 4/14, we see that it is a narrow range day. This enhances the probability of a big move with tight support and resistance zones that can be easily penetrated. Equity C/P ratio is not rising with the indexes, as it usually does, nor is the Sentiment index following the indexes higher. Neither indicator is projecting bullishness. In fact, their lack of confirmation may reflect the reduced expectations and consolidation seen this time of year. The AMOSS has reached the overbought/neutral zone boundary as the OEX Cone Projection oscillator turns down from overbought. The OEX made a perfect tag of the upper Pitchfork tine. This pre-expiration week hasn't yet had a significant down day on a closing basis to shake out the call holders. Perhaps Friday will be the day. The OEYQR is still working on base building. It has a very interesting chart for Thursday. Our average entry is 10.125 with an entry at 11.25 and 9 or less. We are looking to exit this on Friday. One final note, the DSP9M price distribution shows a rather ominous indecisive formation just below 1380. In candlestick terminology this is a trend termination signal.

We had also noted that one cyclical method that uses rate of change showed Thursday as a trend change day.

We had forecast a rally in AOL starting last Friday/this Monday.STOCHASTIC was about as oversold as it gets on a shorter term basis.AOL could have been purchased at 119 or lower during this period.A 2 day rally ensued,and we recommended profit taking into the Wednesday/Thursday period.Highs Wednesday/Thursday were 140 and 142,close was 132.625.STOCHASTIC for AOL on a shorter term basis is now 85,short term overbought,and the high to low Thursday fell from the upper 3.5% band to the lower 3.5% band.Since we primarily trade leveraged instruments {in this case calls on AOL},for a 3 to 5 day trade this was good short term timing,again trading only the short term extremes.No longer term prognosis on AOL is implied by the trade closeout!

XAU is still riding the lower support line on the XAU chart below,with short term STOCHASTIC about as oversold as it gets,with longer term STOCHASTIC still neutral at 30,not yet oversold.The preconditions for a rally are best seen at both longer and shorter STOCHASTIC readings at extreme oversold and turning up above 20,as seen in the recent explosion from the 60's to the 80's.More work back and forth may be neccessary before longer STOCHASTIC joins the shorter in oversold.Meanwhile the lower support line is holding.

Here are the charts:

CODI CHART. CYCLE CHART. DJIA FIB CHART. DSP9M DAILY CHART. DSP9M WEEKLY CHART. INDU CHART. NDX CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEXWM CHART. TYX CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Friday, May 14, 1999:

"Friday should be a very interesting day indeed. The Volatility chart shows the 5 day Vol dropping below 10. This has coincided with significant moves lately. Reviewing the Fibonacci charts for 4/14, we see that it is a narrow range day. This enhances the probability of a big move with tight support and resistance zones that can be easily penetrated. Equity C/P ratio is not rising with the indexes, as it usually does, nor is the Sentiment index following the indexes higher. Neither indicator is projecting bullishness. In fact, their lack of confirmation may reflect the reduced expectations and consolidation seen this time of year. The AMOSS has reached the overbought/neutral zone boundary as the OEX Cone Projection oscillator turns down from overbought. The OEX made a perfect tag of the upper Pitchfork tine. This pre-expiration week hasn't yet had a significant down day on a closing basis to shake out the call holders. Perhaps Friday will be the day. The OEYQR is still working on base building. It has a very interesting chart for Thursday. Our average entry is 10.125 with an entry at 11.25 and 9 or less. We are looking to exit this on Friday. One final note, the DSP9M price distribution shows a rather ominous indecisive formation just below 1380. In candlestick terminology this is a trend termination signal.

We had also noted that one cyclical method that uses rate of change showed Thursday as a trend change day.

We had forecast a rally in AOL starting last Friday/this Monday.STOCHASTIC was about as oversold as it gets on a shorter term basis.AOL could have been purchased at 119 or lower during this period.A 2 day rally ensued,and we recommended profit taking into the Wednesday/Thursday period.Highs Wednesday/Thursday were 140 and 142,close was 132.625.STOCHASTIC for AOL on a shorter term basis is now 85,short term overbought,and the high to low Thursday fell from the upper 3.5% band to the lower 3.5% band.Since we primarily trade leveraged instruments {in this case calls on AOL},for a 3 to 5 day trade this was good short term timing,again trading only the short term extremes.No longer term prognosis on AOL is implied by the trade closeout!

XAU is still riding the lower support line on the XAU chart below,with short term STOCHASTIC about as oversold as it gets,with longer term STOCHASTIC still neutral at 30,not yet oversold.The preconditions for a rally are best seen at both longer and shorter STOCHASTIC readings at extreme oversold and turning up above 20,as seen in the recent explosion from the 60's to the 80's.More work back and forth may be neccessary before longer STOCHASTIC joins the shorter in oversold.Meanwhile the lower support line is holding."

MomentumCycles commentary for the open of Monday,May 17,1999:

Last week goes down in history as the week of media misinformation. Don't you feel a bit of remorse when you subjugate your intelligence to that of a well respected broker/analyst, or a "god of the Chicago pits"? Here are just two examples of how you could have been led astray last week. In the first case, the Broker/Analyst promoted the outdated notion that the put/call ratio at greater than two to one was extremely bullish. That was two days before the INDU began its long awaited correction and yields backed up to 6%. His error was in not subscribing to Oextrader.com and MomentumCycles. The error was in using the index data rather than total CBOE equity put/call or the combined equity and index data. It has been known for a decade now that the index data has lost its effectiveness due to massive hedging and spreading. That is, it has lost its effectiveness if applied improperly. In the second case the "God of the pits" let it be known on a tradeharder.com interview that the "pros" don't use put/call ratios. He also said that pros don't use greeks and pros don't make directional calls with options. He did admit to pros using spreads and paying attention to laying off risk. Of course we also know their other favorite tool is "order flow". He evaded answering the question about stock and index prices migrating towards a strike price at expiration as a consequence of market makers minimizing their inventory liability. Perhaps that was too revealing a question for yours truly to ask of this truly likeable guy who would take your money as a matter of business and remain your good friend simultaneously, all the time smiling, grinning, and patting you on the back for trying to compete on his playing field.

Well, we all now know what happened last week. Past is prologue. It was a choppy week and yet we completed some very nice trades. Friday was the coup de grace with everything technical coming together in a big win. We ended the week flat and did not recommend the "buy the Friday close" of pre-expiration week { although true mechanical types would have taken it}.

We spend a lot of our funds on new research for trading tools,books,and software.So today we are pleased to announce that we have a new indicator that is used in conjunction with CODI to indicate if the next day is going to have some follow through from the previous day. It issued a sell on Thursday close, implying Friday would start down. It is also implying Monday will have some follow through from Friday, at least in the early going. The strategy here is to use these red and green dots with the CODI levels to more precisely time the trades.

Technically, it looks like Friday was the beginning of something serious, as the 5 day advancing volume and declining volume are about to cross over each other. The NewHighs/ NewLows did cross. Even the McOsc finally dropped through zero bringing in the institutional sellers. AMOSS dropped back to neutral and MOSS dropped to oversold. CODI pulled back up into the whipsaw zone. The ideal call trade would have CODI up near the buy area with an accompanying green alert dot. Likewise, the ideal put trade would have CODI near the sell area accompanied with a red dot. Friday premarket opening www{subscriber intraday e mail} updates pegged the low end to be between the red cone and grey cone and advised moving the OEYQR stop and exiting at a price of 15 or higher. The price of fifteen reflected premium only and not time or volatility value. Those two added one to three points during the day. The probability cones for Monday are spread widely because of the elevated implied volatility. We avoided entering new positions on Friday because of this high IV. Of course there are other strategies that could be used to capture this in the form of the "professional" spreads. However, that is not our focus here.

Two other interesting chart developments appear on the SuperT and on the MoonTide. SuperT has reached the "correction" level and the Moontide closed below the five day line after completing a "double repo" on Thursday. There were sufficient warning flags on Thursday to add to the OEYQR in making a "directional" put trade. At the close on Friday we are not quite to the point where we want to enter a call position. EquityCP and Sentiment need more downside for a secure call trade. Days like Friday have follow through selling as margin calls go out and have to be settled with cash or additional selling. This bottoming sometimes takes two or three days. The FOMC meeting on Tuesday will help this bottoming process. Next week promises to be full of excitement and surprises. Some pros take the week off and avoid the volatility during this week.

Other notable events to be commented on is the current high specialist short position relative to the public.Will the minnows eat the sharks?Doesn't usually happen.

The cycle turn date of Thursday was exactly correct as a short term high{using the NASDAQ rate of change of price indicator}.We announced that several days in advance of the turn.Along with that indicator,9 day breadth smoothed turned down Friday,for the first time in many weeks.This longer term breadth measure can be in advance of market turns,but usually not by too much in time.

XAU waffling around support lines{see below},with shorter STOCHASTIC oversold and longer STOCHASTIC approaching oversold.Present price pattern is rising off the 67 recent low, but is not as clear as the previous rally setups-price is at the mid-band of the 14% trading bands,not at the extremes.

Here are the charts:

CODI CHART. CYCLE CHART. DSP9Mf DAILY CHART. DSP9Mf WEEKLY CHART. INDU CHART. OEXfdayCHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEXf WEEKLY CHART. OEXWM CHART. TYX CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART. AMOSS CHART. BREADTH CHART. DSP9Mpd CHART. EQUITYCP CHART. MOONTIDE CHART. NHNL CHART. OEYQR CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. VOLATILITY CHART. CONE514 CHART. CONE517 CHART.

MomentumCycles commentary for the open of Tuesday,May 18,1999:

OEYQR gave up its last uptick on Monday. Anyone who traded it prudently using our parameters made a few points. We could have traded the bounce off the lows this morning, but that would have been imprudent. It was also wise not to buy the Friday close. There are some conflicting signals at Monday's close. Moontide is still on a sell which could change on Tuesday. CODI is still stuck in the whipsaw zone. It needs to break out and go to either the Sell Alert or the Buy Alert lines before we have what can be considered the lower risk entries. Buying calls or puts while CODI is in the Whipsaw zone may lead to just that{whipsaws!}. A firm trending break to the Sell Alert line is entirely possible during this expiration week and would make a good Call trade on the way there. CODI did end the day with Buy Alerts on the confirming indicators, BRTT and BRTT%. These are new discussed and researched variations of the same data and seem to have some correlation with the OEX peaks and troughs. The Market Thrust Oscillator also made a pretty good low on Monday.

MOSS made a turn up, yet AMOSS is remaining skeptical. Other breadth measures such as the McOsc are in sell mode and have been known to reach lower levels before the bottoming process is over. In that same light, the INDU On Balance Volume is still in a corrective trend.

The XAU broke support. Best to wait until it hits the bottom of the mineshaft before picking at that one.The best rallies occur with 3 or 4 successive closes at the lows of the day with STOCHASTIC 5 and 20 spending some time in extreme oversold before rocketing up.We have had 2 closes at the lows of the day and STOCHASTIC 20 just reached oversold today.

For educational purposes, take a look at how well Fibonacci Trader works intraday on the OEX and S and P 500. Take a look at the DSP9M daily fib chart. The futures made a perfect tag of support and rallied back to the green pivot line. What more could you want? Even the Blue Dynamic Balance Point Step gave a beautiful crossover buy signal. In general, the support line is where you would have covered the OEYQR and the crossover of the DBPS is where you would have entered a long position. Daytraders would have closed out a position at the end of the day when the pivot was reached, just as a bunch of other traders did. Perhaps Tuesday will see a slight drop to the pivot at 1338.30 where price will find support and where we might enter a Call position.

The VIX chart has also generated a buy signal by closing above the upper band on Friday, penetrating higher on Monday and then closing under the band.

In other indicators,EquityCP and Sentiment are making noises about wanting to enter calls, but SMI wave structure appears to need a little more development.

Adding to the confusion we see that the SuperT has bounced off of the "Correction" level just as the daily Moontide is appearing to go into sell mode. This is another reason we did not enter calls at the lower S&P support or the lower OEX Cones. The preference was to close out the puts and wait for further developments. Ideally, we would see more selling or consolidation at the least to build something of a base before rising to the moon again.

Here are the addtional charts:

5 DAY ADVANCES CHART. BREADTH CHART. MONDAY'S CONE CHART. TUESDAY'S CONE CHART. CYCLE CHART. DSP9MPD CHART. DSP9M WEEKLY CHART. INDU FIBRET CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEXWM CHART. PITCHFORK CHART. TYX CHART. VIX CHART. VOLATILITY CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.