MomentumCycles

Momentum Cycles Update for the open of Monday, May 18, 1998:

The OEX and the XAU are in positions that allow for important breakdowns or meltups starting with Monday's trading.If the meltup pattern is to be seen for OEX,the Palladium chart is illustrative of the action that will follow.Notice how after a period of narrowing price action{congestion} price takes off in a wild burst of short covering,gaining over 100$ in a few days from the 299$ congestion area{support}.Of course, palladium, as readers here are well aware,had unusually bullish fundamentals{read total lack of Russian supply!}prior to the recent runaway move.

The opposite action,seen in the Cotton chart shows the breakdown that can occur from a fakeout new high,which is followed by a breakaway downside gap following broken support of the right neckline,then price retracement once RSI hits the extreme oversold area at a bottom.

On OEX,the technical internals, detailed below,show increasing deterioration,supporting the possibility of a breakdown.Sentiment,however,excessively bearish short term as seen in high negative tick and recent put/call readings,support the possibility of an OEX rally this coming week.

We had called for whippy OEX up and down action the week of May 8-15, due to the crosscurrents of a negative weekly cycle that week and a positive expiration up bias, at least at the start of expiration week{remember the 130 DJIA point up Monday we suggested exiting into?}.

This proved correct,and now normal cycles would suggest up action into the end of this coming week, followed by price weakness from Friday May 22 to Tuesday May 26, which is where normal money flow starts to improve due to pension fund reinvestment,typically into June 3rd.

OEX models, due to crosscurrents outlined above, suggest standing aside for now.

XAU is at a similar crossroads,having been turned back Friday at the 21 day moving average of price. XAU up action at the start of next week might well not only signal further OEX weakness, but also a cross above the XAU 21 day moving average of price, which usually entails a subsequent trip to the upper trading band.In addition,momentum models of the XAU, which suggested Thursday and Friday to buy the index, would be reinforced by a close of stochastic 15 or 20 above the 20 reading, which is most often also followed by a trip to the upper trading band.A XAU failure here, and subsequent breakdown below the lower trading band would be quite bearish.

Recent lows, seen on the XAU fib chart below, might be used as a stop loss for any recently initiated long position.

In regards to the general US equity market, recently European trading has been leading our market, rather than the other way around. Extreme weakness in Europe on Monday prior to our opening suggests more downside action on Monday. Positive strength in Asia and Europe will tend to support our market and give credence to a post-ex week rally.

Trend:

Friday's expiration did not help the technical picture unless you are on the short side. OEXreg projection oscillator rolled over and penetrated the 50% level. OEX looks sure to touch the 535 regression channel level on Monday. A new trend chart is presented for perspective on the NYSE new highs and new lows. Currently the NetHighLow is drifting towards the zero line as the index moves sideways in a cycling consolidation of the first quarter. When the NetHighLow drops below the 19 day exponential moving average, the index is undergoing selling pressure. When the indicator drops below zero the selling is significant and in this bull market has coincided with an opportune buying point. The big question at the moment is whether or not the indicator is going to bounce off or slightly below zero and move up into a summer rally like it did in the first half of 1997 on the second chart. Here is a DJI chart.

Breadth:

The McOsc chart looks a little different than previously due to some rescaling and data references. Basically it is the same and still reflects the deterioration in issue and volume breadth. The ADHL chart had the same minor data error, but has not changed the signals. The last buy signal is very close to being terminated. NYA breadth has been running negative and contributing to the price erosion. Here is the CODI chart.

Volatility:

Z Timer and MVI are both dead center neutral.

Momentum Cycles Cones:

The Cone projection oscillator is pointing downward and is touching the 50% level. We know that this can be a retracement level where reversals occur, also post expiration weeks sometimes undo what has occurred during E week.

Pivots:

OEX pivot starts the week below the keyline and below the hourly trendline. Next significant event will be what happens to the intersection of the index and the hourly trendline.

Fibonacci Zones:

Equity indexes start the week near the weekly balance midpoint between fib resistance and support.

DJI NDX OEX SPX TYX XAU

RSI, SMI:

SPX RSI is still quite interesting as the mid band provides resistance and is curving over.

Stocks of Interest:

ASTN shows buyers and sellers locked in a narrow range slightly above 3$,with no change in the positive financials or fundamentals. CMR shows what may be a double bottom.Asks up to 1.50 appear at this point{unless a huge new supply hits the market}to be drying up.One determined buyer could take this to 1.50 or above in one day.

OEX Trades:

On hold until an oversold or overbought condition is suitable for a lower risk trade.

Momentum Cycles Update for the open of Tuesday, May 19, 1998:

We had recommended standing aside from an OEX trade since the profit taking long sale on the start of ex week.As price cycled back and forth that week on poor breadth, we waited for an overbought or oversold condition to manifest itself, hopefully in concert with a high probability cycle date.On Monday ,May 18, the total and equity put call ratio hit levels normally associated with an oversold level in sentiment, although not in price.In addition,weak end of weeks and following Monday/Tuesday lows often bring rally conditions into the following Friday.This fits with our previous call for a high about May 21-22, and a money flow low about May 26.That date may be ideal to set up for a long OEX trade to front run the expected pension money flow in the following seasonally likely strong period.Ideally both sentiment and price on that date will coincide with a perfect setup.

We had recommended entering a long XAU trade for Thursday{or Friday,if the lows were revisited} near the fib zone lows posted on the XAU fib chart{reproduced here} XAU,with the recent lows as risk for the position.Traders who entered at the Thursday fib zone support levels were stopped out for a small loss once those lows were penetrated Monday,May 18.Entering positions near the support zones for longs, and conversely,at resistance for shorts,makes these daily fib charts ideal for maximizing profits and minimizing losses.Notice that the fib zone support level for XAU Thursday was marginally penetrated Monday.

Palladium longs had a chance to exit again above $417,before the silver weakness spilled over into the other metals,causing a selling contagion.

CRB next support historically is about 200,where the 12 year lows occured.

ASTN working the 3$ area,CMR not traded Monday due to the Canadian holiday.

Trend:

NHNL chart began its penetration below the zero line. This chart has a 19 period exponential moving average of the normalized net new highs new lows. A trip below the zero line sets up a buying opportunity. Just don't jump the gun on it. OEXreg did hit the blue chaotic attractor, that is a fancy name for regression channel line. Projection oscillator is getting oversold, hasn't turned up yet. ADHL is still on an intermediate term buy. Remember this is not a daytrading system, it is an intermediate one that runs weeks to months. It sure seemed like it would generate a sell today, but no, it is holding out for the FOMC results. Last Hour chart shows some short covering ahead of the FOMC. The net flow rate had a major washout and ensuing move into the positive region for the entire last hour. Usually daytraders close out in the last fifteen minutes on on the close so this last hour looks to be more institutional in nature.

Breadth:

Breadth for issues and volume continues to deteriorate with both the McOsc and the volume summation index trending down. Price rallies should continue to be sold as long as these babies trend down. Price will eventually crack big time unless they turn up. CODI is back near the center white line for a pause until something definitive comes out on the rate front. NYA enters its 7th day of deteriorating breadth. Remember 7 to 9 days is about all we get in conventional times.

Volatility:

Zone Timer is dead neutral and MVI is also dead neutral.

Momentum Cycles Cones:

Cone 1 made a direct hit on the lower half of the red cone on Monday. This is a statistically significant event. That is why the cones have high probabilities of providing support and resistance for average(green), strong(red), crash(magenta) types of days. When you see advances - declines running two to one, you know you are going to get a red day or magenta day. Here is the Cone 2 chart.

Pivots:

OEX closed right on Tuesday's keyline which has shifted down from Friday and is far below the hourly trendline.

Fibonacci Zones:

This week started out with the indexes jamming into the lower weekly fib support levels.

DJI NDX OEX SPX TYX XAU

RSI, SMI:

The SPX rsi chart is still the most fascinating as it turned down from the mid band as the bands curve over. This means the mkt should have gone down and it did. We would look for support at the lower band.

OEX Trades:

Personally I would preserve capital and avoid trying to trade until next week. At least we should wait until some degree of consensus exists amongst the indicators.

Momentum Cycles Update for the open of Wednesday, May 20, 1998:

Predicted Tuesday oversold sentiment pop happened on schedule, followed by a "sell the news".RSI of NASDAQ versus DJIA positive,prelimary global market action Tuesday p.m. positive.OEX models suggesting a buy,which was given more evidence in the last 15 minutes of action of tick.Traders should use the suggested strike discussed in the OEX trade section at the bottom of this page,with less than 50% of the initial purchase price as risk,or use a 1.50$ stop.Remember that Thursdays typically have a downside bias, and that next Tuesday would normally be a money flow low,which suggests the next 4-5 trading days may not be a straight up affair.However,pre holiday Thursdays may hold a different story.Wednesday could very well be a good day trade.A price channel in that case might well be used,or a trailing parabolic stop.If it is instead straight up to Friday,the trendline stop will not be activated.

XAU new trading model{see XAU fib chart below} is partially based on changes of momentum,which appeared last Thursday to be reversing.Monday and Tuesday reversed momentum again,suggesting that the 80 level may break to the downside,so this model is suggesting standing aside from XAU for now.Once we get to the zero line on the SMI XAU chart below,it may well be a different story,with a better result for the XAU bulls.That is where support might be looked for.

Palladium still giving longs some fun on pullbacks.A bullish advertisement on palladium did appear in IBD recently,so the public sees the palladium uptrend as obvious.Last time an IBD add appeared on silver,it lead to a selloff,so be warned!

Next CRB price "hit" below 220 is below 200 { 12 year low}.

Trend:

OEXreg projection oscillator turned horizontal in the oversold level as the OEX finds support at the channel line and suggests a buy mode is at hand. ADHL remains in a tenuous buy mode and what is needed is for the new highs to increase and the new lows to decrease. NHNL also moved back above the zero line suggesting a buy mode is at hand. The last hour took back all the earlier gains in the day. Post expiration unwinding is still occurring. TICK did end strong as did the PREM move into buy program territory. This is a sneaky market as the pros drive it down during the day and then enter in Globex with futures positions at lower levels.

Breadth:

McOsc issue and volume oscillators turned up on Tuesday from oversold levels(higher lows is a positive). The volume summation(intermediate term) is still dropping and won't turn up until the volume oscillator(short term) turns positive. CODI is still in a sell trend mode but at the high probability reversal level. NYA breadth was much improved over Monday and the last 6 trading days. 7 to 9 is about all you get, so we should expect basing to rally mode between now and the end of the month. One last hurdle is to be crossed and that is the little unknown brokerage house clearing function that occurs about a week before the end of the month. You can tell when it happens by receiving a call from your broker with the offer to buy stock without a commission. Means they are transferring ownership from house inventory to client inventory, net result is it still stays in house, for short sales, makes end of month book squaring look good.

Volatility:

Zone Timer is still contracting in the neutral zone. MVI is in a weak buy mode.

Momentum Cycles Cones:

With the projection oscillator oversold and the FOMC out of the way and higher lows being made on a short term basis, it appears the OEX is headed for higher levels. 541 to 545(maybe 547) are easily reached in one day with decent breadth support. 548 could be reached with strong breadth support on a "crash up" day.

Pivots:

OEX had a tight range between R1 and R2 of the Stat pivots on Tuesday. Support was at the keyline. Wednesday has a minor step upwards in the pivots swinging the odds for another try at pushing prices higher. Yesterday's commentary said to watch what happens at the intersection of the hourly trendline(cyan line) and the index. The OEX did find support right on top of it for quite awhile. Actually this trendline is based on hourly data and is not a 12 period average of 5 minute data. It isn't quite that simple as this trendline is a composite of three propriatary moving averages. A pile of cash is sitting at the bottom of this potential rally, so it should be party time again soon. Shorts will be hung out to dry during the summer solstice. SPX pivot. The Day session of the June S&P futures closed marginally above Wednesday's Keyline and above their twenty minute(cyan) trendline. This gives a neutral to positive spin on the action for Wednesday.

Fibonacci Zones:

Weekly fib support is holding and the Balance line(red dashes) provided resistance on a typical "weak" Tuesday. A typically strong Wednesday will see equity indexes move above the balance line.

DJI NDX OEX SPX TYX XAU

RSI, SMI:

SPX rsi outer bands are now pinching in anticipation of a gonzo move. The center band will be challenged again on Wednesday with the odds favoring a successful attack with a close on or above. XAU and TYX stochastic momentum are still down favoring another move up in equities providing fuel for a summer rally.

Stocks of Interest:

ASTNstill showing some buying interest above and slightly below 3{look at VA%}. CMRVA% dropping.We still look for a double bottom here,as asks in this price level appear to be drying up.

OEX Trades:

The OEX momentum and RSI models have both recommended buys on the June 535 calls. The rsi model was early as usual so its reporting here was delayed. The momentum model went on a buy on the Tuesday close. Premiums and time remaining are attractive enough for these to pay off handsomely given even a moderate rally into June. Fund managers have been building reserves as the market suffered weakness in the week prior to this FOMC meeting. Since the anticipated redemptions have not occurred and will not until later in the year, this reserve is likely to be put to work rather soon.

To quote from the Momentum Cycles Update for the open of Wednesday, May 20, 1998:

"Predicted Tuesday oversold sentiment pop happened on schedule, followed by a "sell the news".RSI of NASDAQ versus DJIA positive,prelimary global market action Tuesday p.m. positive.OEX models suggesting a buy,which was given more evidence in the last 15 minutes of action of tick.Traders should use the suggested strike discussed in the OEX trade section at the bottom of this page,with less than 50% of the initial purchase price as risk,or use a 1.50$ stop.Remember that Thursdays typically have a downside bias, and that next Tuesday would normally be a money flow low,which suggests the next 4-5 trading days may not be a straight up affair.However,pre holiday Thursdays may hold a different story.Wednesday could very well be a good day trade.A price channel in that case might well be used,or a trailing parabolic stop.If it is instead straight up to Friday,the trendline stop will not be activated.

XAU new trading model{see XAU fib chart below} is partially based on changes of momentum,which appeared last Thursday to be reversing.Monday and Tuesday reversed momentum again,suggesting that the 80 level may break to the downside,so this model is suggesting standing aside from XAU for now.Once we get to the zero line on the SMI XAU chart below,it may well be a different story,with a better result for the XAU bulls.That is where support might be looked for.

Palladium still giving longs some fun on pullbacks.A bullish advertisement on palladium did appear in IBD recently,so the public sees the palladium uptrend as obvious.Last time an IBD add appeared on silver,it lead to a selloff,so be warned!

Next CRB price "hit" below 220 is below 200 { 12 year low}."

Momentum Cycles Update for the open of Thursday, May 21, 1998:

Palladium from Wednesday's high to close {387$ to 350$} down 12%.Yesterday's palladium warning was apparently timely.

The OEX pivot for May 20 showed the proper entrance level for a call purchase at support at or below the key line. Click here to see today's OEX action in relation to the pre-opening pivot chart, shown in the above link. As always, use a trailing or parabolic protective stop to protect your position. Note that Wednesday's put/call ratio, both on equity, put/call and total put/call, was at basing levels. A money flow low is due on or about May 26, which normally would be followed by a pension fund driven seasonal rally to on or about June 3. Of course, overbought and oversold measurements can refine these cycle probabilities further.

ASTN having a battle between the bulls and the bears about the 3 1/4 level.

CMR at 1.14 has, at this point, about 40,000 shares asked up to about $1.50. A double bottom seems doable and in the works. High quality cobalt concentrate is selling presently for about 26 dollars. There is no assured large new source of supply, and this substance in high % purity is in great demand. Any industrial material for which there is no ready substitute (such as the recent action in palladium suggests) places the supplier of such a material in an enviable position. CMR could very well get funding for a mill and/or an autoclave to process both the cobalt and nickel at Werner Lake from an end user in exchange for an assured source of supply.Of course,this is merely logical speculation, as we have no knowledge of such an arrangement,but if we were outlining a corporate strategy with a high grade cobalt deposit available in today's market,that is the procedure that seems most logical.

Trend:

The OEX regression channel line originating in Jan 1995 remains the dominant trend line since this March. Its projection oscillator in the lower plot has turned up in buy mode. ADHL chart has an intermediate term system on it that remains in a very tenuous buy mode. The New lows entered sell territory and the new highs have been in sell territory but the Advance Decline - DJIA relative strength has been in buy territory. All three need to be in sell mode to trigger a system sell.

Breadth:

The McOsc issue and volume oscillators have turned up from higher lows generating a short term buy, although they really need to trend above zero to put some significant momentum into the equity indexes. This could easily happen over the next few days to weeks. The Volume summation would then be turning up also with a zero crossing of the volume oscillator. An improvement in issue and volume breadth would push the CODI indicator downward and the OEX up towards the 548 level. NYA chart shows the seven days of deteriorating breadth and the last two days of improvement. Unfortunately the intraday data is missing except for the last hour on Wednesday due to that communications satellite fiasco. The NHNL indicator appears to have generated another buy signal with its recent dip below the zero line. Once this bull market terminates, this indicator will be absolutely guaranteed to trend below the zero line.

Volatility:

Zone Timer has broken out of its consolidation formation in the direction of an upward trend mode. The Adaptive Modified Volatility index has generated a buy signal by crossing above its centerline. This is the plot in the center with the magenta bands.

Momentum Cycles Cones:

The Cones are targeting 545 for an average day and 549 for a strong up day. The projection oscillator has turned up from oversold and the OEX is making higher lows. 549 is also a channel regression line which acts a a chaotic attractor or has a "magnet" like effect on prices.

Pivots:

The OEX pivots have made a step upwards for Thursday. In spite of the missing intraday data, the support and resistance lines as well as the keyline are correct for Thursday's trading. The general idea with these is to buy at support and sell at resistance. Old resistance becomes new support and vice versa. The day to day direction of the Keyline and the hourly trendline(cyan)define the intraday and day to day trend. The S&P futures pivots are projecting higher prices for Thursday with an open above the key line and the twenty minute trendline.

Fibonacci Zones:

If there is any decent follow through on Thursday and Friday, the upper weekly fibonacci resistance bands should be challenged for the equity indexes. The XAU is still in a downtrend as evidenced by the green stair step stop loss line. To its credit, there have been three closes on the lower side of the weekly fib support. However, the weekly XAU chart with the stochastic and RSI indicators need more work on the down side before the XAU is ready to sustain an advance.

DJI NDX OEX SPX TYX XAU

RSI, SMI:

The daily XAU RSI chart does show a trading low may be near. Yields are still weak and trending down. SPX RSI is struggling with its retracement band in a downward curving channel. However note the little notches in the bands. Those indicate an imminent trend change. Stochastic Momentum, SMI, shows the downtrending XAU, TYX(T bond yields) and the weakening SPX.

Stocks of Interest:

No charts available today for ASTN and CMR.

OEX Trades:

The OEX RSI and Momentum models are holding the June 535 calls OEWFG at 15 and 13 3/4 entry levels. Again the data for the early part of 5/20 zero is missing due to circumstances beyond our control. This trade is just beginning to work and I would not be too hasty in bailing out as there should be some significant gains over the next week or two. There has been a compression of buying power built up since the first of the month and next week will see the addition of the significant pension money flow. If you had to point to the beginning of the summer rally, you might remember this week and next as being the starting point. Providing we get a breakout above major resistance we could see some momentum that carries further than most are expecting.

To quote from the Momentum Cycles Update for the open of Wednesday, May 20, 1998:

"Predicted Tuesday oversold sentiment pop happened on schedule, followed by a "sell the news".RSI of NASDAQ versus DJIA positive,prelimary global market action Tuesday p.m. positive.OEX models suggesting a buy,which was given more evidence in the last 15 minutes of action of tick.Traders should use the suggested strike discussed in the OEX trade section at the bottom of this page,with less than 50% of the initial purchase price as risk,or use a 1.50$ stop.Remember that Thursdays typically have a downside bias, and that next Tuesday would normally be a money flow low,which suggests the next 4-5 trading days may not be a straight up affair.However,pre holiday Thursdays may hold a different story.Wednesday could very well be a good day trade.A price channel in that case might well be used,or a trailing parabolic stop.If it is instead straight up to Friday,the trendline stop will not be activated.

XAU new trading model{see XAU fib chart below} is partially based on changes of momentum,which appeared last Thursday to be reversing.Monday and Tuesday reversed momentum again,suggesting that the 80 level may break to the downside,so this model is suggesting standing aside from XAU for now.Once we get to the zero line on the SMI XAU chart below,it may well be a different story,with a better result for the XAU bulls.That is where support might be looked for.

Palladium still giving longs some fun on pullbacks.A bullish advertisement on palladium did appear in IBD recently,so the public sees the palladium uptrend as obvious.Last time an IBD add appeared on silver,it lead to a selloff,so be warned!

Next CRB price "hit" below 220 is below 200 { 12 year low}."

To quote from the Momentum Cycles Update for the open of Thursday, May 21, 1998:

"Palladium from Wednesday's high to close {387$ to 350$} down 12%.Yesterday's palladium warning was apparently timely.

The OEX pivot for May 20 showed the proper entrance level for a call purchase at support at or below the key line. Click here to see today's OEX action in relation to the pre-opening pivot chart, shown in the above link. As always, use a trailing or parabolic protective stop to protect your position. Note that Wednesday's put/call ratio, both on equity, put/call and total put/call, was at basing levels. A money flow low is due on or about May 26, which normally would be followed by a pension fund driven seasonal rally to on or about June 3. Of course, overbought and oversold measurements can refine these cycle probabilities further. "

Momentum Cycles Update for the open of Friday, May 21, 1998:

Traders who entered long OEX calls at support or near the keyline on the OEX pivot chart Wednesday{near the afternoon lows},knowing in advance that Thursday had a likely down bias{read the above quotes!},could have sold their position using a narrow intraday trendline seen on the daytrade chart,for a quick profit.Those with a longer time frame are still holding the OEX model long position with a suggested 1.50$ stop loss as maximum risk from the initial price taken at the onset of Wednesday's position.

Thursday's OEX action had a quadruple whammy after the initial good feeling from the pre-opening global rally,with negative comments from Greenspan,Rubin,Dudack,and rumors of Fed selling T-bills for a large customer rumored to be Japanese.

Readers who trade mutual funds in their pensions in addition to options, commodities,and other instruments in their trading accounts are presently in a quandry as to the preferred strategy that should be used for their pension accounts, considering the high level of risk apparent from the numerous divergences appearing daily in the DJIA versus the Transports and NASDAQ.The other technical red flags,such as advance/decline action,valuations,commercial hedger positions versus the public,etc.,are too numerous and well known to mention.We suggest that new readers, as well as present subscribers, reread this page for a strategy that relies on a simple trend following method for avoiding being long into the end of a market crash, but capturing the majority of an uptrend.{This method is not suitable for trading options, please note.}

Trend:

In spite of the deterioration in the price levels of the indexes there was minor improvement in the new highs and new lows. The ADHL chart indicators inched back from generating a sell signal and retained the buy from earlier in the month. Even the NHNL chart inched above the zero line on giving support to a breakout of the wedge to the upside. The 1995 OEX regression channel line is still providing support to this recent but slower advance. The projection oscillator closed above 50%. Pre-holiday trading is generally thin and subject to big price moves.

Breadth:

Flags with flat tops and rising bottoms tend to break out to the upside as selling pressue is reduced. This appears to be occurring on the McOsc issue and volume chart. The issue and volume oscillators are in negative territory, and will have to move upward to sustain any price rise. Consolidation is still occurring in classic fashion as CODI inches higher and the OEX cycles in its trading range. A break above 548 to 550 would change the picture. We had 581 picked as the NYA resistance and one bar hit 580.97 and then profit taking came in. NYA Advance - Decline Spread turned negative after that tag of 580. That is an attractive and instructive chart.

Volatility:

The OEX Zone Timer turned sideways on the Neutral/Overbought zone line reflecting the sideways consolidation. The Modified Volatility Index is trending down in a "buy" mode, but it is getting close to the sell alert line. A pivot upwards at the dashed cyan line would be a sell signal.

Momentum Cycles Cones:

Cone 1 shows Thursday was an average price range day as it is confined in the green cone. A strong day would hit one of the red cones, and a crash up or down day would hit the magenta cone. Cone 2 shows the probability cones for Friday and the projection oscillator above 50% but slanted upward. Also the regression channel is sloped upward.

Pivots:

Friday starts the day with the OEX open just below the Keyline and above the hourly trendline(cyan). This means a mixed open and support at the hourly and resistance at the keyline until one of them gives way. The day session of the S&P futures shows a slightly weaker situation with it below both the keyline and the hourly trendline.

Fibonacci Zones:

Weekly fib resistance was challenged at the highs today and turned prices back downwards. T Bond yields are oversold and their regression oscillator is attempting to turn. It could track horizontal at the oversold line. XAU is still basing in the weekly fib support zone.

DJI NDX OEX SPX TYX XAU

RSI, SMI:

SPX RSI did close above its center retracement band. Perhaps this bodes well for higher prices. XAU and TYX continue their RSI and Stochastic Momentum trends.

Stocks of Interest:

ASTN still cycling around 3$, above and below. CMR.TO has held the double bottom, with asks up to 1.50 numbering currently about 40000 total.

OEX Trades:

The OEWFG is back to the entry levels of a few days ago and is bordering on being stopped out if the 1.50 dollar stop loss is being used. The mechanical RSI and Momentum models are still holding the position.

For new readers, as well as open house guests, we are quoting from several previous commentaries before Tuesday's comments below.Please read the previous commentaries before scrolling down to Tuesday's remarks.

To quote from the Momentum Cycles Update for the open of Wednesday, May 20, 1998:

"Predicted Tuesday oversold sentiment pop happened on schedule, followed by a "sell the news".RSI of NASDAQ versus DJIA positive,prelimary global market action Tuesday p.m. positive.OEX models suggesting a buy,which was given more evidence in the last 15 minutes of action of tick.Traders should use the suggested strike discussed in the OEX trade section at the bottom of this page,with less than 50% of the initial purchase price as risk,or use a 1.50$ stop.Remember that Thursdays typically have a downside bias, and that next Tuesday would normally be a money flow low,which suggests the next 4-5 trading days may not be a straight up affair.However,pre holiday Thursdays may hold a different story.Wednesday could very well be a good day trade.A price channel in that case might well be used,or a trailing parabolic stop.If it is instead straight up to Friday,the trendline stop will not be activated.

XAU new trading model{see XAU fib chart below} is partially based on changes of momentum,which appeared last Thursday to be reversing.Monday and Tuesday reversed momentum again,suggesting that the 80 level may break to the downside,so this model is suggesting standing aside from XAU for now.Once we get to the zero line on the SMI XAU chart below,it may well be a different story,with a better result for the XAU bulls.That is where support might be looked for.

Palladium still giving longs some fun on pullbacks.A bullish advertisement on palladium did appear in IBD recently,so the public sees the palladium uptrend as obvious.Last time an IBD add appeared on silver,it lead to a selloff,so be warned!

Next CRB price "hit" below 220 is below 200 { 12 year low}."

To quote from the Momentum Cycles Update for the open of Thursday, May 21, 1998:

"Palladium from Wednesday's high to close {387$ to 350$} down 12%.Yesterday's palladium warning was apparently timely.

The OEX pivot for May 20 showed the proper entrance level for a call purchase at support at or below the key line. Click here to see today's OEX action in relation to the pre-opening pivot chart, shown in the above link. As always, use a trailing or parabolic protective stop to protect your position. Note that Wednesday's put/call ratio, both on equity, put/call and total put/call, was at basing levels. A money flow low is due on or about May 26, which normally would be followed by a pension fund driven seasonal rally to on or about June 3. Of course, overbought and oversold measurements can refine these cycle probabilities further. "

To quote from the Momentum Cycles Update for the open of Friday, May 21, 1998:

"Traders who entered long OEX calls at support or near the keyline on the OEX pivot chart Wednesday{near the afternoon lows},knowing in advance that Thursday had a likely down bias{read the above quotes!},could have sold their position using a narrow intraday trendline seen on the daytrade chart,for a quick profit.Those with a longer time frame are still holding the OEX model long position with a suggested 1.50$ stop loss as maximum risk from the initial price taken at the onset of Wednesday's position.

Thursday's OEX action had a quadruple whammy after the initial good feeling from the pre-opening global rally,with negative comments from Greenspan,Rubin,Dudack,and rumors of Fed selling T-bills for a large customer rumored to be Japanese.

Readers who trade mutual funds in their pensions in addition to options, commodities,and other instruments in their trading accounts are presently in a quandry as to the preferred strategy that should be used for their pension accounts, considering the high level of risk apparent from the numerous divergences appearing daily in the DJIA versus the Transports and NASDAQ.The other technical red flags,such as advance/decline action,valuations,commercial hedger positions versus the public,etc.,are too numerous and well known to mention.We suggest that new readers, as well as present subscribers, reread this page for a strategy that relies on a simple trend following method for avoiding being long into the end of a market crash, but capturing the majority of an uptrend.{This method is not suitable for trading options, please note.}"

Trend:

"In spite of the deterioration in the price levels of the indexes there was minor improvement in the new highs and new lows. The ADHL chart indicators inched back from generating a sell signal and retained the buy from earlier in the month. Even the NHNL chart inched above the zero line on giving support to a breakout of the wedge to the upside. The 1995 OEX regression channel line is still providing support to this recent but slower advance. The projection oscillator closed above 50%. Pre-holiday trading is generally thin and subject to big price moves."

Breadth:

"Flags with flat tops and rising bottoms tend to break out to the upside as selling pressue is reduced. This appears to be occurring on the McOsc issue and volume chart. The issue and volume oscillators are in negative territory, and will have to move upward to sustain any price rise. Consolidation is still occurring in classic fashion as CODI inches higher and the OEX cycles in its trading range. A break above 548 to 550 would change the picture. We had 581 picked as the NYA resistance and one bar hit 580.97 and then profit taking came in. NYA Advance - Decline Spread turned negative after that tag of 580. That is an attractive and instructive chart. "

Momentum Cycles Update for the open of Tuesday, May 26, 1998:

Our cycle projections called for a whippy up and down expiration week, an upward reversal in OEX on Monday or Tuesday, May 18-19,a rally into Thursday or Friday,May21-22,a selloff May 22 into May 26 as a money flow low, then a rally into approximately June 3.So far,these have worked out quite well.The cycles we work with are a combination of price and date probabilities that are confirmed with many of the indicators you see below,in addition to others{proprietary} that are not posted.

One of the strongest and longest lasting profitable trade setups is to front run the pension fund reinvestment monthly schedule, which occurs starting May 27 for such large institutions as TIAA-CREF{Wednesday next is payday for college teachers}.A huge chunk of cash is automatically funneled into equities, so buying the low point prior to the positive money flow is the way to front run the pension funds.Buying a position in OEX calls the day of the low point{Tuesday May 26}often works,and exiting into strength that week or next is very often profitable even in technically fragile markets.In fact, such a trading strategy, using a random basket of stocks, would have netted a trader a 0% return in 1929, no mean feat in that year of total disaster for buy and holders!

Trend:

On the OEX regression channel the 1995 trendline is still dominant, and projection oscillator is flat(neutral). NHNL is on zero as the Index approaches a decision point or vertex of the wedge. Watch for a breakout. ADHL is still on a tenuous buy mode. New Highs dropped back, new lows increased, and advance/decline DJIA RSI decreased.

Breadth:

McOsc issue and volume oscillators are still bearish looking. Expect them to turn up next week. CODI made a Buy pivot by turning downward. This is an anticipatory indicator.Except in abnormally uptrending markets without any cyclical intramonth retracement, this indicator is often very useful in anticipating turns. NYAis range bound with negative breadth as indicated by the spread plot. On the Flow chart, the first part of Friday had a price/flow divergence resulting in a rally. Negative flow rate and TICK resumed in the afternoon bringing prices back down. On the SNAPSHOT chart, most of the day the PREMIUM cycled between fair value and sell program territory. Friday started out with two negative 1000 ticks and then improved the rest of the day.{For new readers, excessively high tick readings often mark reversal points.A series of high negative ticks is bullish, and vice versa.Note that Wednesday's +399 closing tick gave high probability to a short term pullback within 2 days, as well as a highly probable up start to Thursday's predicted short term top{see above}}.

Volatility:

Zone Timer dipped back into the neutral zone. MVI center plot is contracting into a breakout pattern. Top plot is closer to a sell than a buy, however, there is still room for prices to advance before the sell occurs.{Note to new readers- the market has a high probability of reversing at a tag of either the upper 3.5% or lower 3.5% trading band.A rally to that level after positive seasonality next week might indeed be an ideal sell point.}

Momentum Cycles Cones:

Cone 1 indicates we had an average price range day based on implied volatility. Cone 2 shows price projections for average(green), strong(red), crash up/down(magenta) types of price movement. These are based on implied volatility of OEX options.

Pivots:

OEX has a neutral to weak look for the Tuesday opening as the index, the hourly trendline(cyan) and the yellow Keyline are all at about the same level but the pivots are shifted lower in prices a bit. The June S&P futures contract pivot chart reflects a slightly weaker situation than the cash index.

Fibonacci Zones:

Equity indexes begin next week near the weekly balance line(red dashes)in a consolidation. XAU and TYX are still in a downtrend.

DJI NDX OEX SPX TYX XAU

RSI, SMI:

SPX RSI is still the most fascinating of the RSI charts. It did close above its center retracement band. Perhaps this bodes well for next week. The XAU and TYX SMI charts are still reflecting a downward trend whereas the SPX Stochastic Momentum is trending sideways at a longterm overbought level.

Stocks of Interest:

ASTN CMR.TO {note to new readers- we have taken small speculative positions in these two issues.ASTN is on the verge of becoming a major player in world electronic trading systems, and is led by Fred Rittereiser, who successfully turned Instanet into a profitable entity.CMR is an oversold Canadian cobalt- nickel- copper property on the verge of production, with a large high % cobalt deposit,infrastructure, roads, permits,personnel,and the strong possibility of an end user of its cobalt product funding a mill and/or autoclave in exchange for reliable assured supply.High % cobalt product, unlike other metals, is getting good prices these days, due to extremely tight supply, not unlike the recent short squeeze in palladium{which is now apparently over, incidently}.

OEX Trades:

Trade status - our mechanical model - is still long the June 535 calls. OEWFG is back to entry level.