MomentumCycles

MomentumCycles commentary for the open of Wednesday, May 5, 1999:

Bonds apparently hold the key to the immediate future of equity indices.We saw a yield retracement,admittedly a minor one,back to the bands Monday as predicted,but Tuesday resumed the upward march of yields and the downward march of price, in concert with weak Fannie Mae,now testing critical 7 month support at 66.Note we called the FNM/bond top at 76,quite a while back.Rallies for months in FNM have failed at 74-72,with obvious bond implications.Merrill Lynch did their part by calling for a reduction in bond representation in their asset allocation mix{a bit late as always!}.

June bond is testing support on the point and figure chart. It did find support at S2 most of Tuesday. Equities consolidated Monday's gains with a 50% retracement. Call it time out for the Golden Sack(sic) stock offering{that's why they call late buyers bag holders...who do you think is SELLING the offering?}. Picking a market top is the best time for IPO's to come public. This must be it then. Time to stop fighting resistance with calls. Pray that Wednesday provides a rally to enter some puts as laid out in previous commentaries and boosts the OEYEP into profitablility.

Note Tuesday followed through with our observation of DJIA cyclicals stronger than the seasonally weak techs {- 1.17% versus -1.99%},with former stellar AOL down 4.51%.

XAU made another intraday high today,but is overbought as mentioned Monday,and closed near the low of the day.STOCHASTIC did not confirm Tuesday's intraday high of 76.22...perhaps time to take some short term traders' XAU longs off the table.Two successive closes at the low of the day would look like a good confirmation for 76.22 to be a short term top of significance.Don't go short,however,as this may only be a pause before 80.Above 80 would be an important breakout.

The equity indices may be starting to anticipate Friday's employment report,since Monday may have chewed up the beginning of month pension monies.If employment is strong on Friday's report,implying a selloff Friday in bonds and stocks,Thursday's bank index {BKX} will show a move of -1% or more from open to close.If Friday's report is bullish for bonds and equities,Thursday's BKX will show a move of open to close of +1% or more.This indicator we call the PRE indicator,and is usually reliable in predicting the direction of the following day's economic reports of significance.So we look at the BKX at 3.45 p.m. Thursday for a possible clue to Friday's employment report.

Here are the charts we examine nightly:

AMOSS CHART. CODI CHART. CONE CHART. DSP9M DAILY CHART. DSP9M WEEKLY CHART. DUS9M CHART. DUS9MPF CHART. EQUITYCP CHART. INDU CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEXWM CHART. PITCHFORK CHART. SENTIMENT CHART. TYX CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, May 6, 1999:

Last weekend's commentary called for a high of sorts on Wednesday, in spite of the poor technical conditions. We also said we would give more weight to the seasonals and try for some call trades followed by a put trade later in the week. If you have been following the email updates, then you know the OEYEP was whipsawed on Tuesday and Wednesday. It was clearly stopped out, as it is unreasonable to request a 50% stop loss, yet that is what some other traders use.{We use a 1.50 stop,as suggested repeatedly on nightly commentaries,and on intraday updates.}OEYEP did go on to provide profitability if it was held over or re-entered on trendline breaks. Tuesday was a weird day; perhaps it was the GoldmanSachs IPO that had the players' attention and produced an inversion of the seasonal pattern. Bonds put a scare into the mix also. There appeared to be demand at the 5.71% yield putting a a cap on yields and lifting the pressure off equities. The S&P futures found support at the daily DSP9M Fib support, and the DSP9M probability chart also hinted at 1325 support because of the price clusters a few days back. For our own trading purposes, CODI is still in whipsaw territory, OEX projection oscillator is at the neutral line, AMOSS and MOSS are neutral, option sentiment is neutral, and resistance could very well be only a few points higher on the OEX and S&P futures. Because of the Tuesday/ Wednesday inversion, let's shift the anticipated high into Thursday or Friday and look for a put entry on the email updates.In this environment,which shifts from elation to despair from one hour to the next,intraday updates are necessary.The market is speeding up;what took months a few short years ago is now compressed into weeks or even days.Lately its been hours- witness the NASDAQ reversal Wednesday.

Ever hear the old saw"sell into strength"? XAU STOCHASTIC near 100,very overbought,and another close at the high of the day-a good exit for selling some part of a long position into strength near 80 today-79.63 was the high and close.We warned against shorting this one as a move to resistance at 80 {or above!}looked in the cards.See the XAU chart below for support and resistance,and where the buy on the bottom occurred for this move!We sometimes trade against the trend for a quick move,as we did recently shorting at the first tag of 69.02 resistance and covering precisely by intraday e mail at the tick low of 64.75,before the uptrend resumed.

DSP9M WEEKLY CHART. EQUITYCP CHART. INDU CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEXWM CHART. PITCHFORK CHART. SUPERT CHART. TYX CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for Friday,May 7,1999:

Its been a nice run in the XAU. Next target is 86.84. Max extension on this move is to 93.94 although 85 might be it.We suggested taking some partial amount of XAU longs off the table {"sell into strength"},but not to short XAU,as STOCHASTIC 5 and 20 are in extreme overbought,just as stocks like AOL are beginning to get extremely oversold.AIQ does have a high expert rating in XAU right now.

A move of VIX above 30 and back below has been followed by a decent OEX buying opportunity. If the OEXwm can get above 681.94 with good breadth we might see some fireworks on the upside. This goes against popular opinion right now which might act as a booster to the OEYEP calls. If we are offered a chance to exit on a rally on Friday following the Labor Report, then we look to the OEX Cone chart for a conservative exit at the upper green cone, 681, and an aggressive exit at the red cone, 687. Note how the OEX has been basing just above the lower regression channel line on the cone chart. These points sometimes provide launching points for rallies back to the higher trendline. Note the last three day rally off the trendline. So far that rally has consolidated at 50% over ten days and five days at current levels. That is sufficient for supporting a rally. Of course we have been promoting the notion that positive seasonality ends on Friday. It doesn't necessarily have to end on the downside. Sometimes it ends with a flurry of panic buying.

Sentiment is neither bullish or bearish. EquityCP is a bit more encouraging for upward action as rallies with bullish sentiment have power. Usually we look for the EquityCP to peak and turn before price peaks. Specific support and resistance levels for one day ahead are available on the DSP9Mday and OEXday charts. The center green lines are "pivotal". The T-Bonds are the stickler at this time after selling off, driving yields to 5.801 percent before inching back to 5.708%. Should the labor report be benign Friday morning, then we might just see a collapse in TYX. We might just see an "expiration Friday" 2 weeks ahead of time.

Note-The price distribution of the June futures shows clusters of activity at 1368.

Here are more charts:

AMOSS CODI DSP9Mweek DUS9Mpnf FbrtOEX INDU Mocycles OEX 30 minute OEXPNF OEXweek Pitchfork VIX XAU 30 minute XAU daily

MomentumCycles commentary for the open of Monday,May 10,1999:

Gold stock fans had an exciting day if not traumatic. MoCycles had been urging subscribers to sell into this rally for the last 2 trading sessions,because of pattern similarities to previous overbought conditions at tests of recent highs. Friday saw a 0.382 fibonacci retracement in the runup from late March,back to the trading bands from far above. This is the first test of support, then 0.5 and 0.618. Where support comes in will be a clue to how valid this rally has been in forecasting T-bond yields nine months out(see Technical Analysis of Stocks and Commodities, May 1999 issue). If the rally is for real, then buyers should come back in at the designated levels. The XAU is an example of what the DOW will look like when the exodus from stocks occurs as T bond yields compete with dividends. It is the nature of equities to rise slowly and drop fast in bull markets. Gold stocks just do it faster because of the thinness of trading. The pattern is called right hand translation. Some have said that gold has been dead since financial futures replaced it as the instrument of choice for hedging against inflation. The notion that is gold does not like inflation and the latter was absent in the labor report on Friday. Britain entered the war on gold by dropping a bomb on the aspirations of gold aficionados. All it takes is a threat to make a major liquidation of bullion in exchange for a more liquid tradeable. The war on gold continues with governments battling for the supremacy of paper money over hard assets. It is a question of confidence in the currency of the land.It is interesting that our technical analysis showed a violent retracement was about to happen once 80 was passed,similar to an overstretched rubber band,so we gave 2 days advice of "sell into strength".Of course,AFTER the retrace back to the 70's from 80+,the brokerage houses downgraded the XAU components...sort of like downgrading bonds after rates have moved from 4.6% to 5.7%.

The OEX labored at making it above 681 where it was advised on a premarket email update to move the OEYEP stop once the OEX moved above the green cone. Anywhere from two to three points or twenty to thirty percent was possible on the trade depending on entry and exit. We do have a very interesting situation shaping up for next week. The DSP9Mpd shows a triangle formation on the daily chart with prices clustered at 1342. A firm break either direction will provide a tradeable move. The propensity for pre-exp weeks is to be net down until Friday. With the way the TYX performed on Friday, there is major scepticism about no inflation, and fear should preside until the FOMC meeting a week later. The thinking here at MoCycles is to look for a put entry on any rally on Monday.

It is notable that the option premium ratio is now in the .40's at a marginal new DJIA high,a major nonconfirmation.Remember the high of 1.66 on April 12?As well,2 consecutive readings in the .40's sometimes presage a corrective move.Readings in the .30's only after multi-hundred point DJIA drops set up rallies,similar to the reading of .36 we had a while back when CODI was in the buy zone{see CODI chart for previous buy arrow},prior to the current rally.

A move by the INDU on balance volume above its upper band and back inside, or an OBV sideways move presages a correction in the INDU. Current status is warning of consolidation/correction. Sentiment and EquityCP have dropped way back from bullish enthusiasm and as has been seen in the past such enthusiasm is an ingredient of uptrends. A look at the SuperT indicator shows this last up cycle is running much longer than previous ones as measured by the time distance between the green arrows.

Here are the charts:

AMOSS BREADTH DSP9Mday DSP9Mweek FIBRTOEX MOMENTUMCYCLES OEX30 minute OEXDAILY OEXpnf OEXWeekly OEXwinmidas PITCHFORK VIX VOLATILITY CONE

MomentumCycles commentary for the open of Tuesday, May 11, 1999:

If we examine the followingAOL/XAUchart,we can see a good illustration of the extremes of overbought and oversold contrasting conditions.Last week on Wednesday and Thursday we noted the overbought STOCHASTIC position of the XAU,which had closed far above the trading bands that normally contain this index.XAU has since sold off over 10% on Friday and 6.54% Monday,now at the lower 3.5% trading band,although STOCHASTIC 5 is 30,and STOCHASTIC 20 is 60,not yet extremely oversold.Sell into strength was good advice for XAU longs who had bought in the 60's or 70's,as the high was the low 80's,which was in the range of our target.The XAU close Monday was 67.34.Contrast this with our note that Friday and Monday{pre-opening} marked extreme oversold STOCHASTIC oscillator position for AOL,regardless of general market conditions.An oversold bounce was due.Monday brought a tradeable one day oversold bounce in AOL of 8.57%, or 10.125 points,moving up to tag the lower 3.5% trading band from well below.We make comments on these conditions on individual issues or indices at tradeable extremes,and the previous chart illustrates these extremes quite well.Trading the extremes is often a lonely position,as the crowd swells in enthusiasm or despair at precisely the wrong time.Now XAU is approaching oversold, and AOL is no longer at the well tested 115-119 oversold area.

On to our OEX observations...

Monday worked out as laid out on the weekend update. We bought OEYQQ and OEYQP puts within minutes of the top of the rally and held for nice gains for a daytrade. Tuesday may be a repeat performance. There is an old saying on Wall Street, "never sell stocks on Monday, sell them on Tuesday". Of course we trade from technicals and not cliches. So far May is looking like a consolidation, just as the Volatility chart has it labeled. Option Sentiment and Equity C/P continue to reflect a dying bullish enthusiasm. Price has settled into neutral on both the MOSS and AMOSS charts. The longer these stay below zero, the more convincing the case for consolidation is. Consolidation should give way to a more serious correction before a summer rally. The INDU chart is bordering on a 3.5% correction at a minimum, and possibly 5% to 7%, and that is a conservative estimate. The INDU could drop all the way to the 200 day average without violating the Bull's integrity. He might just need a shot of Viagra and a Geritol cocktail to keep up his flagging momentum. The next two weeks are loaded with volatility inducing events, CPI, PPI, FOMC, Expiration. Bets are for extreme choppiness with stops taken out above and below the market. When in doubt, stay out, and that is the mantra for big smart money, i.e. the people we trade behind, not in front of, except when we know they are in the game and what their system is. Moontide ended Tuesday in a surfing mode ready to catch the next wave. 5 day advancing volume and NHNL looked deceptively like the indexes should be going higher. The gurus say when breadth is strong and price is weak, price eventually turns up. We agree with that, but we also agree that 11111.70 to 11168.59 or daily fib resistance is a nice place to look for a put entry.

It is to be noted that Wednesday/Thursday marks the start of cyclical equity index weakness using the NASDAQ 5 day rate of change price indicator,and that the Option Premium Ratio is not confirming the recent DJIA highs.Admittedly these two indicators are not the only ones we examine,but extra caution for longs in that time frame might well be warranted.

Here are more charts:

CODI CHART. CONE CHART. CYCLE CHART. DJI FIB CHART. DSP9M DAILY CHART. DSP9M WEEKLY CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEXPF CHART. OEX WEEKLY CHART. OEXWM CHART. PITCHFORK CHART. TYX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

To quote from the MomentumCycles commentary for Tuesday, May 11, 1999:

"If we examine the following AOL/XAU chart,we can see a good illustration of the extremes of overbought and oversold contrasting conditions.Last week on Wednesday and Thursday we noted the overbought STOCHASTIC position of the XAU,which had closed far above the trading bands that normally contain this index.XAU has since sold off over 10% on Friday and 6.54% Monday,now at the lower 3.5% trading band,although STOCHASTIC 5 is 30,and STOCHASTIC 20 is 60,not yet extremely oversold.Sell into strength was good advice for XAU longs who had bought in the 60's or 70's,as the high was the low 80's,which was in the range of our target.The XAU close Monday was 67.34.Contrast this with our note that Friday and Monday{pre-opening} marked extreme oversold STOCHASTIC oscillator position for AOL,regardless of general market conditions.An oversold bounce was due.Monday brought a tradeable one day oversold bounce in AOL of 8.57%, or 10.125 points,moving up to tag the lower 3.5% trading band from well below.We make comments on these conditions on individual issues or indices at tradeable extremes,and the previous chart illustrates these extremes quite well.Trading the extremes is often a lonely position,as the crowd swells in enthusiasm or despair at precisely the wrong time.Now XAU is approaching oversold, and AOL is no longer at the well tested 115-119 oversold area."