MomentumCycles

Momentum Cycles Update for the open of Thursday, May 7, 1998:

Trend:

The OEX low for Wednesday essentially tagged the blue regression channel line originating in Dec/Jan 1995. Note how it provided support in March, April and now is being tested again in May of 1998. So far this just looks like a controlled correction absent of panic selling. One more down day should take the projection oscillator to the 50% retracement line the fibonacci retracement to 0.618 of the trading range as discussed below. The Last Hour action consisted of more deterioration characteristic of pre-Thursday action. Price was eroding, TICK spent most of the time below zero, TRIN was rising and was above 1.0, Prem went into sell program territory, VIX close near its high for the day. This all paints a negative picture for the open on Thursday with the caveate that minds can be change as the world turns and with the multiple negative TICK readings the market is short term oversold.

Breadth:

NYA breadth spread ran negative all day with a consequential drop of the McOsc issue oscillator to the lower side of the Neutral region. The volume oscillator never did push above the issue oscillator and should have been a clue that momentum was insufficient to hold prices up. CODI made a sell pivot as the OEX closed below both trendlines. Note that the close is around 50% of the distance between the 522 and 548 lines. This provided support for quite awhile today. 532 would make the retracement 0.618 down from 548 and a break of 532 might bring in some more selling from the fibo retracement croud.

Volatility:

Zone Timer is now in the oversold side of Neutral and the MVI continues in its sell trend mode. One more down day would put it on or below the -1 level on the Zone Timer right axis. This is the first highly probable reversal level. MVI has more headroom for selling. Say we get a good down day with increased volatilty, then the MVI could reach the upper Buy band and then on Friday we might have a buy signal. So lets anticipate more selling on Thursday with some stabelization later in the day.

Momentum Cycles Cones:

Another average down day to 532 would satisfy a lot of technical retracement and support level targets. Wednesday was an average range day as defined by the green cones. Note the cone apertures vary as volatility varies.

Pivots:

The Pivots also paint a picture of price erosion with the closes below the hourly trendlines and below the Keylines.

Fibonacci Zones:

These fibo zones are one of the most popular approaches to determining support and resistance. The weekly levels seem to provide a reliable way of determining intraday highs, lows and often the close. Just take a look at these points for the DJIA, OEX, SPX, NDX, TYX, XAU for 5/6/98. The ratio oscillators for the first four of these indexes have crossed just as the indexes close on the Weekly Balance line in mid week. Since the selling has been so persistant and this Thursday marks the fifth trading day of the month(end of positive seasonality) we could see extra heavy selling taking the closes if not intraday lows below the Balance lines.

RSI, SMI:

The RSI chart appears to be the better of the these two for timing short termtrades. The SMI is for a longer term perspective.

OEX Trades:

No new trades have been triggered yet on the OEX models.

Momentum Cycles Update for the open of Friday, May 8, 1998:

Trend:

OEX reg closed below the 1995 channel line as the projection oscillator closed below the 50% line in a downtrend. Last Hour had price erosion, TICK remained below zero most of the day with many excursions below -400, TRIN was deceptive and because of its ratio of ratio calculation did not tell the true story, PREM cycled between fair value and sell programs in a controlled orderly liquidation of stock so as not to panic the public. Once the cash stopped trading the futures went deeper into sell program territory. You can monitor the futures overnight on globex if you have trouble sleeping, at http://www.cme.com/cgi-bin/gflash.cgi.

Breadth:

DJI shows just how scary the breadth measures look. They look so bad that the AIQ Expert Rating is -90 meaning not good and that is an understatement. NYA breadth shows the six day steady increase in declines without a panic selloff. You would think we would get at least one -2 std dev panic low out of this before it is over. If this keeps up very long the grip of the buy and holders should loosen on their stock certificates. Note how well the NYA was contained inside its regression channel and note its slope. Once the Crays, IBM's etc get locked into a trend it is hard to break it. CODI is still in its sell trend and the OEX appears headed for 525, maybe 522. McOsc issues and volume are working on a right shoulder at a higher low. The issue oscillator is back to a normal oversold -100. Conditions are ripe for a tradeable bounce.

Volatility:

Good old Zone Timer is only on the boundary of neutral and oversold. Is the pain just starting? We need an upward pivot here to change the outlook. If we truly enter a sustained bear mkt then the Z timer will track sideways in the lower zones . MVI did not advance as far as anticipated today and it is still in a sell mode. It needs to pivot near its upper band. Argument is for a little more selling Friday, at least for part of Friday. It looks like every opportunity was taken today to sell into any rallies that it is foolish to swim against that tide until volatility trends the other way and the above TICK, TRIN, PREM reverse their course on the river of public de nile.

Momentum Cycles Cone:

OEX odds cone projection oscillator is trending down and stopped on the 50% retracement level. The cones show an average day low for Friday of 525, a strong down day of 520 and a panic -2 std dev low of 515. There is a remote possibility that the pre-E week cycle will strike on Friday after the employment report and the fed gov has his say. So be prepared for a spike low early in the day, some stabelization and a rally after 11:30ET with improving breadth. Cross your fingers and pray that this thing does not go over the edge like water over Niagara Falls.

Pivots:

OEX pivot shows an open below the hourly trendline and below the keyline. Trend is down until a close above the hourly and until the keylines have higher daily levels. Take a look at S!, S2, S3 and the above Cone for possible support levels.

Fibonacci Zones:

Lower weekly fib levels are under attack as the ratio oscillators probe for support at the 50% retracement level. This gives some modicum of hope for a bounce before the Friday close.

RSI, SMI:

RSI yields and spx look like they are weakening. SPX SMI sure looks like the long uptrend is over with the little failing bump at the right side of the chart. XAU RSI looks kind of neutral.

OEX Trades:

Just when it looks like we are about to slide down the other side of the first quarter rally we end the pre-E week selloff. We make such a big deal out of this because it is a repetitive cycle and there is a trade that often works out. That trade is to buy the Friday close, and then with front running it became buy the post lunch hour and then buy the morning. Six days of declines is beginning to reach the 6 to 9 average limit of trends. OEXrsi model was early last time and is again recommending to purchase the June 525 calls. Now, of course if there is additional selling on Friday morning you would want to lower that strike accordingly. Note the 525 is one strike in the money as of Thursday's close.

Momentum Cycles Update for the open of Monday, May 11, 1998:

Trend:

Trend really cannot be defined until a unit of measurement of time or price(in terms of point and figure charts) is selected. The OEXreg chart is a daily chart so the trend is determined by the close to close relationships. High to high and low to low trends also go into making up price patterns that give clues to market direction. April saw the beginning of a sideways to down correction and so far that continues into May. The blue '95 channel is the most dominant and currently influential channel but as is seen in the Cone chart a new downward sloping channel on a short term basis has formed. These channels contain tradeable cycles and that is what the projection oscillator tries to detect. It bounced off the 50% retracement line on Friday accompanied with a bullish belthold candle. ADHL is holding its tenuous Buy signal as the New Highs threaten to undermine it. New Lows are cooperating. If there is followthrough upside next week then the New Highs may move into a more secure position. Keep in mind that next week(12th -15th) there is a confluence of market promoters in Las Vegas whose reading of the tea leaves can have a ripple effect throughout the equities markets.

Breadth:

NYA breadth was much improved on Friday as the NYA generated buy signals with a breakout of its channel. Twelve hundred advances or declines is significant because price trend needs breadth confirmation to continue. Late Friday the declines did creep up towards 1200 reflecting the skeptical pessimism about the longevity of a rally. The McOsc issue and volume oscillators have formed a higher right shoulder. They are still both in negative territory and restraining the commitment of funds until they cross the zero line to the upside. These breadth indicators have to prove themselves before some managed money is committed to stocks. A strong zero crossing should be accompanied by a decent price advance. CODI is in that Indeterminate whipsaw region that is bound to confuse investors. Traders may find opportunity in a trading range market that follows the long trending market of the first quarter.

Volatility:

The Zone Timer closed on the bullish side of neutral and the MVI made a buy pivot.

Pivots:

Friday saw the OEX close above its hourly trendline and the Classical Pivot Keyline. That gives increased odds for higher prices on the next trading day. Intraday resistance is expected at the R levels and support first at the Keyline and if that is penetrated then at S1A.

Momentum Cycles Cone: This chart is a forward looking one based on what option volatility implies prices are going to do. If prices move up then an average day would see the OEX between 539 and 540. A strong up day would see them between 543 and 545. A crash up day would be 548 or higher. It usually pays to take option profits on a strong day or crash up day because of the propensity to retrace some of that price movement the following day. This is particularly true if May options are in hand. June options are not as sensitive and may be held as the close to close trends work out.

Fibonacci Zones:

Next week begins with the major equity indexes near the weekly balance(red dashed line)and the ratio oscillators turning up near the 50% retracement line.

RSI, SMI:

XAU rsi is neutral, TYX rsi is oversold, SPX rsi is cycling between oversold and the downward curving center retracement band. This means rallies will be contained with selling until that band and the channel turn up. The SMI chart is of a longer view and shows stochastic momentum waining for the SPX. That little classic bump on the far right is a warning sign of a pending sell signal of consequence. XAU smi is also running out of steam. TYX smi is biding its time in neutral.

OEX Trades:

The mechanical OEX momentum model added a buy signal on Friday close. Because it is an end of day system, the actual buy would be on the next trading day, not necessarily on the open, but on pull backs to support at the keyline or one of the Pivot support levels preferably.

Momentum Cycles Update for the open of Tuesday, May 12, 1998:

Trend:

OEXreg channel from Jan 1995 really dominated today. It has been said before that the channel lines act as chaotic attractors and this 1995 line seems to have a lot of "magnetism". Its projection oscillator is making a lower high. Expiration weeks are noted for strike price range shifts in both directions. Some professional traders avoid trading this week because of its choppy nature as unwinding of options occurs. Today the market seemed to be extra sensitive to various bearish guest speakers on CNBC as it would go into accelerated sell mode prior to the guests presentation. ADHL is hanging onto is recent buy signal with surprising improvement in new highs to 97 from 63 on Friday. Both the new high and new low indicators are supportive of the buy signal, whereas the adv-decl relative strength is in neutral. This neutral mode is in agreement with the Z Timer and MVI below.

Breadth:

NYA breadth had a bearish translation with the strong positive breadth in the first hour and then deteriorated the rest of the day. This is not the kind of action you need if you are long calls. Flow chart shows how selling came in on the opening pop and then the TICK drifted downward and remained negative after the first hour. Today's McOsc of issues went unchanged to sideways which is a predictor of a gonzo multihundred point move within 4 days. CODI is in a gradual sell trend near the center line with prices closing pretty much in the center of their recent trading range of 522 to 548. The yellow and white trendlines are under on the verge of rolling over.

Volatility:

Zone Timer made a sell pivot, but it is almost dead center neutral. MVI also made a pivot, but it too is dead center. Lower risk buys and sell occur at the outer bands. This center region is called the meat grinder for good reason where the bulls and bears are in a major tug-of-war.

Momentum Cycles Cones:

Monday's and Tuesday's Cones are presented to illustrate their value for price target selection. This weekend's update urged traders long the OEX calls to sell them into a move to the upper cones. Fortunately today there was a move to the red cone where some nice profits were available for the oewfg and oeweg if you were gutsy enough to pick that one.

Pivots:

The OEX pivots also gave a decent target at R2 for profit taking as an alternative to the red cone. Tomorrow's pivots see the open below the keyline and the hourly trendline. Odds are high that prices will work lower on Tuesday.

Fibonacci Ratios:

TYX yields broke out above upper weekly fib resistance putting a damper on the equity advance in the first hour as its ration oscillator rises from oversold. Equity indexes closed pretty close to their weekly balance lines and far from either fib support or resistance. Ratio oscillators are at the 50% retracement level, so we have a toss up here for direction based on price, whereas in the breadth section, things look biased to more selling.

RSI, SMI:

XAU and TYX RSI were stronger than the SPX. The latter is in that downward curving channel with short term bearish connotations.

OEX Trades:

This weekend's advice was to take quick profits in the June calls on any strong rally to the Pivot resistance levels or upper Momentum Cones. We were lucky in getting that move in the first hour of trading. Price targes were clearly specified for the OEX for an average day(green cones), strong day(red cones), crash up day(magenta). No trades are recommended for Tuesday even though a large move either way could occur. The direction is just too indeterminate.

Momentum Cycles Update for the open of Wednesday, May 13, 1998:

Trend:

CNBC had another analyst on with a bearish outlook on Tuesday. Again the market was headed down until after his presentation. Only this time the viewers should have paid closer attention to his technique because those who chased the ensuing rally may just be getting caught in a sucker rally. It just so happens that his composite analysis of all the optionable stocks is in a sell mode and the composite of the NYSE stocks is expected to go into sell mode on Wednesday unless things improve in a big hurry. Even with Tuesday's post bond closing rally the New Highs were only 69 vs the 97 on Monday. Even the New Lows picked up to 48 on Tuesday vs the 33 on Monday. The ADHL chart is just barely holding onto its last buy signal as the new highs and lows continue to weaken. The OEX found support on the Blue regression channel for another day but price is coiling into a triangular formation. Since the first of May there has been a massive controlled distribution of stock on any strength in the market. There appears to be an opportunity shaping up for a put trade to be entered on rallies. Money can be made in both directions but the opportune times are when projection oscillators are at 80% or 10% and right now it is closer to 80% than 10%, so why not sit back and let it come to you and not feel you have to chase every wiggle.

Breadth:

The McOsc issue and volume oscillators are hanging tight in the negative region as stocks are jerked up and down in this expiration. CODI is horizontal to up in a minor bearish mode. NYA made a pretty chart today. Note how many more declines there were than advances and note how close overhead resistance is on the NYA. Between 12:06 and 1:50 there was a divergence set up between the OEX and the TICK and Net Flow Rate. The latter two had higher lows than the OEX. This turned the OEX up as Total Flow Rate exceeded the 1 million shares per minute needed to sustain trend. Note the OEX flatness between 12:06 and 1:50 as Total Flow Rate was below the one million key level. This occurs on most days with trend changes or accelerations occurring in the post NY lunch period.

Volatility:

All this up and down action in stocks is causing the Zone Timer to wind up into a contracting fomation with lower highs and higher lows, with the net result of remaining in the neutral zone. The market abhors neutrality since the brokerage industry needs transactions to exist. It will move one way or the other because of this basic nature. The MVI is behaving in a similar contracting fashion in preparation of a major move.

Momentum Cycles Cones:

The OEX should hit 545 on Wednesday with a less probable chance of ranging between 548 and 550. The Red cones(548-550) could be hit if the shorts are squeezed so tight they lose their last drop of blood. It is almost a foregone conclusion that 545 will be hit Wednesday Morning. If anyone holding the May 535 calls did not get out on Monday, then they had a second chance on Tuesday and very likely on Wednesday. Remember Expiration week is an up and down affair for good reason, so you have to take profits when they are handed to you. Wednesday aftenoon and Thursday might just see some retracement of any strong rally Wednesday morning.

Pivots:

The OEX Statistical pivots are used for Wednesday to more precisely illustrate the zones(blue)that we should see the OEX find resistance in on the upside. It is obvious that the OEX closed above the keyline and the hourly trendline and this has odds for higher prices at least temporarily. A pullback to the keyline should always be anticipated.

Fibonacci Zones:

Late Tuesday action leaves a market watcher with the feel that the nearby weekly fib resistance zones are going to be challenged. Those are where the big institutions are targeting for exiting further long positions and you should too if you are holding call optons. The OEX Fib Zone is pretty much in agreement with the OEX pivots and Cone, even though all three are calculated differently.

OEX Trades:

Both OEWEG and OEWFG have been reposted to show the wide swings on Monday and Tuesday. Tuesday did and probably Wednesday will provide another profit taking opportunity. Don't get greedy.

Momentum Cycles Update for the open of Thursday, May 14, 1998:

Trend:

Things are getting pretty dicey. OEX projection oscillator is nearing the rollover level. The OEX candlestick for Wednesday was not exactly a bullish one. A trip back to the 1995 blue channel line would be more in accord with the deteriorating breadth conditions. ADHL buy signal is still very tenuous as New High strength oscillator dips back into sell and the New Low moves back up to indeterminate. Advance decline - DJIA strength is neutral. A little bit of selling would trip the ADHL indicator back into sell mode. It is this traders opinion that it is increasingly dangerous to be long calls or stock index futures. Thursday has the highest probability of being a down day than the other days of the week.

Breadth:

McOsc of issues is flat again for another day and just is not confirming the latest price rise. Volume oscillator is also lagging. A rally with breadth support underneath it would see the volume oscillator push up through the issue oscillator and both would trend upward in sync with price. But, they are diverging from price and this is an advance warning that should be headed. CODI continues its gradual bearish up slope as the OEX inches towards channel resistance at about 548. NYA breadth was negative again today. If the advances drop below 1000 on Thursday and the declines continue to increase, the equity indexes should decline.

Volatility:

Zone Timer made a slight pivot at the upper edge of the neutral zone. This may be an anticipatory sell signal for Thursday as the Z Timer forms a convergent pattern before making a big move. MVI is creating a similar convergence as the OEX inches towards resistance. Something is going to break in a few days.

Momentum Cycles Cone:

Cone 1 shows the OEX high tagging the green cone at 545 on Wednesday as expected from the Tuesday analysis. Cone 2 goves some suggestions for Thursday. The projection oscillator is overbought at 80%. It can go higher or it could turn down on a weak Thursday. In the latter case we would have point C as the first target of 539.09 to 540.59. Below that we would have point D 533.65 to 536.36. A crash down day would come close to point E 529.27 to 533.65. The upside would be expected to reach 546.58 to 548.10 at point A. A really strong day that blast through resistance would be drawn towards point B at 550.

Pivots:

The OEX starts Thursday near the Keyline and above the hourly trendline. Thursday bias may see the hourly trendline challenged so a drop below the keyline is expected. We are using the Statistical Pivots again because of the professional participation in the market this week. At other times the Classical Pivots suffice quite nicely, but when we have the extra trading in the optionable stocks the action tends to drive prices into the statistical pivot projection zones.

Fibonacci Zones:

The little rally we've had this week has pushed prices close to the weekly fib resistance as the ratio oscillators enter the overbought zone. Options expiration may need some more shaking out of the call holders and that would be achieved by a down Thursday.

RSI, SMI:

SPX RSI is the most interesting development in this section. Note how the spx rsi is near the center retracement line which is curving downward. A down Thursday would fit within the scenario of this plot.

OEX Trades:

The OEWEG and OEWFG holders did infact have a chance to pull out with nice gains if they missed the Monday exit. Consider it a successful trade if you can pull in 80% of a move. Trying for the exact bottom or top is suicidal. Step back for a moment and observe the action without being committed to a position and your perspective may change. It still looks like a decent put trade is developing.

Momentum Cycles Update for the open of Friday, May 15, 1998:

Trend:

OEXreg looks like it is going to roll over on Friday. Being an expiration day anything can happen. Last hour looks rather weak with the PREM dropping into program sell territory and the TICK spending so much time below zero.

Breadth:

McOsc and OEX are still in a major divergence. ADHL is bordering on reversing its last buy signal to a sell signal. NYA was negative again as the distribution continues. CODI is touching the Sell Alert line.

Volatility:

Zone Timer remains on the overbought side of neutral. MVI is neutral.

Momentum Cycles Cones:

Cone 1 reflects the net neutral range of the OEX high and low by its containment within the green cones. Cone 2 shows Fridays expectations for averaged day(green), strong(red) and crash(magenta). Cone projection oscillator projects downward.

Pivots:

OEX Statistical pivots open Friday with the OEX at the keyline with a minor downshift from Thursday.

RSI, SMI:

SPX RSI once again looks like the mid band is providing resistance.

OEX Trades:

No new trades are recommended because of the uncertainty present. OEWEG and OEWFG are shown for comparison purposes.