MomentumCycles

MomentumCycles commentary for the open of Wednesday, June 16, 1999:

This AOL DAILY CHART shows the correct short covering/sell puts at the open Tuesday during the second tag of the lower 25% trading band before the rally from 89.5 to 97,close near 95.

XAU high of the day was seen Tuesday near the open before a pullback due to shorter term overbought stochastic readings.A further decline here is possible.If the reports that come in Wednesday relieve inflation concerns,XAU will suffer and bonds might well rally with stocks not far behind.XAU,like OEX in reverse,is hostage to the reports.

On to OEX trading...

Tuesday saw minor improvement in breadth and price. The picture is still one of oversold with minor buy signals. Even though CODI is closer to the Sell Alert line, a lot of upward price movement can occur before it generates a sell signal. Everything hinges on the heavy report Wednesday. Expiration weeks are choppy enough without reports.

Cone projection oscillator is turning up from oversold. EquityCP and Sentiment charts both have initial buy signals, with option sentiment confirming price move. We have been waiting for this synchronization to occur. Of course, it is one day at a time, and everything could fall apart on Wednesday, but in the interim you just have to go with the flow.

Five day historical volatility is making the low spike we wanted to see this week. TYX yields are making their way lower gradually. They found support at our 6.06% level today and bounced in fear of Wednesday. There should be a sigh of relief from everyone when that day is history.

Here are the other charts:{Although we already exited the pre-ex long trade Monday,OEYFK is still shown}.

AMOSS CHART. CYCLE CHART. INDU CHART. MOONTIDE CHART. NYA CHART. OEX 30 MINUTE CHART. OEYFK CHART. PITCHFORK CHART. SUPERT CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, June 17, 1999:

It does appear now that our predicted rate of change DJIA low of June 1st was a significant low {10334.42 theoretical},especially if the previous rally high is taken out.We had a good double bottom.It will be important that that low hold on the next decline.

Wednesday,the numerous buy signals of previous days finally had their day in the sun. If you acted on any of the signals, then hopefully you also used the Cones as exit targets. Red cone days have no guarantee of similar follow through the next day. They offer another opportunity to enter below the previous day's close. The OEX doesn't blast through the green cone and advances on the red cone often without some intraday shakeout. In fact, today was almost classified as a Crash Up day, but it fell short of the Grey cone. Our indicators have room for more upside; not much in the short term, but enough to help Friday's close make this a memorable week.

The market rally was so strong today it jammed the EquityCP plot right up to the Buy Puts level. Sentiment has not quite reached that level yet. Price momentum is in syncronization with these moves. The cup and volume pattern is shaping up as if this could be a real barn burning summer if price breaks above recent swing peaks near 680 and 695. The ideal pattern would be for the EquityCP to peak and turn down before price. Also we would like to see the Sentiment at 0.4 or higher before buying puts.

INDU has closed above its 21 day and 50 day moving averages, accompanied by its On Balance Volume closing above its gently rising center band. The center band on the OBV is a 50 day average also. The ER Force index (cyan bar chart) at the bottom of the chart may be at the beginning of Trend mode after spending a month in consolidation below zero. Only the passing of more trading days will confirm or reject this perception.

Our recent caution on XAU due to overbought short term STOCHASTIC and the oversold T bonds seems to have been correct.The Wednesday reports gave steam to the bond and equity short covering often seen before an expiration;this did not aid XAU,which is suffering from low volume and lessening of inflation fears.

CODI CHART. CYCLE CHART. MCOSC CHART. MOONTIDE CHART. MOSS CHART. NYA CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEYFK CHART. OEYRO CHART. PITCHFORK CHART. TYX CHART. VIX CHART. VOLATILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Friday, June 18, 1999:

We had suggested the probability of an oversold T bond rally inspiring stocks to rally into expiration on short covering once the Wednesday reports were out of the way{if they turned out to contain no great negative surprises,as we expected}.Thursday saw a 2% 30 year T bond rally aided by Greenspan's hint that a series of rate increases may not be necessary.He did leave the door open on that at the end of the speech,however{more on that below!}.

And so...just gotta go with the flow. Breadth and price looked good again on Thursday, continuing the buy signals earlier this week on VIX and other indicators. OEYFK and OEYFO are two examples of what can be achieved with OEX options. Moontide is in a swell, and the CONE projection oscillator is now overbought. Naturally, as CODI enters the overbought zone, it will begin flashing sell warnings, but as we have seen before, CODI can drop below the Sell Alert for a few days before turning up in sell mode. CODI A did generate a sell, so we should begin looking for an exit with tight stops. EquityCP and Sentiment peaked on Wednesday and turned down on Thursday. This may be more expiration related than signaling a direction change (as it would at other times of the month). Still, almost everything is falling into place for a sell as price moves back into the MOSS and AMOSS overbought zones. The McOsc has made it back to the zero line and neutral zone. For the rally to continue, it needs to have continued positive breadth and to cross above +50. Otherwise the picture remains one of the Bear. That Bear picture is one of rallies in the McOsc up to the neutral zone and then fainting spells back below it. The INDU OBV continues to confirm the price movement, and the INDU has managed to remain above the 50 day average another day. One part of the ER Force index has peaked and turned. This month of June has been a "wait and see" month, and it will probably continue that mode into the final week. No doubt, the pros will work the market higher so it has room to fall when and if the interest rates are raised. Of course, the T-Bonds have already raised them, and are now dropping them in overshoot/undershoot action just like stocks do. Some comments from an earnings analyst a few weeks back tames the exuberance, though. His analysis foresees a 12% earnings growth for S&P stocks for all of 1999. This should mean that the market should remain in a trading range most of the year with megabucks cycling from one sector to another and not making much overall progress up or down, just generating a lot of commissions. Then in the fourth quarter, when CPA'S advise tax loss selling, we should have another dip as is illustrated on the Volatility chart. Could be Chairman Greenspeak feels interest rates need to be raised now, so that in the Fall financial panic, he has room to drop them. Remember, he uses them as a liquidity tool; not only for Asia, but for us too; and if the market can withstand a few rises now, you can bet your last dollar he is going to build in that future flexibility now when times are good. His speech today did not elaborate on this reason, but what other one is there?

Note that XAU trading bands are now flat,after dropping for an extended period.How the bands act from here will determine the next major direction after the recent predicted pullback from overbought short term stochastic readings.

Here are the other charts:

CYCLE CHART. INDU CHART. NYA CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. PITCHFORK CHART. XAU CHART.

MomentumCycles commentary for the open of Monday, June 21, 1999:

The CODI chart is indicating that we are getting close to some selling next week, for several reasons. If you take a look at the CODI Dynamic, then you see we have a sell alert, as CODI is sitting on the red band. The Br_Mom has reached the 3.34 level, which is coincident with the strong sell alerts on the CODI Dynamic. Also the RSI is peaking. The OEX Dotrend is still up as of Friday close, and the 11000 INDU level is within one or two days reach.We have also come close to tagging the upper 3.5% trading band of the theoretical DJIA with cumulative breadth and volume negative-often a setup for a sell. The Cone Projection oscillator is overbought and peaking. The green cones are near 689, as is the red regression channel on the CODI chart. {By the way, CODI is an acronym for Change Of Direction Indicator}. McOsc is near +50, which is the upper side of its neutral zone. We also have the EquityCP and Sentiment above the Buy Puts Alert line. Expiration may have had extra influence on their levels, so another day or two will be necessary to clarify the reality of the situation.

However, 3XIND (an anticipatory indicator like the EquityCP and Sentiment) is beginning to cross its signal line. When buying only puts or calls, it helps to have a bit of foresight.

TYX has dropped back to support at 5.95, from which we could see another test of the high yields. Synchronization is further exemplified by VIX being within one day of generating a sell signal; its Friday upper projection band is at 689.52 and will be a tad higher on Monday. If we get lucky, then we will have a little more upside early next week to facilitate the purchase of July put options. You should definitely not jump on the July puts until the spreaders take some premium out of both calls and puts. The pros like to sell the four ways for the next month just after expiration, so even if you get the direction right, you can still get taken to the cleaners in the first few days after expiration.

Well,we got the AOL low of 89.5 right to the day at the STOCHASTIC reading of zero last week,prior to the short covering rally into expiration.STOCHASTIC readings of zero are rare,and AOL had also tagged the lower 25% trading band of price,which has historically contained the trading swings.Presently short term AOL STOCHASTIC is at the level that has marked short term tops since March of this year.Unless Monday of last week started a new bull leg in AOL to new highs{and thus,the internets as well},recent trading range behavior suggests a pullback of some sort next week,in line with the general market.

XAU is at the 21 day moving average{midway betwen the upper and lower trading bands},and price momentum is neutral.STOCHASTIC readings on a longer and shorter term basis are in the midrange.It is best to take new positions at the extremes of price momentum or STOCHASTIC swings.

Here are more charts:

CYCLE CHART. DSPU9 CHART. INDU CHART. INDU WEEKLY CHART. MOONTIDE CHART. MOSS CHART. NYA CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEYFK CHART. OEYFO CHART. PITCHFORK CHART. VOLATILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Tuesday, June 22, 1999:

It seems like the old highs have to be tested to the tick, and even exceeded by a few ticks. We had a good entry on the OEYSQ at 13, and the exit stop was moved to 15 for a 15% one day gain. The picture remains the same for Tuesday for another daytrade attempt. Analyze, place the trade, place the stop, have a target in mind, move the stop, and exit on target or stop (whichever comes first). The hazard here, of course, is that the OEX breaks out above the CODI black channel line, which might then become support. We would prefer that the channel line should become resistance and provide us a put trade back to the center line. However, we don't have a choice in what the market gives us. Until resistance becomes support, we will try to sell it by entering another put trade. CODI setup is even better for Tuesday than it was for Monday, as the BR_MOM is nearing a turning point. We also want to take a close look at the VIX chart. The upper projection band is at 692.26. Most importantly, though, is the level of VIX and the closeness of the Cyan line and yellow dot on the VIX plot (center). This means that VIX could reverse to the upside on Tuesday, and the OEX would then reverse to the downside. So, we again expect a test of the highs between 690 and 695.34 for Tuesday. EquityCP and Sentiment echo similar analysis. Also note that we have the preliminary and essential crossover on the 3XIND, but we don't have it on the BB_SMI yet. The SMI is always a bar or more late, and the 3XIND is always early. Option sentiment still favors the puts from the contrary standpoint. You have read here before that we like to see the EquityCP and Sentiment indicators peak after the 3XIND crosses and before the SMI crosses. That pretty much pinpoints the put entry. It appears we are in that price/time vicinity. The green Cones are between 692 and 693. The upper OEX daily fib is near 692. The difference between the Cones and other price target derivations is that the Cones use a forward looking implied volatility, and the others use a one day look back historical price basis. When implied meets historical, you get trend change, which could be change in direction or acceleration in the current trend. We are near the end of the month where seasonality can kick in, but that should not be until later in the week. The VOLATILITY chart also shows the market is at a decision point to do a channel breakout or reverse back inside. What we are talking about here is the change from cycle mode to trend mode. It is the nemesis to all traders. This week will be a dynamic one for sure. P.S., don't sneeze at a measly 15% one day gain when the CD alternative is a few percent for a whole year. You have to keep things in perspective. The OEX 30 minute chart has completed at 1.382 extension of the last swing. Extended levels are looked at by traders as reversal points, so many things are pointing to some heavy resistance here.

Speaking of contrarianism...the charts of AOL and FNM are in direct contrary position.FNM is at the lower 3.5% band of price,and the fear of a total and immediate T bond washout has been providing few buyers.Monday saw a STOCHASTIC and momentum downside reversal on good volume.We would be buyers of FNM on weakness from 62 to 65,with a stop loss at 3 points under the preferred entry.

AOL is at the upper 3.5% band of price on dropping volume with an overbought STOCHASTIC position.We would advise closing long positions in AOL,as it is in the short term vulnerable to a correction.

XAU is again trading back and forth around the midband of price.The action since January could be a huge rounded bottom.If that is so,the trading bands should start to rise and 60 should not be undercut.XAU current action is unclear.

Here are more charts:

CYCLE CHART. INDU CHART. INDU WEEKLY CHART. MCOSC CHART. MOONTIDE CHART. MOSS CHART. NYA CHART. OEX WEEKLY CHART. PITCHFORK CHART. TYX CHART. XAU CHART.

To quote from the MomentumCycles commentary for the open of Tuesday, June 22, 1999:

"Speaking of contrarianism...the charts of AOL and FNM are in direct contrary position.FNM is at the lower 3.5% band of price,and the fear of a total and immediate T bond washout has been providing few buyers.Monday saw a STOCHASTIC and momentum downside reversal on good volume.We would be buyers of FNM on weakness from 62 to 65,with a stop loss at 3 points under the preferred entry.

AOL is at the upper 3.5% band of price on dropping volume with an overbought STOCHASTIC position.We would advise closing long positions in AOL,as it is in the short term vulnerable to a correction."

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