MomentumCycles

Momentum Cycles Commentary for the open of Monday, June 29, 1998:

The Investor's Business Daily ratio of puts versus calls since the start of the year shows some interesting relationships.Any one day tag of the ,40 area has lead to a tradeable decline.A tag in the .50 region sometimes leads to a decline, but in a strong uptrend such as March, hesitation is more likely.Any one day tag of the .80 region has lead to good rallies.A tag of the .70 region sometimes gives a rally, but in a severe downtrend such as mid- May ,only a countertrend pop is to be expected.We had a .80 reading in the mid June period, followed by the rally.Since June 22, the ratio has cycled between .45 and .55,which shows some complacency.In a breakout above all time highs in most indexes on high volume with good breadth,momentum can overwhelm CODI ,put call ratios, and other nonconfirmations galore.Right now,because of the war between the various indicators and the time of the month in the money flow cycle,we've taken long OEX profits, and are standing aside.

XAU flirting with Stochastic 20, with a marginal Friday close above 20 again,yet on poor volume.Volume makes the mare move,and perhaps we need a spike up in fear to get this one going again.

Trend:

ADHL remains on a buy. NHNL weakened with more new lows and fewer new highs, blame it on end of quarter gyrations. DJI is stalled at the 50 day moving average. Beginning of month seasonality would normally push it through this resistance. It is hard to say at this time if preholiday {thin} markets will be used by market movers to save it technically. Bears tend to prey on thin markets too, so next week could be full of surprises. The OEX regression channel has an attractor at 563.88. That should be the target for this current advance.

Astrocast:

Up into the end of the month, barring some temporary last minute portfolio flushing of losers.Chart same as previously posted.

Breadth:

NYA breadth has been pretty flat for three days as we coast into the end of quarter with some selling and some buying being done to dress up portfolios. McOsc issue and volume are still positive and the volume summation is curving upward. This means breadth trend is upward and thus so should the price trend. CODI is in the Sell Alert region which is also the uptrend region. What we watch for here is an upward pivot to indicate a weakening trend. Here is the Snapshot chart.

Fibonacci Zones:

We are starting next week with the ratio oscillators pushing on overbought to no one's surprise. Ideally we will work up to the upper fib resistance in preparation for a decent put trade. The XAU appears to be ready for an upmove. Yields are still under pressure.

DJI NDX OEX SPX TYX XAU

Volatility:

Zone Timer is not reversing rapidly and appears to be indicating that we are entering a trend mode as we come out of the trading range consolidation of the recent months. At least that is what the TV media would have you believe. MVI also aborted its sell pivot from Thursday and is hinting at trend mode. We just don't want to be trapped in puts if this market trends sideways to up.

Momentum Cycles Cones:

The projection oscillator is turning down(or trending sideways) in the overbought level. The OEX is also working the regression channel resistance at 558. 558 to 563 may be a decent level to enter put positions but we will have to wait and see how next week unfolds. Here are Cone 1 and Cone 2.

Pivots:

This OEX chart illustrates a typical trendlength of 7 days. It began with a narrow range day and ends with a narrow range day. It began with a move above the hourly trendline and Keyline and concludes coincident with the hourly and the Keyline.

RSI, SMI:

SPX RSI and SMI are overbought and possibly beginning a trend mode. XAU and TYX remain comatose.

Stocks of Interest:

ASTN has made an explosive move in a very short time from support near 2 to Friday's intraday high of 3 5/8, which is close to the 4 target for the retracement rally we had discussed last week. We had suggested for Friday that short term traders who bought under 2 1/2 ,or near 2 ,could take profits, and that long term investors should hold this issue. Making near to or over a 50% profit in a short time for short term traders is often a good profit taking point. CMR.TO has been attempting to clean up the remaining supply of sellers who wish to sell near the basing level of $1.00. It is to be noted that over the past 3 years, CMR has had good support at this $1 level over 3 times. The normal process, if an expected rally is to take place, would be to see the asking price rise and the bid price rise slowly as the available shares for sale in this price range diminish. People who are presently selling in the $1 area are most likely forced sellers who may have had margin calls from other issues in which they had taken large losses. The last listing of asks from Friday show relatively thin supply at prices above $1.10. The previously announced mid-1998 finalization of the cobalt production at Werner Lake appears to be on track.

OEX Trades:

OEWGD and OEWGF are going to be working against guaranteed time decay over a long holiday week, an overbought market with potential decrease in momentum, possibly even a corrective market once the end of quarter games are over on Tuesday. These two positions have met the two MomentumCycles profit taking levels of 50% and 100% and "conservative" traders should be out of them. It is very tempting to put on a put trade. The advisory services that have tried it this week are sitting on 50% losses or more for lack of a seasonality filter. The big problem here is determining the true nature of cycle vs trend. If it cycles down then we want puts, if we are entering a breakout trend then we want calls. The market could also meander directionless next week making it difficult to make money in OEX options unless you are in credit spreads and even then, those won't bloom until expiration week. For now, it is best to take profits and stand aside. Seasonality is still positive and has a way of making put holders feel miserable. That said, we have to be prepared for the reality that we are still in a trading range mkt with the upper side raised a bit. So, in preparation for the next week and a half the plan will be to enter a put position(s) in a contrary fashion on rallies.

Momentum Cycles Commentary for the open of Tuesday, June 30, 1998:

DJIA 5 day rate of change +4% ,near to the +5% extreme overbought that brings a retracement except in very strongly trending markets.We are approaching the upper 3.5% trading band.As previously posted last month, a rally period from about June 24 to July 2 was likely due to money flow patterns{the actual money flow/ sentiment low and reversal was June 22}.RSI 5 is about as overbought as it gets.Volatility inducing reports are due this week, including the FED meeting, the CPM report, and consumer confidence.A tick up in XAU/fear versus OEX price could well be in the cards as XAU has crossed the STOCHASTIC 20 level above 20, albeit on very weak volume.

As always, maintain a stop on options so that less than 50% of the initial purchase price is risked, or maintain a 1.50 stop from your initial purchase price as risk.

Trend:

ADHL remains on a buy, caution here is this is an intermediate to long term indicator and there are decent long and short trades available even if it remains on a buy. NHNL has the 5 day crossing the 19 day and the New High New Low normalized indicator is marginally positve. New highs are 115 and new lows 106. That is still pretty high for new lows as they should be closer to 25 as the indexes make new highs. Losers are being sold into this rally. DJI SMI has turned up in a buy mode and is encountering resistance at the 50 day moving average. OEX regression channel attractor is at 564.59, essentially at 565. Bonds are indicated to rally by the Swing Machine, meaning yields will break below support in a big way. This may not mean that stocks are going higher, may infact mean massive liquidation of S&P500 and DOW stocks in preference to fixed income if the view is that S&P stocks are going to have less total return for a few years. The street view is that the midcaps have a better scenario than the bigcaps. A large scale shift from S&P500 to the S&P400 would be a paradigm shift and have significant implications for OEX put holders.

Astroast:

The Astrocast is positive for June 30.

Breadth:

NYA breadth was decently positive, could be better. McOsc issue and volume oscillators are in trend mode and the volume summation has turned up. Snapshot shows the TRIN started the day at a bullish level and then trended up the remainder of the day, still closing below 1 which is positive but would look better if it ended with a lower number. The PREM or Futures did weaken in the last 45 minutes and then pulled up strongly after the cash market closed. Can't read too much into this because it might just have been the market on close orders for day traders who shorted the highs. Need to check the w.cme.com for globex quotes. Basically the day was a bullish day until that last 45 minutes when the futures came off to fair value and tagged the sell program levels. Here is the CODI chart.

Volatility:

Zone Timer thinks the market is in trend mode, as does the MVI. They are both acting pretty much as expected during this stronger money flow period. It is obvious that they are in the extremely overbought levels, which is where they should be when breaking out of cycle mode into trend mode.

Momentum Cycles Cones:

The Cone projection oscillator is extremely overbought. The weekend update suggested entering put positions on a rally to between 558 and 563. The OEX hit 560.41 and the first positions were taken in OEWSL puts at 8 1/8. Secondary positions will be entered on Tuesday on a rally into resistance if in fact the rally continues. Look to buy them within the first half hour. If the market is strong, then wait for higher cone and pivot resistance levels and of course a better price and possibly higher strike.

Pivots:

OEX R1 for Tuesday is 560.92. This should be easily reachable long enough to get another put trade entered above the Keyline. The keyline is stepped up a bit and the OEX is still above the hourly trendline. Monday makes the 8th day of the recent move. 7 to 9 days is about optimum under ideal conditions. These are not exactly ideal conditions.

Fibonacci Zones:

Weekly fib resistance acted just as its name implies. Ratio oscillators are overbought. Take a close look at the NDX chart. Its daily Gann Swing and Weekly Gann Swing are coincident right at the weekly fib resistance after a long run. Other indexes hit the weekly fib resistance at their high for the day. Those levels are ones where puts should be purchased if given the opportunity over the next few days.{OEX,SPX,NDX,DJI}

DJI NDX OEX SPX TYX XAU

RSI, SMI:

SPX RSI is making a second tag of its upper band, possibly a failing tag. This can make a decent put entry.

Stocks of Interest:

It was suggested that short term traders who bought ASTN near 2 {or under 2 1/2}take short term profits,and again today a spike to 3 1/2 made that possible with a holding period of less than 2 weeks.Longer term traders are holding positions from 2 to 2 15/16. ASTN CMRbasing in the 1$ area.Hedge funds have been {according to the metals analysts} shorting nickel {once the lows were broken} and nibbling long at related base metal producers such as INCO.LME stocks show dropping available nickel supply.Normally, when nickel rises in supply, cobalt drops in price as a by product of the nickel mining process.Cobalt prices have been firm as supply is limited.Nickel shorts are playing the general perception of commodity weakness, not the actual nickel stocks available.This is similar to the situation in many commoditites.Once the CRB and GNX start to run, we could have quite a short covering move.

OEX Trades:

OEWGD and OEWGF rallied again with the OEX, but only gained back what they lost on Friday. Time decay is beginning to work against them. As advised last week they should have been exited as there are better strikes to play with. It was also advised on the weekend update that some of those profits could be used to enter put positions on rallies this week. The first position was taken in the July 560 puts, OEWSL at 8 1/8 when the OEX rallied into R3 and stalled out in further distribution action. Normally the positive seasonality lasts 5 trading days into the new month, but this time the seasonality started at its earliest possible time last week because of the early disposition of payroll money and it should also end sooner. The media is promoting a summer rally, when it may be ready to turn back into the recent trading range. Keep in mind that these puts are being entered only on rallies to resistance levels on the OEXpivot charts and the upper side of the cones on the Cone chart. The same thing should be done on Tuesday by buying an at the money put or one strike out of the money only on a rally into resistance. This is the opposite of futures trading in which you buy the breakout in the direction of trend. Since these are July's we want to be within statistical striking distance before 7/17. The rally is getting extended in the number of days and many indicators are overbought so the odds are pretty good of a decent payoff.

Momentum cycles commentary for the open of Wednesday,July 1,1998:

Prescient comment on yesterday's commentary-XAU did fulfill its function as a harbinger of fear, and right into the predicted cycle high mentioned here weeks ago.We had looked for an XAU rally from a June 23 low to a June 30 high, and today alone XAU was up 4.4% to 71.92,a tag of the upper 3.5% trading band.It could continue,but remember an almost 5% move in one day is tempting to take profits into!

Inversely,BKX sold off over 9 points, and FNM was 64.4375 high, 60.750 low, 60.750 close,yet bonds were UP, continuing our recently discussed pattern of strong bonds /weak stocks.Admittedly,it wasn't much of an OEX down day, but for the first time in 2 weeks, futures closed at -2.19 below fair value.

We are in the region between the DJIA 21 day moving average and the upper 3.5% trading band.At the upper 3.5% band resistance is often seen, except in the most ferociously uptrending markets.

Traders who exited remaining calls and entered puts on today's OEX spike have some "wiggle room".{Make sure to examine the representative OEX option charts with comments below}.Hit and run traders should use either channel or trendline stops to protect recently initiated put positions;it is to be noted that the trader who uses vix and mvi so effectively as one of the primary trading tools sees this put trade as a "hit and run " trade.

Since seasonality started 2 days early {2 days before the predicted June 24 low point}it is possible the short term rally top projection of July 2 may be off a corresponding amount.A rally further this week to close or retag the upper 3.

Trend:

ADHL is remains on an intermediate term buy. NHNL continues to improve as new highs reach 126 and new lows 97(still too high). DJI had problems at the 50 day average as distribution continued as the On Balance volume hit its resistance line. OEX reg attractor is at 564.85 and support 545.67.

Breadth:

NYA breadth was net positive but declines at 1306 kept a cap on the indexes. McOsc volume oscillator is peaking(losing upward momentum) and it precedes the issue oscillator. CODI {not shown today}voted to sell. Snapshot spent most of the day between fair value and sell programs in a controlled distribution. Much talk on TV promoted a strong close, but selling into any strength quickly disipated the rally back to unchanged and the day ended in sell programs.

Volatility:

Zone Timer may have made a double top, although the smoothed ZT(black line) is still in trend mode. MVI has made a sell pivot. The Adaptive MVI was more distinct in its action and premature as usual.

Momentum Cycles Cones:

Puts are still the preferred instrument on rallies to 562 to 564. Projection oscillator is rolling over.Here is the cone chart.

Pivots:

OEX closed below the keyline and the hourly trendline in a weak posture for Wednesday. 560 and 563 provide resistance for put entries.

Fibonacci Zones:

Finally the XAU is getting some attention as the daily and weekly Gann Swings are trending upward. TYX may be forming a triple bottom as fear spreads amongst bond holders. The rest of the equity indexes are working weekly fib resistance, weekly stop and daily stop lines. Ratio oscillators are overbought and rolling over.Here are the other fib zones for Wednesday:

OEX SPX DJI NDX

Closed OEX Positions:

We had recommended closing all calls at the very latest Monday or Tuesday. OEWGD andOEWGF will be posted as an example of how deep in the money call options behave as we roll through this beginning of month period and into expiration in a few weeks. Perhaps it will be instructive to a few readers to see what happens to deep in the money calls.

RSI, SMI:

TYX RSI is entering uptrend mode. SPX RSI is entering sell mode with a long ways down to support at the center band and twice that to the expanding lower band.

ASTN, CMR:

Short term traders took profits at 3 1/2 from prices between 2 and 2 1/2. Long term holders are holding positions from 2 to 2 15/16 .ASTN closed at 3 7/32, with longer term bullish fundamentals intact.CMR attempting to build a triple bottom near 1.00, high 1.14, close 1.05 on good buying.Cobalt production on track for mid-98.

OEX Positions:

OEWSL entered at 8 1/8 on Monday hit 11 on Tuesday. No one would be chastised for taking a quick 37% one day profit. Those who missed the Monday entry had another chance, if they were patient and waited for a rally(even if it was back to unchanged) they still could have entered the 560 puts at 8 1/2 to 8 3/4. I have to say that this really goes against my grain to be buying puts at the end of / begining of month. Problem is the seasonality appears to have been shifted ahead a week so what we are seeing is a premature end rather than five days later. More DOW Trust Fund shuffling could very well cause more choppiness the next two days. Real weakness should not set in until next week so this OEWSL is a day by day trade and not a long term hold by any means.

Momentum Cycles Commentary for the open of Thursday, July 2, 1998:

XAU pullback today as predicted yesterday,off 1.38%,high 71.58,low 69.50,close 70.73.

Strong stocks-weak bonds-the inverse relationship continued today.

Closing tick +890 ,usually an OEX correction within 2 days.Close almost exactly at the daily high of the DJIA, near the upper band, overbought STOCHASTIC.

Close above 9259 likely to bring a short covering run on buy stops.

Trend:

ADHL remains on an intermediate term buy. NHNL has crossed into positive territory and is looking more and more like the beginning of trend mode. OEX regression channel is within one day's striking distance of the attractor at 565.52, a preferred level to enter shorts. DJI SMI is on a buy, however, the On Balance Volume is running into resistance. Unless the OBV follows price a divergence will be set up suggesting the rally is suspect.

Breadth:

NYA breadth was acting like a real trend day with advances over 2000 and declines under 1000. Also the new highs hit 142 and new lows 58. This is also more like trend mode. McOsc is in trend mode although reaching overbought levels; it can go higher. CODI is in the indeterminate whipsaw region. Last hour had a skyrocket surprise as it followed the beginning of a selloff. The pros came in and jammed it straight up. And then after the cash closed the futures went into sell program mode. Who knows if they are playing the Thursday Short rule. Sure looks like the good old S curve ball to get positioned for such action. Here is the Snapshot chart.

Volatility:

Zone Timer is in Trend Mode as is the MVI but both are in the extremely overbought levels. Note how the MVI channel is trending down and how long it has been in this trend. Kind of unusual, so let's be prepared for surprises. We just have to be prepared for the seasonal reversal any day now, theoretically 7/8, but this end of quarter and holiday week is distorting the usual cycle{could be 7/2}.

Fibonacci Zones:

These are some hot looking charts. Note the indexes are jammed up against the weekly fib resistance on Wednesday, hump day for the week. How about some profit taking on Thursday to live up to the Thursday Blues as VIX closes higher statistically on Thursday. Many indicators are primed for a sell, but it can look that way as consolidations turn into trends.

DJI NDX OEX SPX TYX XAU

Momentum Cycles Cone:

565 to 566 is still looking like a decent place for put entries. Projection oscillator is rolling over.

Pivots:

OEX Pivot has resistance at 562.6 to 564.6 and the Cone has similar levels for an average day(green cone). Futures magazine page 46 for July has an article on holiday seasonality and also briefly discusses VIX.

RSI, SMI:

SPX RSI can't keep up with its upper band as prelude to dropping. SPX SMI has gained more strength.

Stocks of Interest:

ASTN rising slightly in price with volume dropping.Value buyers liked 2$;sold at 3 5/8.Long term investors have positions from 2$ to 2 15/16. CMR reworking the triple bottom at 1.00 to 1.05.Cobalt news due mid-98.

OEX Trades:

Note that even with the strong day that the OEWGD and OEWGF calls are not making much upside progress. The at the money OEWSL 560 put is much more dramatic in its action. Those who waited patiently for a rally were able to get in as low as 6 5/8 to 8 1/8. It sure looked like payday was coming until the last hour today. Just keep in mind the overbought nature of the indicators, two weeks to expiration,the possibility of strike price range drops and a price of 6 to 8 does not seem too far out of the ballpark, especially when the volatility expansion occurs on a correction. A push to 565 will drop the premium further and provide the third chance to average into this position.

Momentum Cycles Commentary for the open of Friday, July 3, 1998:

XAU pullback today as predicted yesterday,off 1.38%,high 71.58,low 69.50,close 70.73.

Strong stocks-weak bonds-the inverse relationship continued today.

Closing tick +890 ,usually an OEX correction within 2 days.Close almost exactly at the daily high of the DJIA, near the upper band, overbought STOCHASTIC.

Close above 9259 likely to bring a short covering run on buy stops.

Trend:

ADHL remains on an intermediate term buy. NHNL has crossed into positive territory and is looking more and more like the beginning of trend mode. OEX regression channel is within one day's striking distance of the attractor at 565.52, a preferred level to enter shorts. DJI SMI is on a buy, however, the On Balance Volume is running into resistance. Unless the OBV follows price a divergence will be set up suggesting the rally is suspect.

Breadth:

NYA breadth was acting like a real trend day with advances over 2000 and declines under 1000. Also the new highs hit 142 and new lows 58. This is also more like trend mode. McOsc is in trend mode although reaching overbought levels; it can go higher. CODI is in the indeterminate whipsaw region. Last hour had a skyrocket surprise as it followed the beginning of a selloff. The pros came in and jammed it straight up. And then after the cash closed the futures went into sell program mode. Who knows if they are playing the Thursday Short rule. Sure looks like the good old S curve ball to get positioned for such action. Here is the Snapshot chart.

Volatility:

Zone Timer is in Trend Mode as is the MVI but both are in the extremely overbought levels. Note how the MVI channel is trending down and how long it has been in this trend. Kind of unusual, so let's be prepared for surprises. We just have to be prepared for the seasonal reversal any day now, theoretically 7/8, but this end of quarter and holiday week is distorting the usual cycle{could be 7/2}.

Fibonacci Zones:

These are some hot looking charts. Note the indexes are jammed up against the weekly fib resistance on Wednesday, hump day for the week. How about some profit taking on Thursday to live up to the Thursday Blues as VIX closes higher statistically on Thursday. Many indicators are primed for a sell, but it can look that way as consolidations turn into trends.

DJI NDX OEX SPX TYX XAU

Momentum Cycles Cone:

565 to 566 is still looking like a decent place for put entries. Projection oscillator is rolling over.

Pivots:

OEX Pivot has resistance at 562.6 to 564.6 and the Cone has similar levels for an average day(green cone). Futures magazine page 46 for July has an article on holiday seasonality and also briefly discusses VIX.

RSI, SMI:

SPX RSI can't keep up with its upper band as prelude to dropping. SPX SMI has gained more strength.

Stocks of Interest:

ASTN rising slightly in price with volume dropping.Value buyers liked 2$;sold at 3 5/8.Long term investors have positions from 2$ to 2 15/16. CMR reworking the triple bottom at 1.00 to 1.05.Cobalt news due mid-98.

OEX Trades:

Note that even with the strong day that the OEWGD and OEWGF calls are not making much upside progress. The at the money OEWSL 560 put is much more dramatic in its action. Those who waited patiently for a rally were able to get in as low as 6 5/8 to 8 1/8. It sure looked like payday was coming until the last hour today. Just keep in mind the overbought nature of the indicators, two weeks to expiration,the possibility of strike price range drops and a price of 6 to 8 does not seem too far out of the ballpark, especially when the volatility expansion occurs on a correction. A push to 565 will drop the premium further and provide the third chance to average into this position.

MomentumCycles Commentary for the open of Wednesday, August 5, 1998:

On days like Tuesday, the wisdom of using a $1.50 trailing stop to protect profits, or a $1.50 stop loss to prevent excessive losses, is obviously seen. Traders who are using a trailing or parabolic stop from positions taken Monday could have actually gotten out at a slight profit or at break even. Traders who initiated positions during the drop and used a $1.50 stop loss were able to cut losses. When markets like this which are vastly oversold become even more vastly oversold (I think at this point we have one of the largest negative cumulative tick positions in history) protective stops see their uses. Interestingly enough, traders using the global equities switching strategy, referred to here many times, had a total loss of 1.3% from the July 17 high to Tuesday's close. The wisdom of exiting long positions for intermediate term traders due to excessively high bullish advisory sentiment becomes obvious at this point. It is to be noted that the OEX long call trades we were attempting to initiate from low support levels on the pivot charts were counter trend in nature and more suitable for nimble traders who can watch the market intraday than intermediate term traders.

Trend:

The ADHL remains on its intermediate term buy mode. OEX broke below the 7/96 regression channel and fell almost all the way to the 7/97 regression channel. 523 is minutes away as the projection oscillator hits the oversold line again. NHNL deteriorated further as new lows increased to a shocking 559 with new highs at 18. This is becoming an historical record. On the pessimistic front the Super Timer failed the rally attempt at the uptrending yellow support line by dropping to -150. This is bordering on the crash mode definition of -175. The Super TC is a cousin of the Super Timer and is sort of like the Summation Index is to the McClellan Oscillator. When the Super TC is trending down you want to be on the short side, but when the Super Timer is down in the corrective zone you have to be prepared for a reversal, maybe only a short term reversal. So far both are still headed down. Maybe we will have to wait until the Super T gets below -175 before any kind of rally can be created. The dynamic support lines don't see cumulative volume support until the yellow support line at 8200. Classical trendline support is even further down in the mid to high 7000's. Here is the current DJI chart.

Fibonacci Zones:

Further Tuesday weakness put indexes so far below the lower weekly support zone that they are points away from touching the monthly fib support lines. Daily and weekly Triple Switch lines are in the down mode. Normally a bounce would be expected from this level with the Ratio oscillators so oversold. Breadth just has to improve before these indexes are going to have a sustained rise. Technical price bounces can occur without breadth improvement, but they are doomed to fail and are shorting opportunities. Here is the S and P 500 futures chart.

DJI NDX OEX SPX TYX XAU

Astrocast:

Astrocast is not available yet for August.

Breadth:

NYA failed support near 550 as breadth was quite negative and dropped to 541. CODI is still on a sell trend and has neared the Buy Alert band. The DJI SMI moved further below the oversold line postponing a price reversal but increasing the probability of one. The McOsc issue and volume oscillators are forming a complex bottom in preparation for a reversal. Also the 10% component of the McOsc issues aborted the recent trendline buy from lastweek, but is set up again for another buy. What it needs is some improvement in NYA breadth to break above the green down trend line. This will be one of the earliest indications of change in trend. Snapshot shows just how bearish things were today with TICK below zero much of the day. TRIN was not misleading today like it was yesterday. This time it got so high it triggered the Mechanical Trin model into a call purchase. See below for details. There were numerous sell programs prevalent, so the big guns are still trying to tank the market. Sell programs do have to be unwound at some point.

Momentum Cycles Cones:

Projection oscillator backed off from the 50% line for a third day as the bear takes hold. Tuesday saw a -2 std dev move to the outer cone on Tuesday's cone chart, and this was also to the lower side of the regression channel. OEX is nearing the lower side of a horizontal regression channel at 520 on Wednesday's cone chart. Support should be expected there, just something to watch for. Once the institutional super computers running neural nets, etc., lock onto this type of deteriorating breadth, it is difficult for price to break out of the regression channels and remain out.

Pivots:

We got the explosive break mentioned here yesterday due to the narrow R3-S3 spread. Wednesday is just the opposite. The spread is exceptionally wide offering the potential for gonzo type moves. Moves like today precipitate margin calls that perpetuate more selling. Could be we are seeing selling today that was actually prompted by margin calls that went out on Friday. It really is wise to wait until prices and volatility stabilize before trying to make a rational trade. Here are the OEX and S and P 500 futures pivot charts.

Volatility:

OEX Zone Timer has maxed out again in the extremely oversold zone locking in the bear mode for another day. Trying to pick a bottom in what may be a long down cycle will make call purchases a waste of money. There are times to be long, short, stand aside. The latter is the case now for options unless you are into selling volatility. The MVI moved further towards the Buy bands, aborting the half-questionable pivot we saw yesterday.

RSI, SMI:

SPX RSI closed outside the bands which are getting wider apart. We are looking for a close insided the bands, a successful test of the bands from inside and then a rally towards the center line. That would be a safer time to try the call side.

Stocks of Interest:

ASTN and CMR are both showing minor distributive action characteristic of a one-tier downtrending market.

OEX Perspective:

Looks like there was a fake out this morning as the CBOE trins were slightly favorable for a rally, but the OEX headed down in disregard. Then a bear trend formation in the trins set in that lasted the entire day. This is how the calls performed on Monday, OEWHJ, OEWHK, OEWKL, OEWHM. Puts looked like this, OEWTJ, OEWTK, OEWTL, OEWTM. VIX climbed the fear wall even further today to reach 33.1. Last October it hit 50. The ten day P/C ratio has not reached a bottom climax yet. What is promoted as a bottom is the current day's P/C ratio being twice that of the ten day average. and so far it is only 1.24. Note we have not been listing any discretionary trades in here. Intuition and technicals said we should be buying puts. Monthly seasonality said we should be trying to get long. We had a seasonality bias for last week and this week, but stocks just did not respond positively to the new money as any rally was sold into. It is suicidal to go against reality. Now there are no buyers so when a specialist has to absorb stock and cannot pass it through he will drop his bids. Those guys buy at flea market prices and sell at antique prices. We are experiencing in true fashion why markets go up and down. A bounce is possible at any time, but with VIX at 33 and maybe higher before it is over, a collapse in VIX back to mid teens will cut the premium in half for options. This is really the time to be doing spreads which you would be best advised to work with a broker on.

OEX Mechanical Trades:

The mechanical trades are encountering a rough time in here as evidenced by the activity on the OEX Signal Report. The momentum model exited today using the closing price so it suffered a hefty loss being on the wrong side. At the same time it made a purchase in the Trin model with the addition of the Sept 525 call. It also entered the Volatility bands model with the Sept 525 call. The RSI model is still holding the 550 call. Now all this looks pretty dumb to a discretionary trader, but we can't ignore the Trade Listing results of the models since the first of the year. There is no question the models could be significantly improved by better entries and filters. Such a project is under consideration.