MomentumCycles

MomentumCycles commentary for the open of Monday, July 12, 1999:

Is it a breakout above a month long flat top/trading range as in March of this year,to be followed by an August high,or a last expiration related pop before a trip to the moving average or lower 3.5% trading band after expiration?Well,at least next week promises to be an exciting one, with PPI and CPI, expiration, and some lunar events. Personally, I prefer to keep the attention on the "tape". The long term tape, as pictured on the Volatility chart, says the summer rally is losing momentum. Clues to "high" pivots for equities are found in low implied and historical volatility, as well as the ratio of short term to long term volatility. The convergence of the AMOSS triangle continues to warn of a trend change ahead. With the MOSS in overbought, you might conclude that that change might be a retracement one. The YellowDot trend indicator on the Pitchfork and the CODI Momentum System chart is close to crossing over in downtrend mode. Several things should be pointed out on the CODI System chart. One is that the Buy/Sell arrows are designed to catch a slice of the action, and, as is evident, some improvement can be made in the code to incorporate the YD trend indicator. That is being worked on now. Time decay can ruin an entry that is too early relative to the expiration date. You may have noticed in the last few days that the CONE chart now has the two most recent projections. These levels are useful for daytrading exits and entry points. Often, the levels are similar to the Fibonacci zone levels. Yet, the cones are calculated using one day of price data and the forward looking implied volatility. Friday's commentary cautioned you about the conflict between end of seasonality and expiration week biases. On Thursday, the market started off in a tailspin and was pulled out of the dive by another "goosing" with the release of the favorite fifteen. Conspiracy theory says the globex dump was to build a position and cover and go long before the release of the sweet fifteen favorite stocks. The "buy the pre-ex Friday" types then pulled the market up, snatching away profits for put holders. Here are two charts comparing the July 720 put and the August 720 put from 7/12 through next Friday. The plots are position profit vs. strike price and time. What they tell you is that if you are fooling around with the July options, you might end up with nothing next Friday, even if the market moves down. The charts are a bit deceiving in that the plots are for end of day values, and we know that during the day the OEX can swing a lot of points. They also assume a constant volatility, which we know will not be the case. With VIX in the high teens, there is lots of room for volatility expansion, and that alone could double the option premium.

Aren't weekends fun? I ran across this speculative strategies reference table in some option software and thought it might be interesting to create a relative implied volatility indicator to categorize the VIX in terms of the strategy table. The table has columns numbered from 1 to 10, and these correspond to the 10 to 100 levels on the Relative IV indicator on the Debacle1.gif chart. The bottom plot is simply a 252 day +,- 2 historical standard deviation plot. So what we are comparing is Dow price, 252 day VIX relative volatility, and 252 day historical +,- 2 standard deviation. It will take a couple of more months to complete the picture, but the Relative volatility and Momentum Cycle looks an awful lot like 1994, 1990 and 1987 debacles. It appears that the setup is rather mature.

Here is an update on the Midas analysis from last weekend. Time is running out, and the target price is a bit lower than the last time.{Take a look at the DJWM and DJWM2 below}. The reason for this is that the Midas algorithm assumes a constant volume beyond the last recorded date (the Start and C points have also been tweaked a bit). So if the volume increases, then the target price and "expiration" date are advanced towards the present. Assuming we have more 800 million share days or greater, the date will be pulled up into late July or early August. And, of course, this scenario is heavily influenced by the T bond yields.

Surfing recommendations:

An update of the risk index from http://homepages.together.net/~wbarnes/stockmarket.htm shows the Risk index at 100 which is the highest since 1980.

An audio interview with Steve Leuthold is available at http://www.elliottwave.com/wsu. Steve is concerned about a 50% correction just to return to normal valuations.

XAU/ABX has behaved as predicted recently,with an oversold rally from the lower 3.5% trading band to well above the upper 3.5% trading band,where we recommended taking profits.XAU then fell from 68+ to 61.As usual,this index and stock moved quite quickly.For now,no new buy signals have been given.STOCHASTIC 5 is quite oversold near 10,but STOCHASTIC 20 is at 40,not yet oversold.Typically, with this formation,the index and stock will pop back and forth until the longer STOCHASTIC measure becomes oversold also,at which time the oversold rally will materialize.The longer term charts still look like an extremely slow rounded bottom,with the low point in the 50's.

Here are the other charts:

5 DAY ADVANCING VOLUME CHART. CYCLE CHART. DJWM CHART. DJWM2 CHART. DSPU9PD CHART. EQUITYCP CHART. INDU DAILY CHART. INDU WEEKLY CHART. MCOSC CHART. MOONTIDE CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEYGP CHART. OEZSD CHART. PITCHFORK CHART. RISK INDEX CHART. SENTIMENT CHART. SPECTRUM STRATEGY CHART. STOCKS RISK CHART. TYX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Tuesday, June 13, 1999:

Chartists just love it when indicator lines cross or reach certain levels and then the index responds in acknowledgement. The 5 day advancing/declining volume is one of those registering a crossover on Monday. The crossover is minuscule at this point, and it could still just be a "kiss and run" kind of thing. At the moment, it paints a negative picture for equities, and we are waiting for the index to respond. MOSS and AMOSS say we are at that time when we should see some fireworks. The OEX is hanging tight to an uptrend line on the CONE chart with a projection oscillator that says the trendline should be penetrated to the downside on Tuesday. Look for 717 and maybe 714 if things get out of hand on Tuesday. Another way to look at this is on the PitchFork chart. The center tine is providing resistance, and for Tuesday we have a critical Yellow Dot level of 720.53. A low and close below that should put money in the put holders account. We are getting another of those index vs SuperT divergences since the last pivot low, so we should soon see a trip by the SuperT down to the correction level and the INDU down to 11,000 at a minimum. Remember, this is expiration week, and the call holders have not been shaken out of their positions since the beginning of seasonality in the last few days of June.

We had looked for a retracement in XAU/ABX from the index price of 68+ and a STOCHASTIC reading near 100.Today XAU closed at 61.20.Momentum is still falling.STOCHASTIC 5 is oversold at 10.STOCHASTIC 20,the longer term reading,is falling,but still at 30,not yet extremely oversold.When both these readings spend some time in extreme oversold,and then momentum reverses,another tradeable rally will ensue,as before.

AOL/CMGI finally saw a pullback, being far above the upper 3.5% trading band,and therefore moving back to the band.AOL fell from 129 to 122;CMGI from 121 to 112.Another internet issue,QWST,registered a similar overbought short term sell signal at the upper band at 36.50 on Monday.In this sector,prices do tend to run up a bit above the upper band before the short term sell signals take effect-that is, they are a bit premature using our methods of STOCHASTIC and momentum analysis.None of these 3 issues are oversold at this point.A rise above the previous highs of the last three days on increasing volume in these 3 issues would be very bullish.Volume has been very light in the internets recently.

CODI CHART. CODISYS CHART. CYCLE CHART. DEBACLE CHART. DSP9U CHART. EQUITYCP CHART. INDU CHART. INDU DAILY CHART. INDU WEEKLY CHART. MCOSC CHART. MOONTIDE CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. SENTIMENT CHART. TYX CHART. VIX CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Wednesday, July 14, 1999:

"They" are trying to bring the market back from the brink of disaster. It really is on the edge of a catastrophe. The fact that this is expiration week may delay the event until maximum leverage can be applied. No further comment on that. We did get the OEX lower green cone target mentioned yesterday, and the Cone Projection oscillator is oversold and can trend in oversold, so it is too early to jump on the other direction even though there may be an expiration trade or two this week. Implied volatility is making noises about increasing on the VIX chart, whch also shows that the pivot sell indicator has triggered on the Yellow Dot indicator. Just for fun, we thought you might like to see version 2 of the CodiSystem to compare the system equity with system 1. The system 2 permits multiple signals in the same direction. Equity is measured in big point values of the OEX, not in the options. With appropriate stops, it might make a decent futures system. The 5 day advancing volume is in day two of kiss and tell. We are still waiting to hear what it has to say about B&B, and we are not speaking of bed and breakfasts. AMOSS decided to make a zone crossing to the lower neutral zone, and MOSS dropped from Overbought to Neutral. To make money with straight puts or calls, we need faster movement similar to Tuesday morning. This end of day stuff will make you take a second job or have the spouse ask for a pay raise to fund your "research" effort, if you are fortunate enough to have a partner that still believes in promises. Globex can really screw up a well laid out plan. That is one reason why the CODI signals are early. There is no clue from either EquityCP or Sentiment to help out in this waiting, other than the bullishness died in Barcelona and the late comers are picking the bones of what's left. McOsc is back to the zero line bouncing floor; the question is, will PPI and CPI push it through the floor? And then next week, will Humphrey-Hawkins put it in the cellar? When does Congress go on summer recess? That used to be a time when the market went on its last summer party to yearly highs and the college students could make their tuition for the next school year by trading call options. Volatility and Debacle continue on their annual momentum cycle with destiny.

Thought you might like to see a midweek update on the DJWM midas Top Finder. After two more days of distributive volume the DJWM1 target is at 11241 in two days. Or 11506 in 4 days, or 11608 in 6 days. Point C has been shifted to the right to fit the Top Finder to the price line. Now, you know this site is part serious and part research and part humor. My personal experience with the Top Finder is that it is due some respect, but it does have operator error as can been seen with placement of the C point. So it falls in the research and humor categories. One nice thing about its price and time is that it agrees with pretty much all the other charts on the MoCycles page that indicate some summer toppiness.

AOL and CMGI continued their correction from well above the upper band back to within the bands early Tuesday,but then closed near the highs of the day,due probably to expiration related short covering.No clear signals were given by today's action.However,QWST made a tradeable intraday decline obeying our sell signal of yesterday.High 37 7/8,low 35,close 35 1/16.This one may also rally due to index expiration activity.

XAU/ABX fell further,obeying the sell from above the upper band above 68,by tagging the lower band at 59.83.STOCHASTIC 5 is 15;STOCHASTIC 20 is 25,not quite extremely oversold.Another bounce should be setting up soon from near this level;wait until STOCHASTIC reaches oversold and momentum turns.

Here are the additional charts:

CODI CHART. DJWM1 CHART. DJWM2 CHART. DJWM3 CHART. DSPU9 CHART. INDU CHART. INDU DAILY CHART. INDU WEEKLY CHART. MOONTIDE CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PITCHFORK CHART. SUPERT CHART. TYX CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Thursday, July 15, 1999:

It's called the summer doldrums. If you recall, last weekend we said that you might not make anything with July puts this week, and thus we have not been recommending any trades. AMOSS is just hanging out in neutral and the EquityCP and Sentiment have not been giving us a clue either until after the close on Wednesday. We finally saw both of these push up to the sell alert line. Now remember, the CODI is in the whipsaw zone, so anything goes for the next day or two.5 day rate of price change is 0% -dead neutral.

We took another look at the DJWM1, DJWM2, and DJWM3 tonight to see how close we are getting to the theoretical top in the INDU. DJWM1 has the same C point as yesterday's chart. The other two have the C point inched to the right to position the TopFinder under the last datapoint on the chart. The price plot is a daily mean. In other words, the TopFinder target is halfway between the high and low of the target day. Another fun and games trick tonight was to enable the third signal option on the CODIsys2 chart to activate the Same and Different Buy/Sell signals. The equity plots on CODIsys2 and CODIsys can be compared. Yesterday, we had a data error on the 5ADVOL chart. It did not change the "Kiss and Tell" picture much, other than to reinforce the transition the market is about to make. McOsc closed below zero today, but it did not do it with much gusto, as put holders would like to see. There is a great effort at hand to keep prices from collapsing while the pros finish their distribution. {Of course, this is a speculative notion.} The INDU and the INDU OBV are beginning to drop away from their upper bands. It might just be that the distribution phase is finished and the specialists will be dropping their bids. Debacle chart continues to warn of pending doom. This doom was more or less confirmed by an NYSE floor voice. Well, maybe we better not go that far. He did say that next week was going to be a very tough week. That's the week Greenspeak answers to Congress.

XAU/ABX is getting set up for a rally,although momentum has not yet turned to up.STOCHASTIC 5 is 13,and STOCHASTIC 20 is 18.Ideally,both these measures will spend a while coiling in extreme oversold below the 20 region before several consecutive closes at the highs of the day on increasing volume.The best rallies come from long periods in STOCHASTIC oversold.

QWST continues to fall from our sell signal above the upper band at 38 to below the lower band - now 34.If you took the sell as a short cover now.

Here are other charts:

ADHL CHART.{ADHL intermediate system has two of three components in sell mode. All it needs to complete its sell is for the new lows to pick up.} CYCLE CHART. DSPU9 CHART. INDU DAILY CHART. INDU WEEKLY CHART. MOONTIDE CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PITCHFORK CHART. SUPERT CHART. VIX CHART. XAU CHART. TYX VOLATILTY

MomentumCycles commentary for the open of Friday, July 16, 1999:

The market appears to be following the discussed classic expiration pattern. They got it up there for the NDX and SPX expiration. If there is pattern followthrough, then we should get the pop on the open, then mid-day pullback, and then rally on the close of the S&P 100 stocks. TRIN started the day off quite bullish and trended up the remainder of the day. If the market were really bullish, then the TRIN would have gone sideways at much lower levels. We could not have had a closer bull's eye on the OEX resistance zone on Thursday. Perhaps you noticed the OEX jammed right on up to the green cone and the OEX daily fib upper resistance at 727.48. That level also happens to be the OEX weekly fib weekly resistance zone. DJWM1, DJWM2, DJWM3, and DJWM4 are the DOW midpoints for a top over the next 8 trading days, subject to alteration, of course, if we get some heavy down days in the meantime. If the TopFinder point C is adjusted back to the blue line launch point, then we have seen the midpoint top on 7/15/99. July 20 was the summer high day in 1998. The Debacle chart and Volatility chart are in a long term cycle agreement with the DJWM charts. In previous market peaks, the indexes have reached extreme intraday valuation levels that seem to trigger the change in psychology of the elephant traders, whoever they are. Then those closer to the action know that the elephants have reversed course for the next 3 or 4 months and follow behind. I once read that it can take an institution 6 to 8 weeks to liquidate a position without tanking it and losing all the profits they built up. Funds can sometimes pay dividend distributions out of new money or in more shares, provided that withdrawal requests can be met. This year, they may start the cash buildup early, as their borrowing power is limited to a percent of assets. What a shock it will be when and if a major liquidation crisis occurs. The fine print in prospectus covers situations in which stock cannot be liquidated. It would behoove any fund owner to check into this as it is commonly misunderstood. The guarantees are limited. Most mutual funds cannot use stock index futures or the options market to hedge against the drop due to a position liquidation, so they have to feed the stock to the market slowly. As long as there are top buyers around and the stock can be disposed of, the market can hold up, but it doesn't make much upside progress, and in previous summer tops it takes 3 to 4 months to finish cleaning out the portfolios. You can bet that there will be a big attempt not to scare the fund buyers in this readjustment. In these situations, the investor sees the major indexes holding up, but his fund is still sinking, and by the fourth quarter his CPA says to do some tax loss selling at the bottom. IMHO, it is better to do that selling in the summer and buy back in October or November on the price low that follows the momentum low. For options trading, we have decided to stand aside until we feel comfortable about a put trade. In the meantime, we can cheer TJ on with his super call trades.

EquityCP and Sentiment peaked on Wednesday and turned down on Thursday while the OEX made a high. At any other time of month, this would make a good put trade setup. Expiration Friday and the topping formation have to be given some credit for this skewed relationship between the index and the three associated indicators. The lineup is just not sanitary as it has been all year. The extended cycle length has distorted the SMI and 3XIND indicators. With VIX in the teens and the potential for an OEX runup on the close, you might want to consider some August puts a strike or two out of the money going into the close. This borders on the speculative trade, since it must be said that none of our short term systems are in sell mode. This would be one of those "valuation extreme" trades mentioned above. The ADHL intermediate system was salvaged from tripping into sell mode by an increase in new highs and decrease in new lows on Thursday.We do note the closing +1051 closing tick,which usually leads to a short term retracement within 2 days.

The recent sell signal or short for QWST that we recommended on the STOCHASTIC non-confirmation above the upper band at 37 7/8 a few days back was recommended for short covering on Thursday's open on last night's commentary.Near the open Thursday 33 5/8,close 33 15/16.These short term moves that we periodically predict and comment on are done by entering price and volume and observing past price behavior within individually fitted trading bands.Each index or issue has its own peculiar periodic cyclicality.Although we follow only a few individual securities for the purposes of this site they often they lead to conclusions about larger indices.FNM,for instance,has been going sideways for many months back and forth within the 7% bands,so trades at the highs and lows of the bands were easy to predict for regular 7% moves.FNM moves often presage moves in the T bond market.

XAU STOCHASTIC ,at last, in both long and short values is extremely oversold.We are below the lower 3.5% trading band.Price usually bases for 9 -16 trading days as in March/April or May/June before a good rally is ready to start.Let's start counting.

Here are more charts:

CODI CHART. DSP9U CHART. INDU CHART. INDU DAILY CHART. INDU WEEKLY CHART. MCOSC CHART. MOONTIDE CHART. NYA CHART. OEX FIBRET CHART. PITCHFORK CHART. SUPERT CHART. XAU CHART.