MomentumCycles

MomentumCycles commentary for the open of Monday, July 19, 1999:

To quote from the update for Expiration Friday:

"The market appears to be following the 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 and then mid-day pullback and then rally on the close of the S&P 100 stocks." "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."

That is exactly what happened, and if a trader followed the plan completely, then the August 730 put, OEZTF, was purchased before the closing bell for $12.50 X 100 for $1200 plus commissions. The OEZTF profit and loss chart shows the profit and loss lines as of next Friday 7/23 with respect to changes in the OEX and changes in VIX, assuming the OEX does pull back some and implied volatility increases. Now, of course, we don't know this is going to happen. The only thing this trade has going for it is that post expiration week sometimes undoes some of the trend of the previous week.Note also the high closing ticks of +578,+772,+1048,and +820. We have also had several weeks of summer rally, and there is a significant cycle date and some Greenspeak next week.

Sentiment has reached the Buy Puts Alert going into expiration close. The problem with this is that the SMI and 3XIND are not in clean synchronism. The EquityCP is not in the BP Alert zone either. Other divergences continue. Moontide has a slight divergence from price, as does the SuperT. Even the McOsc is lagging. It is still in the neutral zone, as is the AMOSS. It appears that Price is leading breadth measures here. This is what should be expected going into a topping formation. DJWM1, DJWM2, DJWM3 and DJWM4 have been updated for the next week with nearby targets. Top Finder targets are median prices for the day and should lie halfway between the day's high and low. Debacle chart continues building its top, and the Volatility chart is looking more and more like 1998, where we had those runaway prices. Some say it is because the public tends to be buy oriented and the pros trade both sides. Summer time has a dominance of public participation. It's sort of like around holiday periods, when the pros have taken a rest and are not there to counter the public's optimism. Sometime this month or next month, the vacations should be ending and we should see some clipping of the recent advances. Be sure to drop into http://homepages.together.net/~wbarnes/stockmarket.htm for an update on the risk indicator, and http://www.elliottwave.com/wsu for an audio interview with Ray DeVoe, a 50 year market veteran.

The XAU and its blue chip representative stock,ABX,continue to drop into oversold as expected here since the predicted XAU sell at 68+ and when ABX was tagging 20.XAU is now 59.14 and ABX is in the 17's.Momentum is still dropping.STOCHASTIC on both a longer and shorter basis is in the basing area below 20.Typically XAU will base in this area for 9 to 16 trading days before suddenly spiking up.

We had commented that QWST was a sell above the upper band,and that traders who shorted it should cover on Thursday open before a typical expiration pop.Good timing as Friday saw a pop back up to the upper band to 35.

Here are the other charts:

5 DAY ADVANCING VOLUME CHART. CODI CHART. CODISYS CHART. CONE CHART. CYCLE CHART. DSP9U 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 Tuesday, July 20, 1999:

We had noted the large series of high closing ticks last week,and correctly noted Thursday's +1000 closing tick as usually presaging a retracement within 2 days.3 day cumulative smoothed breadth turned down on Monday.As a result, the OEZTF worked out pretty well so far. As you recall, we recommended entering on the Friday close a strike or two out of the money. That turned out to be the Aug 730 put at 12.5. Monday morning "they" did not quite hit the proverbial 1.5 stop below entry, so you could have even added another position a buck lower. Following that, "they" jammed the OEX down to our OEX daily fib support zone and came darn close to the red cone. Red cones are a 1 std dev range from the previous close based on implied volatility, so in reality they change during the battle of the day. They are also decent profit taking points, since the next day often results in some overlap of the price bars and offers a re-entry. The result was a move to 15.75 for a 37% gain for those who entered and exited Monday.

Presently, the breadth foundation is beginning to crack, as measured by the McOsc dropping below zero again. Pay special attention to the 5day advancing volume chart, as the 5 day down volume has ticked above the 5 day advancing volume. Also, the Intermediate system ADHL shows two of three components in sell mode. New Highs are dropping pretty fast. The last signal from CODI was a Sell, and it is still trending upward through the Whipsaw zone. This is where things tend to accelerate as the correction gains acknowledgement. The Debacle and VOLATILITY charts reflect animal transgenics, and this isn't biotechnology we are speaking of.

{I encountered a humorous cowboy book this weekend titled "Don't Squat With Yer Spurs On!" This funny thing struck a bell: "After eating an entire bull, a mountain lion felt so good he started roaring. He kept it up until a cowboy came along and shot him. The moral: when you're full of bull, keep your mouth shut." So if you make any coins off of puts, it's best not to speak too loudly or feel confident that the success is going to continue. That bull might still have some energy left in those horns, so it's best to play like a range chicken and peck and run. Survival is the name of the game in this desert heat.}

SuperT is hinting at a trip down to the correction level or lower. A few variations of the OEZTF are presented for those dreaming of profits. Here are the OEZTFTP and OEZTFTV charts. The Moontide shows the price and cumulative volume divergence that turned the market down today. The MT2 shows that volume just was not behind the last hour pop of the NYA, and we should see some more weakness intraday on Tuesday. Humphrey Hawkins is not until Thursday{ oh, dreaded Thursdays!}. Maybe VIX will peak out by then and the puts can be closed out at decent profits.

Here is one more from the "Cowboy's Guide to Life" that applies to trading. "If you find yourself in a hole, the first thing to do is stop diggin'".

The OEX 30 minute chart shows a theoretical target for the OEX by extending previous support and resistance trendlines. The upper and weaker convergence provided support today. The lower convergence is much stronger and is closer to 720. This is somewhat an unorthodox approach; just an interesting perspective.

DJWM continues to point to a top in the making, if we haven't seen it already. Here are DJWM2 and DJWM4.

XAU continues to dig deeper into the cellar of oversold,along with its blue chip component,ABX.STOCHASTIC 5 and 20 are about as oversold as it gets.Momentum is still dropping.We have had 2 consecutive closes at the lows of the day.We like to see 3 or 4 in succession,then a move to the high of the day on large volume.We have been correctly bearish on XAU/ABX since the XAU high of 68+ and the ABX tag near 20.Monday,XAU is at 57.84,and ABX is 16 7/8.We like basing in oversold for 8-16 trading sessions before the good rallies start.

Did we just see a little move out of SOXX and DOT{chips and internets} into safer blue chips?One day isn't a trend,but healthy rallies need stronger NASDAQ or NDX than DJIA.

Here are other charts:

AMOSS CHART. CYCLE CHART. DSP9U INDU CHART. EQUITYCP CHART. INDU DAILY CHART. INDU WEEKLY CHART. NYA CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. XAU CHART.

To quote from MomentumCycles commentary for the open of Tuesday, July 20, 1999:

"We had noted the large series of high closing ticks last week,and correctly noted Thursday's +1000 closing tick as usually presaging a retracement within 2 days.3 day cumulative smoothed breadth turned down on Monday.As a result, the OEZTF worked out pretty well so far. As you recall, we recommended entering on the Friday close a strike or two out of the money. That turned out to be the Aug 730 put at 12.5. Monday morning "they" did not quite hit the proverbial 1.5 stop below entry, so you could have even added another position a buck lower. Following that, "they" jammed the OEX down to our OEX daily fib support zone and came darn close to the red cone. Red cones are a 1 std dev range from the previous close based on implied volatility, so in reality they change during the battle of the day. They are also decent profit taking points, since the next day often results in some overlap of the price bars and offers a re-entry. The result was a move to 15.75 for a 37% gain for those who entered and exited Monday.

Presently, the breadth foundation is beginning to crack, as measured by the McOsc dropping below zero again. Pay special attention to the 5day advancing volume chart, as the 5 day down volume has ticked above the 5 day advancing volume. Also, the Intermediate system ADHL shows two of three components in sell mode. New Highs are dropping pretty fast. The last signal from CODI was a Sell, and it is still trending upward through the Whipsaw zone. This is where things tend to accelerate as the correction gains acknowledgement. The Debacle and VOLATILITY charts reflect animal transgenics, and this isn't biotechnology we are speaking of.

{I encountered a humorous cowboy book this weekend titled "Don't Squat With Yer Spurs On!" This funny thing struck a bell: "After eating an entire bull, a mountain lion felt so good he started roaring. He kept it up until a cowboy came along and shot him. The moral: when you're full of bull, keep your mouth shut." So if you make any coins off of puts, it's best not to speak too loudly or feel confident that the success is going to continue. That bull might still have some energy left in those horns, so it's best to play like a range chicken and peck and run. Survival is the name of the game in this desert heat.}

SuperT is hinting at a trip down to the correction level or lower. A few variations of the OEZTF are presented for those dreaming of profits. Here are the OEZTFTP and OEZTFTV charts. The Moontide shows the price and cumulative volume divergence that turned the market down today. The MT2 shows that volume just was not behind the last hour pop of the NYA, and we should see some more weakness intraday on Tuesday. Humphrey Hawkins is not until Thursday{ oh, dreaded Thursdays!}. Maybe VIX will peak out by then and the puts can be closed out at decent profits.

Here is one more from the "Cowboy's Guide to Life" that applies to trading. "If you find yourself in a hole, the first thing to do is stop diggin'".

The OEX 30 minute chart shows a theoretical target for the OEX by extending previous support and resistance trendlines. The upper and weaker convergence provided support today. The lower convergence is much stronger and is closer to 720. This is somewhat an unorthodox approach; just an interesting perspective.

DJWM continues to point to a top in the making, if we haven't seen it already. Here are DJWM2 and DJWM4.

XAU continues to dig deeper into the cellar of oversold,along with its blue chip component,ABX.STOCHASTIC 5 and 20 are about as oversold as it gets.Momentum is still dropping.We have had 2 consecutive closes at the lows of the day.We like to see 3 or 4 in succession,then a move to the high of the day on large volume.We have been correctly bearish on XAU/ABX since the XAU high of 68+ and the ABX tag near 20.Monday,XAU is at 57.84,and ABX is 16 7/8.We like basing in oversold for 8-16 trading sessions before the good rallies start.

Did we just see a little move out of SOXX and DOT{chips and internets} into safer blue chips?One day isn't a trend,but healthy rallies need stronger NASDAQ or NDX than DJIA."

MomentumCycles commentary for the open of Wednesday, July 21, 1999:

Quoting once again from "A Cowboy's Guide To Life", "Any time a large herd moves through a civilized area there's a lot of manure to clean up." This applies quite well to price breaking OEX daily fib support or lower green and red cones. Tuesday saw the Moontide carry the OEX all the way down to the gray Cone crash level and the SuperT down to the correction level. MT3 is a three minute tide and MT15 is a fifteen minute one. They illustrate the index/cumulative volume divergence once again. With the tide still going out, it would be prudent not to swim against it, as we may now be in that post summer rally as depicted on the Volatility, DJWM1, and Debacle charts. DJWM2 and DJWM3 are presented just in case we get a post Humphrey Hawkins relief rally. Moves such as we have seen on Tuesday trigger margin calls and take a few days to settle out, so the best course would be to not let the OEZTF profits slip away but not be in haste to enter calls. As the Cowboy's Guide says, "Coolness and a steady nerve will always beat simple quickness. Take yer time and you'll only need to pull the trigger once." Paradigm shift bottoms tend to have a momentum low and a price low. The second low makes the better call entry and gives the market time to catch its breath after a fall.

I was reading another book today titled "DayTrading into the Millennium" by Michael P. Turner and just happened to be on chapter 18 titled "Paradigm Shifts". Chapter 19 is "The Overnight Effect". Both seemed to be quite appropriate at the moment. Future commentaries will incorporate excerpts from Turner's book.

All the charts are interesting tonight following the large movements today, although volume is still relatively light. The OEZTFtp shows that the Delta increases as the OEX drops and the put goes deeper in the money. Nirvana is reached when Delta reaches -100 for puts or 100 for calls. This is what happened to the OEYGP in the beginning of month seasonality trade if you recall. Delta, as you all know, is the rate of change of the option with respect to the underlying index. CODI is nearing the Buy Call Alert level and the OEX RSI is dropping, but as was pointed out above, there are three states: Long, Short, and Flat. Consider "Flat" as being the space between your thoughts where you stay out of trouble. Sometimes a stop and reverse works fine, but with options it can also be a killer if it catches you in a volatility trap. VIX has only begun to move (if this move carries very far), and at 22 it is still at recent lows.

We pointed out Monday the "search for a safe haven" effect of SOXX and DOT being weaker than the blue chips.Blue chip FNM,for instance,is at 70.5,off only one point from 71.5 at its recent high.In contrast,SOXX was off 4.5% Tuesday,and DOT was off 3.73%.NDX was off 3.93%.

"Hot money" issues AOL and CMGI are now short term quite oversold,ready for a pop,although longer term STOCHASTIC readings are no where near good oversold buy areas.

XAU/ABX first day close at the high of the day.Momentum has not yet turned to up.If this isn't the start of a rally,we're getting close.Comments on index components are on the XAU chart below.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. AMOSS CHART. CYCLE CHART. DSP9U CHART. EQUITYCP CHART. INDU CHART. INDU DAILY CHART. INDU WEEKLY CHART. MCOSC CHART. NYA CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEZTFTV CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Thursday, July 22, 1999:

Not much followthrough on the downside or much bounce on the upside. Preservation of profits is one of our mottos, so when the OEX repeatedly tested the green cone and the fibo support zone, it was decided that the OEZTF could evaporate overnight. There were a number of indicators that were encouraging today. TRIN ended the day below the buy level for Thursday. SuperT bounced off the Correction Level. CODI and CODIsystem went into Buy mode. Take caution there; CODI has been known to rise much higher before a decent buy signal occurs that has staying power. CONE projection oscillator is bouncing along in oversold. AMOSS is in oversold; it can go to extremely oversold, though. RSI (not shown) and Volatility band systems (not shown) went into Buy Mode. Now no one knows if there will be a relief rally or more selloff tomorrow. We just have to report what we see and look for opportunity to take advantage of it. Sometimes it takes multiple entries to catch it. So, as of Wednesday night, it means that exiting the OEZTF{per commentary and e mail advice} after a double was the correct thing to do and we should be looking for an entry on the call side on Thursday or Friday. The OEZHB is posted as an example, but we might use the OEZHC. Since Greenspan is given credit for this Debacle, we actually have to wait to see what things look like tomorrow. Maybe something more sinister is occurring, like a real correction.

Oh, do take a look at the INDU chart and its location on the 21 day average. It is set up for a bounce, or heaven forbid, a drop to the 50 day at 10853. If I were a speculator, I would say that we should get another push up over the next week plus a little and then add on to the Volatility and Debacle charts to the downside going into the FOMC August 24th and on into September. One thing we do know is that positive seasonality will kick in again between 7/26 and 7/28 via the UC payroll indicator. We also know that it will be 2.45% stronger than last year, due to cost of living adjustments. We could get a much better kick out of the seasonality if we had a couple of more days of consolidation to clean out the sellers.

OEX 700 is a red cone support for 7/22, and it is also a weekly support on another indicator, seen on a few of the charts such as the PitchFork. Pitchfork lower tine is at 690. This is risky business, because at some point, the OEX and other indexes are going to trip on down to the longer term moving averages such as the 50, 100, and 200 day averages. The quality of rally attempts is really going to be key, and it might just be that a paradigm shift has occurred from buying dips to selling rallies. Be careful.

On the XAU chart of yesterday,it was suggested to nibble at components such as HECLA {opened near 2$}.XAU STOCHASTIC 20 is on the verge of crossing above the buy level at 20.STO 20 crossovers above 20 usually signal legs to a rally.In retrospect,it would have been advisable to reinforce this on an intraday e mail.Any positive move of XAU/ABX to the highs of the day at the close Thursday increases the likelihood that under 60 was the low.XAU closed Wednesday at 61.17.ABX is 17 7/8.

Here are the charts: 5 DAY ADVANCING VOLUME CHART. CYCLE CHART. DSP9U CHART. EQUITYCP CHART. INDU DAILY CHART. INDU WEEKLY CHART. MCOSC CHART. MT15 CHART. MT3 CHART. NYA CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX WEEKLY CHART. OEZTFTP CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Friday, July 23, 1999:

Readers have been given a very good roadmap of the market from the expiration week "last gasp up" from Tuesday,July 13 into Friday,July 16,where we went short at the end of the day.We knew the over +1000 closing tick presaged a correction in post-ex week,probably into the "terrible Thursday " of Greenspeak.Wednesday brought another closing +950 tick,which fit right into our schedule for a correction Thursday.We also cautioned correctly that the start of post-ex week was showing blue chips much stronger than the techs;specifically SOXX{chips} and DOT {nets},and that was bearish.Note that Thursday the DJIA was off .31%,NASDAQ off 2.8%,SOXX off 4.12%,and DOT off 3.5%.FNM,a typical blue chip,had a rally high in the 71's.Today's close was 69.3125,showing good relative strength.When fear turns,this RSI relationship will reverse.Nets and techs are getting very oversold.We wouldn't be short them now.

On to today's OEX action...

"Home, home on the range. Where seldom is heard a discouraging word, and the skies are not cloudy all day." You know, it just hit me today that you never hear cowboys telling jokes about women. Must have something to do with all those lonely days they spend out on the trail. I did see a postcard over in Palm Springs that showed a cowboy standing on the ground next to a cactus while facing an Indian sitting on a horse. His squaw was standing behind the horse. The cowboy asked the Indian how come his squaw was not riding. Indian said, "Cuz squaw no gottum horse." Oh well. Since cowboys never marry, I guess they don't have that problem. Man, Hollywood certainly can distort your vision of life. I watched too many Saturday westerns as a kid. It only cost 25 cents for a flick in those days. After a 39 year hiatus in various parts of the US, it's kinda nice, pardner, to be back in this borderline ghost town. It's so damn hot I have to keep a fan blowing on the computers even with the air conditioning on. Some days I worry about looking out the window and seeing the satellite feedhorn melting. Thank goodness for satellites and the internet, otherwise I might be in some nice place like Lake Tahoe, but here I am renewing family ties. Thank goodness also for my ISP being down this morning, otherwise I might have jumped the gun on the call trade. As it turned out, we jumped over the green cones and landed in the red ones for a purchase of the August 705 calls, OEZHA, between 14 and 15. VIX was up at 25, so the premiums were kind of stacked against us, like Las Vegas casinos. We might still make out if we can get some distance between 705 and points up the retracement trail.

Technically, things don't look so good unless you are a contrarian and what looks bad looks good, like a rattlesnake to a hungry cowboy. The charts are really beautiful tonight. Maybe some of you did not exit the OEZTF yesterday and had a chance to pick up a few more points on this terrible Thursday. You might even be able to buy the OEZHA at a better price on Friday or Monday, as seasonality does not officially start until next week, and we may have been a bit anxious here. AMOSS and MOSS are jammed down to extremely oversold, where some cautionary buy arrows have been placed. Wasn't that a beautiful triangular compression on the AMOSS chart? Such order, such precision... enough to make a man's heart beat.

McOsc has joined them in historically oversold levels. We still have a Buy on CODI. It would make for one bad headache if CODI rises much further. Be sure to take a look at the 5 day advancing/declining volume, as it too is hinting at oversold levels. As has been said before, "It can go lower." The point is that we are focusing on an oversold level to take us into seasonality next week. The next two weeks could just be the defining moments of the summer and offer a bull for the campfire in the month of August.

Sometimes, looking at these charts makes me feel like all that is needed is a straight edge and a pencil. That is where the eye fools you, since volatility and time decay will get you if price doesn't. Sentiment shows the OEX hitting a trendline and the weekly support dots (dark cyan). The HRBBVS indicator is at a level where it is making noises about call buying. It would be nice if it made the green line dip (as it rarely does), but there have been some good call trades in its current state. Equity CP is painting a similar Call Buying setup. According to the Static Evaluator, the August 705 call would double if the OEX moved up 4.44%. That would be to 732, which is a tad under the 735.65 on 7/19. Maybe next week? Oh, the blue cells are theoretically undevalued options and the red cells are overvalued. Just compare the Market price and the Theoretical price to see this. The $/Day indicates the $ amount of time premium built into the option premium divided by the number of days until expiration. This software's timing leaves a little to be desired on the entries, as the coding is premature, in my opinion. The signals are generated with closing data for entries the next day, so it's not quite as bad as it looks. They are also set for buying one strike in the money. The point is, all four of the buy premium models will be long as of Friday.

We can't end tonight's commentary without mention of the now famous MomentumCycles Debacle chart. We do believe that history repeats, but not precisely. If you look at 7/20/98 when the drop got under way, you see the stop running high, then a long bar, short bar, long bar. That is exactly what we have had so far this week. If the pattern continues, then next week will be a consolidation week where rallies are sold and calls decay and only premium sellers make money. Then instead of a positive seasonality in the first week of August, the elephant traders feed megaquantities of stock into your IRA, SEP, KEOGH pension plans, overwhelming the new money, and price drops, as everyone on the internet is now reading the Debacle chart. So, upside expectations on the 705 should be subdued and due diligence is required for you to exercise your stop protection. This is not a comfortable trade.

If you were online today then you know we had a Red Cone day, as two www emails were sent out when the OEZHA was at 15 and 14. That was when the OEX hit each side of the lower red cone. Since that trendline at Thursday's low provided support, let's expect it to do that on Friday. That would mean the low would be about 697.5. If it drops to the green cones, then call it 695. If bottom fishers are still around, then 707 should be expected on the upside. The question is, where do you bail out if this plan goes underwater? Well, you can use a 1.5 stop under your entry price at 13.5 and 12.5. Or you can decide that if the OEX does not find support in the lower green cone, then you should bail out and take a long weekend.

Additional observations come from a subscriber commenting on the INDU chart. He was astute enough to point out that the INDU found support today at the 50 day moving average. That reminds me of how strong the 50 day exponential average has been on the 5 Day Advancing/Declining Volume chart. That's enough for one night. Good luck on Friday.

Finally,XAU STOCHASTIC 20 is above 20 and momentum has turned up on XAU and its components.We suggested bottom fishing HECLA at near 2.It closed at 2 1/4.This is like a perpetual call on the metals,as long as they stay in business,of course.Blue chip ABX made it to 18,for those that played that component.

Here are the charts:

CYCLE CHART. DSP9U CHART. INDU DAILY CHART. INDU WEEKLY CHART. MT15 CHART. MT3 CHART. NYA CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX WEEKLY CHART. PITCHFORK CHART. SIGNAL REPORT CHART. SPX FIBRET CHART. STATEVAL CHART. SUPERT CHART. TYX CHART. VOLATILITY CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.