MomentumCycles

MomentumCycles for the open of Monday, July 26, 1999:

We've had many good trades on MomentumCycles this year; OEYGP and OEZTF, to name only a recent few. Impatience is not a virtue when it comes to options. On occasion it will get you in at an advantageous time, but unless you are on the side of the "Force", you will lose to time decay and price erosion. Sometimes you can be monitoring the action too closely and expect a quick mean reversion, only to find out that a longer cycle is beginning to dominate. That is what we may be seeing here now with the Debacle and Volatility charts. The five day momentum types are getting buy signals, but the long term seasonal guys are getting sell signals. The problem is basically of having a setup and a trigger for the trade. There tends to be too much slop in the trade if they are one and the same. We need to do some work on this ourselves. This brings up an observation resulting from the last two weeks. What we saw was a high level consolidation, then a runup to an outside day, and then a collapse. These things don't happen by accident. Keep in mind that the pros who control the game know Mr. and Ms. America have been sold on trend following software. The runup gets all the systems long and then it takes them all out with one shot. It's called chart busting. Coding bar patterns into the systems may help in this regard.

The further out a projection is, the greater its error is, so we tend to stick to the one day look ahead Cones. The allure of the TopFinder in the Midas software keeps us entertained, but we don't have a lot of confidence in it because of the poetic license in its use. The support lines work much better than the TopFinder, for which we are still attempting to justify its existence. DJWM1 shows the recent high. DJWM2 shows a projected low of 10775 on 7/28. Following that, there is a projected high of 11582 on 8/13. They are based on an assumed average volume which is guaranteed not to be the case, so these values will be off. The forecast will change as the future evolves. For those who may have a curiosity about the price path, here is a tabulation of the dates and levels:

7/19 high DJWM1
7/26 10792
7/28 low 10775 = daily (H+L)/2 DJWM2
7/30 10972
8/03 11245
8/05 11359
8/09 11459
8/11 11544
8/13 high 11582 DJWM3
8/17 11526

On Friday the OEX dropped down to the lower edge of the green cones and then closed above the channel trendline that has been in place for some time. Technically, the -1.5 stop on the entry at 15 was hit at 13.5, as was the -1.5 stop on the entry at 14 of 12.5. The OEX low was an exact tag of the lower green cone.

Those using the green cone suggestion as a stop would still be on board, since the OEX held there. Using a dollar stop is more of a management tool and trade tracking than a smart stop loss, but something has to be used. In reality, the Cones can be used as volatility stops, and they seem to work much better than a price stop on the option. The Cone Projection oscillator has positioned itself nicely for the seasonality next week and may provide a base for the OEZHA calls. So basically, we are entering the last week of July in an oversold state, as evidenced by the fact that AMOSS, McOsc, and CODI are still long one position of the OEZHA. EquityCP and Sentiment appear to be very close to the buy Calls level. They have the first of three part setup on Friday. The 3XIND has crossed over. Then we need to see the CP and Sentiment turn up followed by the SMI. We may look to add additional positions at the same or lower strike next week. This is all being done under the caution that next two weeks may be limited on the upside if the Volatility chart and Debacle are painting the correct long term picture. This current Call trade is intended to be a short term seasonality trade and expresses nothing about an overvalued market nor the longer term seasonality. History may tell us that this is a foolish endeavor... another lesson along the trail of wins and losses. It's pretty important that the 50 day average of the INDU hold next week; otherwise, it's going to take the fork in the trail down to the 200 day path.

Looking at some individual charts...the nets and telecoms have taken the brunt of this correction,in contrast to the blue chips such as FNM,as we predicted at the inception of the correction last Monday,July 19.The techs are quite oversold short term,as evidenced by examples such as QWST and CMGI,and should pop up now.It wouldn't be surprising to see QWST move from Friday's 30 to 32 or so,and CMGI's Friday 97 to 102.

XAU is now short term overbought,as STOCHASTIC 5 is at 85.STOCHASTIC 20 is at 40,so some pullback in the index components and/or rebasing should be expected.We suggested HL as a way to nibble in the sector at the recent lows near 2.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. BOX CHART. CODISYS CHART. CYCLE CHART. DSP9U CHART. INDU DAILY CHART. INDU WEEKLY CHART. MT15 CHART. MT3 CHART. NYA CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEZHATP CHART. OEZHATV CHART. PITCHFORK CHART. SUPERT CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commmentary for the open of Tuesday, July 27, 1999:

It's clear now that we jumped the gun on the OEZHA entry, as the entry last week at 14 was stopped out today. The internals were too negative to recommend another seasonal call entry, and seasonality trends filtered out a put trade, from our perspective. It is our view that basing is occuring and the short term downside risk is lessening. What we might be seeing is the capitulation selling, as the NYA on the McOsc chart only dropped to S1 and set up a minor divergence with the 3 minute moontide. The MT15 looks similar with the OEX. Midas is still forecasting a midpoint low on 7/28. Now, it is possible that we have seen the price low, or will see it on Tuesday, and still have the Midpoint low occur on Wednesday. Sometimes, to our own detriment, we overplay this seasonality long trade, but we are still looking for an at the money or one strike out Call to play for the next week or so. As of tonight, that would be the August 695 or 700 call. The OEZHA could still produce some nice gains over the next week, providing we are wrong on the paradigm shift to bearish mode where rallies are sold and dips not bought. As of Monday close, the daily price and breadth trends are down, but watch for the "Turn-around Tuesday" effect before the close if the Advances and Declines reverse on the NYA chart. Of course, the way the game is played these days, price may lead breadth, leaving the masses to pay up for stock. With such an oversold McOsc, the snapback could be a sharp one. A brief look at the charts shows the NYA hitting support on the McOsc chart with an oversold McOscillator. AMOSS bounced off Extremely Oversold, and MOSS is in Extremely Oversold. 5 Day Advancing Volume has made an oversold pivot as the OEX sits on the 50 day exponential average. CODI remains on a buy, and the INDU continues to test for support on its 50 day average. VOLATILITY and Debacle continue on their course to "astrological fullfillment" in July and August.Of course,we use the technicals,money flow patterns and seasonals rather than astrology to time trades.

Midas projected prices are midpoints of the day and are dependent on an average volume assumption. Thus, they are "guesstimates" at best. Here are DJWM1 and DJWM726.

7/28/99 S4 low 10718 = midpoint of the day
7/30/99 10770 midpoint change is to the upside
8/03/99 11098
8/05/99 11254
8/09/99 11388
8/11/99 11433
8/13/99 11528
8/17/99 11542 High
8/19/99 11460

Debacle chart has an Ease of Movement indicator added to the volatility ratio and MoCycle Standard Deviation indicators. The EOM is a variation of the famous Richard Arms EOM that uses price range and volume to measure the ease with which price moves from one level to another. What the EOM is showing at this point, if you look closely at the last few data points on the right, is an indication that the slide is running out of downside energy and may have run its course for the time being.

To quote from the e mail intraday Monday at 10:16 a.m.:"Those who went long QWST or CMGI or their derivatives early this a.m.should use a 1.5 to 2 $ stop loss from their entry price.For QWST best guess is entry at 29 or so,for CMGI 95 or so.Momentum Cycles. {in case this is a continuation of the tech meltdown}".

CMGI Friday close 97 3/16,Monday open 95 3/8,low 88 5/8,high 96 3/4,close 88 3/4.We were stopped out {depending on the entry} at 93.5 for a loss of 1.5 or so.

QWST Friday close was 30 1/8,Monday open 30 1/16,low 28 7/16,high 30 1/16,close 28 9/16.We were not stopped out of QWST yet assuming a typical 29 entry.

Reasoning?Normally a rally is seen from extremely oversold STOCHASTIC readings at previous price "hit" levels.CMGI STOCHASTIC 5 is near 0;STOCHASTIC 20 is 18.QWST STOCHASTIC 5 is 10;STOCHASTIC 20 is 4.These readings are normally seen at the ends of extreme oversold declines.Monday the nets and some techs showed evidence of "sell at any price" psychology.We were unfortunately early here,but we try to limit losses with the 1.50 or 2 $ mechanical stop.

We have been using HL as the typical XAU component. Momentum of the XAU is flat.HL was recommended near$2;Monday close saw 2 3/16.

Here are the charts:

CODISYS CHART. CONE CHART. CYCLE CHART. EQUITYCP CHART. INDU DAILY CHART. INDU FIBRET CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEZTF CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. VIX CHART. XAU CHART.

MomentumCycles commentary for the open of Wednesday, July 28, 1999:

Did you hear that a floor broker on CNBC said portfolio managers are lightening up into this rally? Why else would you see an increase in new lows from 106 to 134? Of course, you already knew the answer a month ago from the seasonal notes on the Volatility chart. The funds are cleaning up the portfolios by dumping the higher risk positions as they prepare to hunker down for further Fed tightening or "market tightening". B Gross, who manages billions in bonds, expects a quarter point plus or minus fluctuation in T Bond yields. Whew, 6.25 would certainly help fulfill the Debacle and Volatility charts scenarios in the coming months. In the meantime, we have to deal with the end of month seasonality that always gets off to a rocky start. The pattern should be evident by now. Last week we said the seasonality could kick in as early as 7/26 to 7/28. The elephants chose 7/27 to enter on Globex and generate a gap open in NY. If you are trading OEX, then you either have to be in advance (thus our premature entry in OEZHA) or you wait for the gap opening and then the 50% pullback to enter.

You could have done the latter today if you were stopped out and still believed in the concept. The retracement and rally gave the OEZHA a 12 to 15 5/8 range, where the OEX ran into resistance at the upper Red Cone. Did you notice how fast the OEZHA gave up its gains in the last hour? Thus, the use of probability cones for entry and exit targets. The market is still trying to get its footing and is testing resistance and support. Seasonality says odds are for higher prices.

Running through the charts, we see that the INDU is sandwiched between the 21 and 50 day averages. NYA breadth was not conducive for sustained trend today, with the advance/decline spread looking distributive. If declines had been below 1200 and the new lows had decreased rather than increased, things would look more positive. {Oh, and on the gold stocks, did you hear that they have been upgraded to Outperform?} For the next month, the shrewd money will be raising cash by selling losers before the tax loss selling hits in the fourth quarter. They will also be selling non-dividend paying concept stocks that have little more than a prayer.{Note that CMGI and AOL were weak today,but QWST was upgraded to "buy" by a major brokerage house on greatly improved financials.}

Cone projection oscillator is working its way higher. Last time it found resistance at the 50% line. After Monday and Tuesday's data the Midas software has delayed the next high to 8/17.

7/27 actual midpoint 11005.16
7/28 10875
7/30 10727
8/03 10834
8/05 11121
8/09 11249
8/11 11347
8/13 11426
8/17 11516 High
8/20 11513

XAU/ABX/HL momentum short term reversed to down,as expected yesterday.STOCHASTIC 20 has crossed above 20 and retreated to 30.We suggested component HL near 2 as a long.

We were stopped out of CMGI for a 1.5 to 2$ loss Monday at an average entry near 95.CMGI closed at 90 1/4,resistance at 94.We are still long QWST,which closed up an impressive 5.47% today,on good volume.Entry about 29 Monday,close Tuesday at 30 1/8,stop loss kept at 27.5.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. AMOSS CHART. CODI CHART. CODISYS CHART. CYCLE CHART. DSP9U CHART. EQUITYCP CHART. INDU DAILY CHART. INDU FIBRET CHART. INDU WEEKLY CHART. MCOSC CHART. MT3 CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEZTF CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. VIX CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Thursday, July 29, 1999:

New lows increased again on Wednesday. For those who follow the TICK throughout the day, you know that it spent the entire day below zero. You also may know that the S&P futures spent the day between fair value and sell programs. This, my friends, is what is meant by distribution. This is not bullish action. We have held out that the end of month seasonality could produce a short term positive bias for a week or so, but that it would be sold into by those with a longer term perspective looking out to the fourth quarter when cpa's advise selling for tax loss reasons. The excesses of summer are corrected in the fall. Volatility and Debacle charts are following 1998 too closely to be ignored. OEX Cone projection oscillator has come up to the zero line, a moment of truth line, just as the Moontide has been sandwiched between the one day and five day in preparation of an explosive move. Now, we do have a relatively narrow range on the OEX daily fib chart for Thursday that could facilitate this wide range move as stops are ignited at the various levels. Now some would say that the Moontide (synonymous with cumulative volume) has dropped in wave A and is working on wave B, which means wave C follows and is a downer. B can go higher into seasonality next week. Midas software is still looking for a low before heading up again. Remember, this is for entertainment purposes, and if it turns out to be totally off the wall then we won't bore you with it. The support and resistance lines work much better than the Top Finder. Some of their handiwork can be seen on the SuperT and McOsc charts. Speaking of McOsc, it is oversold for a normal corrective market, but it can go much lower. STIX is fairly oversold at 45 and extremely oversold at 42. What these are saying is that probabilities and seasonality favor a bounce, but there is more room on the downside if panic sets in. If we don't get a bounce the rest of this week or next week, then the concept of paradigm shift gains more weight. Our favorite UC payroll indicator strikes Thursday or Friday at the latest so we will trade the OEZHA by buying at support and selling at resistance for day trades only until the picture clears. Here is the Midas path for the next few weeks.

7/30 10825
8/03 10730 Low
8/05 10902
8/09 11123
8/11 11262
8/13 11353
8/17 11432
8/20 11506 High
8/23 11498

EquityCP and Sentiment have both the 3INDX and SMI turning up along with their associated indicator in or near the Buy Calls zone. This only works if the Bull is still alive. If the Bear is gaining territory and this rally is being sold into, then the third indicator won't rise. Or it will try to rise and then fall shortly. Even the MOSS and AMOSS have made zone crossings, yet price is working off the oversold region by moving sideways. Caveat emptor.

The McOsc chart has Stix overlay of Issue Stix(yellow) and Volume Stix(white). Stix is simply a 21 exponential average of Advancing Issues divided by the sum of advancing and declining issues. Substitute volume for issues to get the Volume Stix. Note the lows with respect to price.

We suggested that the techs were oversold the day before the Monday low,and attempted to get long CMGI and QWST.We were stopped out of CMGI with a 1.5 to 2$ stop loss from the entry-its now bounced back to 98...{such are the joys of money management}.QWST was entered about 29,and today we saw 31 7/16 on very good volume,a probable momentum reversal,and analyst upgrades...+ 4.36% today.A move above the lower 3.5% trading band would be helpful.Stop loss at 27.5.

XAU/ABX/HL showing short term momentum flagging.This sector is oversold.We are long HL from near 2$.

Here are the other charts:

5 DAY ADVANCING VOLUME CHART. CODI CHART. CYCLE CHART. INDU CHART. INDU DAILY CHART. INDU WEEKLY CHART. MT15 CHART. MT3 CHART. NYA CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEZTF CHART. PITCHFORK CHART. VIX CHART. VOLATILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Friday, July 30, 1999:

Weakness is often seen in the vicinity of the 19th trading day of the month,prior to positive pension fund money flow.Thursday was the 20th trading day.We would like to see breadth smoothed by 3 days turn up while price is at the lower 3.5% trading band.3 day breadth is still dropping.

Comparing the Volatility chart and the Midas path (listed below), the market should hit a trading low next week. Of course, the UC payroll indicator could advance that to Friday or Monday by providing necessary liquidity. Some employee funds only permit switching on the first of the month, and the orders to switch have to be in by the middle of the month, so what we have been seeing the last two weeks might have been the funds raising cash to meet the transfer requests from stocks to money markets or short term fixed income sectors to be filled on the first trading day of August, 8/2. VIX has risen to 25, making option purchases risky due to the volatility premium that could evaporate and be counterproductive. That is more true if the option is held for days rather than hours. We may be seeing some support coming in the next few days. SuperT has reached the Correction level again as the INDU hit a support line at 10756. There is a much stronger support line at 10563 and then an even stronger one at 10137. This is not a prediction, just an observation. We would still like to believe that there will be some consolidation next week, but you never know. If we get another big downer on Friday, then the weekend analysts might be in sell mode on Monday morning. Thursday was clearly another distribution day, with TICK and PREM running pretty much like on Wednesday. TYX assisted in the decline, as bond traders are beginning to see and believe the reality of rising rates in the second half of '99. This will temper the rush back into stocks by those who have been sellers all summer. Once a pattern becomes known, it takes on a self fulfilling nature and becomes accentuated. The advice from this camp is that rallies are to be sold. The INDU closed below the 50 day average and tagged the -3.5% band. OBV is on its midband. Moving average crossover types might be forced to do some selling Friday and Monday.

7/29 10842.70 actual
7/30 10856 1
8/03 10706 3 LOW
8/06 10705 6 LOW
8/09 10906 7
8/11 11089 9
8/13 11205 11
8/17 11334 13
8/20 11439 16
8/23 11462 17
8/25 11458 19

The OEX vs Sentiment chart shows a definite shift in bull/bear thinking as expressed in call and put volume and open interest. Right now the OEX is laboring under the weekly resistance, as denial is the pervasive psychology. Ideally, we would like to see the green pessimistic line drop further, as it has in the past. Those situations tend to make the best call trades. Things do seem to be lining up on the EquityCP chart for the end of month seasonality trade.

XAU at the upper 3.5% band of price,where hesitation is often seen.ABX 18 1/2,HL 2 1/4.This sector has been quite oversold,and is now short term overbought.We suggested XAU component HL near 2 as a long.

QWST longs are still holding a position taken at 29.QWST saw a 30 close.If NASDAQ enjoys a seasonal bounce,QWST may revisit 32.Stop loss at 27.5.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. AMOSS CHART. CODI CHART. CONE CHART. CYCLE CHART. DEBACLE CHART. DSPU9 CHART. INDU DAILY CHART. INDU WEEKLY CHART. MCOSC CHART. MT15 CHART. MT3 CHART. NYA CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEZTF CHART. PITCHFORK CHART. XAU CHART.