MomentumCycles

MomentumCycles commentary for the open of Monday, August 23, 1999:

The low volume days are taking their toll in a not so subtle way on the End of Day Cumulative Volume chart. It may not be Monday, but the next leg down could be before the end of August if the synchronism between 1998 and 1999 continues. Synchronism btween 1998 and 1999 means the divergence between the RSI of INDU and the RSI of end of day net cumulative volume. In the bottom plot on the attached chart, note the sequence of C, C', D, D', E. On Friday the C, C' swing was completed. Note how the RSI of EODCV is much weaker and stalled out at 45% on Friday. Unless it strengthens and synchronizes with RSI INDU in the coming weeks, the INDU will be obliged to give up a few points. Otherwise the divergence will increase and the snap back in price will be all the greater at a later date. In the top plot note how the EODCV is stuck below the 21 day moving average, and in the center plot the McClellan Oscillator on volume (not issues) at point C' is poised for a drop back through zero. Call this the July, August, September, October effect.

The CONE strategy laid out for Friday's trading produced some very nice gains if you went long calls,as suggested. Next week is bound not to disappoint for excitement. The personal bias here is to look for put entries at resistance for a decline into 8/27.

We shorted some representative {AOL,CMGI,QWST} net/techs on the Wednesday p.m. commentary that tagged the upper 3.5% band of price and covered those shorts on Thursday with an intraday e mail to subscribers,precisely at the start of the post-lunch late afternoon pre expiration rally that continued into Friday,for a small net gain.All 3 presently have Stochastic readings in the middle of the overbought/oversold range,implying no short term trade is appropriate at this point.

XAU/ABX short term momentum is still falling,while price is at the upper 3.5% band.We pointed out that resistance would be seen above 70 on XAU where the upper 14% trading band occurs,and indeed, price momentum faltered there.We are holding HL from near or at 2$ as a core holding in this sector.HL is now finding resistance at 2.75$.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. AMOSS CHART. CODI CHART. INDU CHART. INDU DAILY CHART. INDU FIBRET CHART. INDU WEEKLY CHART. KELTNER CHART. MCOSC CHART. MIDAS CHART. MT3 CHART. NSYNC CHART. NYA CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. VOLATILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Tuesday, August 24, 1999:

Monday was a strong upper red CONE day with the OEX hitting an exact intraday high of 710. The weekend plan was to look for a put entry at resistance this week. Monday may not be the high, so it was suggested by intraday e mail to enter with a small position in the OEZUT Sept 700 puts during the final minutes of the squeeze. "Small position" is, of course, relative to each trader. Keltner shows the 15 minute OEX closing at the upper hourly band after a strong move similar to that on 8/15. We would look for an exit at lower levels yet to be determined. We might even add positions at higher strikes on Tuesday and Wednesday if given the opportunity. The reason for this action is that we believe there is a short term top occuring this week, along with some post expiration related shenanigans. We could easily get a drop back to between 695 and 700 or lower per the Keltner channels where we would consider looking for an exit there or at the PLDots. PL5Dot support is at 690 this week and Tuesday's Yellow Dot support is 692.33. If the OEX comes anywhere close to those levels, you should consider flipping out of the positions in part or in whole. INDU closed above its +3.5% band in a nonconfirming On Balance Volume as the Force Index hits the Sell Alert level. CODI did its whipsaw thing back towards the sell alert line. The question was asked of a TV guru a few weeks back about what signal he would look for as a time to exit the equities market this summer. His answer was "a new high in price not confirmed by breadth and other indexes". OK, so we now have a new intraday high in the DOW that is divergent from OBV and the AD line, new highs and new lows on the 5ADVOL, and other indexes. Issue breadth has improved as measured by the McOsc, but is still in the neutral zone. NYA breadth started the day off strong, but decliners advanced all day. This is something to watch tomorrow. Let's see how this plays out over the rest of the week.

The Cone Projection Oscillator flipped back up to near max overbought on Monday. Looking for intraday downside targets on Turnaround Tuesday, we have the Pivot Line at 705.01, or the Green Cones at 704 to 705 roughly, or the Red Cones at 696 to 700. Even a trip to 700 would keep the OEX neatly tucked inside the upward sloping channel. That is something everyone could live with and is a compromise of sorts. My real preference would, of course, be a trip down to the grey cone at 690 with the Projection oscillator jamming on down to its 50% line.

Occasionally we get spammed with things of interest. This one I like because I used to subscribe to the "California Technology Stock Letter" years back and "Technology Investing" is produced by the same person, Michael Murphy. Here is what he has to say about interest rates and their effect on NASDAQ stocks. Note the comment about "halfway through".

"After dropping almost 10%, the tech-heavy NASDAQ has been rebounding lately. Is this the beginning of a rally to new heights, or is this just a temporary correction before the decline resumes? That's the question every technology investor is wrestling with and why I'm contacting you today.

Many investors were caught off guard by the hit tech stocks have taken recently, but I've been telling readers of my TECHNOLOGY INVESTING letter for months to prepare for a summer sell-off. I don't have a crystal ball, it's just that I've been analyzing tech stocks for 29 years, and this happens almost every year. I think we're about halfway through this year's downturn in tech stocks. The interest rate hike that many expect the Federal Reserve to announce tomorrow could trigger the last leg of this summer's decline."

Since we mentioned technology stocks, we thought it might be useful to have an NDX daily fibo chart for Tuesday. The NDX and other indexes almost went into sell mode late Monday but were rescued with a bounce off the 30 minute Dynamic Balance Point and Balance Step. Those are the blue lines that act as stop and reverse lines that follow the price. For Tuesday morning, 2368.88 is the NDX daily pivot with fibo support at 2343.28 and 2317.68. A weak technology sector would see the NDX slice through these support levels. This is not a prediction, just something to watch for on the NDX.

Apologies are in order for mislabeling on the EODCV chart this weekend. Commentary was correct, but the RSIs were mislabeled. Correct labeling has the RSI INDU as red and the RSI EODCV as blue. This correctly shows that cumulative volume is lagging the DOW Industrials. Resolution is usually in the direction of cumulative volume per Colby and Meyers "The Encyclopedia of Technical Market Indicators" page 135.

Note that things have improved a bit on the End of Day Cumulative Volume. The problem is the EODCV is now testing resistance at the green 55 day moving average. Also both the RSI INDU and RSI EODCV have moved up to bear market retracement levels, C to C'. Now, if volume is key to this rally and it continues to diverge with the INDU, then there are several days of triple digit losses in the INDU's future.

Signs of exuberance were with us once again on Monday. One author was promoting his DOW 36,000 book before the market opened and another brokerage analyst was promoting DOW 15,000 by year end. I know for a fact that more than one individual is reallocating his or her mother's fortunes to a much less aggressive posture for the next four months. How accomodatingg the market has been to provide this late summer rally to facilitate such an exchange! How fortunate for mutual funds that want to raise a Y2K reserve. Better to liquidate at the +3.5% INDU band than at the -3.5% band. Once Greenspeak finishes jawboning on Tuesday, the focus will be on Y2K, and the market will be back to worrying again instead of partying. Its temperament can change in a nanosecond, and it can drop much faster than it can rise. A ten dollar put ten points out of the money five weeks from September expiration sounds like a gold mine to me.

XAU short term momentum may have begun a turn back to the upside Monday.The consolidation period we just went through looks oddly similar to that of the April period before a move to a spike high in May.If so, we will soon close above 72.We are long the component HL from near 2$ and are holding as a core position.HL closed at 2 11/16.A move above 2 3/4 would be very bullish.

Here are the other charts:

CYCLE CHART. EQUITYCP CHART. INDU DAILY CHART. INDU FIBRET CHART. INDU WEEKLY CHART. MOSS CHART. MT3 CHART. NSYNC CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. SENTIMENT CHART. TYX CHART. VIX CHART. VOLATILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Wednesday,August 25,1999:

Do we dare say the summer rally is over? On the CONE0824 note all the red candles representing down days between July 6th and 19th when the OEX was above 715. Also July 20 and 21 represent a two day drop back below 715. Those red candles represent a distribution top. Those who want to exit near the top may have to be satisfied with 715. We should expect 715 to be formidable resistance. The Projection oscillator is weakening and pointing downward. Lower channel target is 700 and the divergences abound as are found at tops. The market is entering a difficult seasonal period. This seasonal probability is represented by Clyde's Swing Machine applied to the DOW. The Red swing lines start 8/24 on weekly data going back to 1995 and represent a price and time projection. Clyde's SM software runs in Dos and is available for free download. {See *** below for details}

MoCycles' End Of Day Cumulative Volume, EODCV, is also forecasting such a drop as price has yet to drop proportionately to cumulative volume and cumulative volume is not confirming the summer rally. Relative Strength of EODCV(blue line) is much weaker than RSI of the DOW Industrials(red line). They have both reached bear mkt retracement levels and could turn down from here. It would take more than an 800 point drop in the DOW to catch up to the EODCV. C' to D is the next leg down. Extreme volatility took the OEZUT 700 put down to money management stops. It might still work out over the next five weeks, but for daytrading purposes it is a moot question. In the money or at the money options are more appropriate for short term trading because of the higher deltas. The intraday volatility just was not enough to make them profitable. Additional entries could have been made at the Red and Green Cones today, however because of the wild volatility such recommendations were not posted. Wednesday's CONE825 has lower red cone range of 700 to 704. Lower channel is 700. Last weekend's plan to buy puts into resistance remained my personal modus operandi again on Tuesday. Tuesday's candlesticks of the INDU and OEX look like rally termination formations. CODI is still working on a sell alert. SuperT divergence with INDU is growing. NewHighs-NewLows and net advancing /declining volume continue their divergence with the indices. This is the stuff tops are made of. Keltner 15 minute bands are working on a sell after failing to hang on to the upper band. Keltner targets are: 700 to 705 close by, and 690 further below. NSYNC is working on a sell. Equity C/P and Sentiment are closer to the Buy Puts level than the Buy Calls level, representing the overbought nature represented on the Modified Option Strategy Spectrum chart. Seasonal Volatility chart shows the OEX is in that time frame where the next leg down to point A occurs as in 1998. This corresponds with the C' - D drop on the EODCV chart.

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XAU/ABX retraced to the 21 day moving average and short term momentum reversed to down.We are holding HL,a component of the XAU,as a core position from near 2$.HL closed at 2 5/8;resistance was seen for several days at 2 3/4.

Here are the other charts:

OEXfib. OEX weekly fib. VIX. NYA. INDU daily fib. McOsc. MoCycles. Moontide3.

MomentumCycles commentary for the open of Thursday, August 26, 1999:

Let's see, what is significant about 8/25? No doubt, money burns a hole in investors' pockets, and no doubt, rising prices encourage increased commitment to risk. It could be that it is the beginning of end- of -month seasonality,which we write about every month. Front running comes in three to five trading days before the end of the month. One option premium ratio service recommended going short at or above 1381 SPX with a stop 5 points above on Wednesday or Thursday. SPX did reach 1382.75. This will be very interesting to watch play out, since we have never had much faith in this particular service on the short side.

"BubbleVision" is at it again. Earlier this week, we had a book author with DOW 36000 and a broker/analyst with DOW 15000. Today we had DOW 100,000 by 2020 by another broker. The latter thesis is based on a compounded 11 percent annual gain for 20 years. What he did not point out is how much better the gains could be if you were in cash during all the Septembers and Octobers. Another market booster was the guy who said September has always closed higher during this decade-long bull run. That statement sounds like misinformation and needs some research. The importance of this statement could be read either way, meaning buy now as appears to be happening, or sell now if this is a top. Oh, the other significant thing is the expanded trading hours on the internet for the little guy. Primarily, it will be trading in the 200 highest market cap stocks. Well, trading will start at a premium price after the runup the last two days. The specialists made sure some wiggle room was built into the opening prices this afternoon. The public tends to be buy oriented rather than short sellers,so we can guess that means more tax losses will be generated come October. If demand is anemic in this new extended hours trading some of the inflated premium may come off rather soon. For chartists, this is going to be one more discontinuity in the indices in the same way that Globex has done for the futures. Sure messes things up.

Perhaps the EquityCP and Sentiment are going to signal such a top shortly. We do have the ten day rate of change on the INDU weakening. We do have CODI working on a Sell Alert and the BR_MOM reaching peaking levels. Upper fifteen minute OEX band has closed back inside the hourly band. Divergences continue on SuperT and NHNL.

EquityCP has peaked and turned as it does a day before a price turn. Sentiment is very close to the Buy Puts level. 3XIND has not turned down yet in advance of price. In the past the sequence has been 3INDX turns, Sentiment or EquityCP peak, then SMI turns. All appear to be closer to overbought than oversold.

XAU/ABX momentum is flat at 65.06 and 18 5/8.Lower 3.5% band has been tagged. Our core long,HL, is 2 9/16.We correctly recommended for short term traders the selling of long positions in ABX at 19 5/8 and above when STOCHASTIC readings were in extreme overbought.HL was purchased close to 2$.This is the area that has been support in HL for numerous declines over the past year.

Here are the other charts:

WEDNESDAY'S CONE CHART. THURSDAY'S CONE CHART. CYCLE CHART. EODCV CHART. INDU DAILY CHART. INDU FIBRET CHART. INDU WEEKLY CHART. KELTNER CHART. MCOSC CHART. MOSS CHART. MT3 CHART. NSYNC CHART. NYA CHART. OEX DAILY CHART. OEX WEEKLY CHART. VIX CHART. VOLATILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Friday, August 26, 1999:

The market sent a rather significant message on Thursday. Besides price being down, the Hourly Cumulative Volume shows that all the cumulative net volume for Wednesday was given back on Thursday plus a bit more. This hints at lower prices ahead. Remember, Wednesday was one of the better NYSE days. It got a lot of hopes stirred up. Unfortunately, it was a sucker's play reminiscent of the July high before the start of a significant correction. This is how bears operate. The dome and steeple pattern on the hourly Moontide and NYA chart is the Crash pattern signature. Our End of Day Cumulative Volume RSI and Volume RSI have peaked at bear market retracement levels. The divergence between the RSI INDU and RSI EODCV is so apparent that it has been screaming not to buy into all the bubble vision propaganda, at least for the immediate future. A decade plus of market involvement tells me that portfolio cleansing and tax preparation dominate the action regardless of hyped up stories. Y2K is most likely a nonevent. Good earnings could be a plus but only slow the decent. This isn't something you want to ride through. You want to have a cash kitty to take advantage of the juicy bargains during those two momentum lows in the McOsc of issues that occur every year in some fashion in Sept., Oct., or Nov. Most anyone who has bought DOW stocks in the last four days is sitting on losses and starting to pray that this is not the "Big One" coming. Our view is that it will be developing over the next week or two and accelerate downward in September and October. At the moment, we have the INDU ER Force index turning negative along with a weakening RSI. MOSS and Momentum Cycles are registering Overbought for the OEX. Top-like divergences continue to exist on the NHNL chart and on the SuperT chart. Also note that the CONE Projection Oscillator for Friday has dropped below the 50% line. In looking for downside targets in the INDU on the SuperT chart, we find 11,000 first, 10783 second, 10615 third, and if things really get out of hand, then 10219 or 10032. These levels are as of 8/26 and have an upward slope, so they will be a bit higher when hit. The only thing that makes me nervous about this scenario for the next week is the so-called end of month seasonality. What we don't know are the types of orders in the mill for the first of September. That is a big switch date for funds, and if we get sustained selling up to that date, then we know that sell orders are parked and funds are preparing to deliver. The usual bounce may or may not occur and the quality of any bounce is going to be very scrutinized for signs of strength/weakness that will determine the rest of September. For once CNBsee had someone on who does not speak with a forked tongue. Bill Gross manages billions of bond money. He looked very worried today about the bond situation in Latin America and expects the lower continent to act as a boat anchor on the US. He alluded to upcoming heavy corporate offerings and when asked how he was structuring his billions he answered that he was emphasizing quality. He even repeated it, Quality. He also gave us a very good timing tool. He said T bond yields are expected to range between 5 3/4 and 6 1/4....hmmm...not a big range, but current yields are closer to 5 3/4 so that could imply some pressure on stocks as they climb back to 6 1/4 where Lola Bond Babe will be wondering if 6.5 is in the cards. Stock holders should also take this advice as the lesser quality junk is going to be sold in the next quarter and those who already have losses will have bigger losses. No, it just is not a good time to hold stocks until this cleansing regurgitation is over in November and December.

XAU/ABX rallied slightly,but HL fell.Value Line has a multi-year target of 10$ for HL if and when silver rallies significantly,which they view as probable longer term.We have some "wiggle room" with HL,as we suggested longs enter near 2$.Close was 2 3/8.

Here are the charts:

CODI CHART. THURSDAY'S CONE CHART. EQUITYCP CHART. INDU DAILY CHART. INDU FIBRET CHART. INDU WEEKLY CHART. KELTNER CHART. MCOSC CHART. MT3 CHART. NSYNC CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. SENTIMENT CHART. VIX CHART. VOLATILITY CHART. XAU CHART.