MomentumCycles

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VIX Update for close of August 26, 1997:

The Modified Volatility Index ended another day on the neutral line while the issue and volume oscillators remained almost unchanged. For directional clues we have to look at the AMOSS826 chart. That chart shows the buy alert from the VIX Z score and Put Call Ratio still in effect from the close of 8/22. Some analysts would say the signal aborts after two days. However, the signals have been known to be early and we had a cycle low scheduled on the 19th trading day of the month and a trend change date scheduled to strike on Tuesday. The AMOSS chart also shows the 5 and 20 day components in the Oversold Zones and the 90 day having dropped from extremely overbought to overbought.

Comments for market close of Tuesday August 26, 1997:

The bear apparently raised an eyebrow in his hibernation today. The DJIA was never in positive territory, at any time, during trading. Even a nominal rebound in the T-bond did not bring noticeable buying into equities. With the advance/decline on the NYSE about 190 negative, the McClellan oscillator slipped to -96. Usually a small change in the oscillator indicates tempered breadth volatility, which can be followed within 2-4 days by huge moves, either up or down. One surprising feature to today's trading occurred after regular market hours. In the last fifteen minutes of SP500 futures trading, the premium careened to a -6.02 at the close. Experienced traders know that such a negative reading--(the value of the nearby SP500 futures contract to the SP500 cash index)--is normally a very serious detriment to rising prices the next day. The sharp declines today, in many European markets may continue tomorrow, with that negative premium as an additional impetus. Even with today's 77 point drop, daily momentum for the DJIA is still in a flat to rising pattern. This is similar, in reverse, to the flat, declining pattern exhibited prior to the August top and decline. The trading range for the DJIA remains between the resistance levels of 7930 - 8020 (August 25, August 20), right near the previously mentioned retracement rally maximum of 66%, and the support range of 7640 - 7740 (August 18, August 22). The latter could be tested as early as the first half-hour of trading Wednesday. Should that occur, especially with higher volume, short term indicators of RSI, stochastic, and volume would be at oversold levels in tandem. Hourly momentum would still be declining then, and 2-4 consecutive hours of less negative prices would be needed to flatten the downside hour momentum pattern. If this scenario occurs as described, prices may be stretched enough to the downside, to provide the spring to upside action, possibly bringing the follow through rally before week's end.It is important that the previous low hold on a closing basis, just as it is important the bond support lows hold on a closing basis.

Now, on to some interesting statistics.Revisiting Friday's trading-a rally after an intraday low of negative1.2%, closing at only negative.2%,coupled with a dropping bond market- this pattern has been seen 7 times in the past 15 years.In every case, the market was net lower after 3 weeks.Remember yesterday's quote, " It was also noted that Yale Hirsch, publisher of the Stock Market Almanac, compared the pre-labor day trading to the last 14 years. In eleven of those years, when the first three days of the week were a net rally, the gains carried for the week into the holiday period. In the other three years however, the net losses for the week brought much more decline through September. "So unless we get a gonzo rally tommorrow, the first week of September may be poor.Statistically, if Wednesday is down, will it be followed by an endless string of down days? Unlikely.The market abhors more than 5 days down in a row, usually reversing any such string of days with at least one countertrend day.If the lows are broken decisively,and a selling panic ensues, what ultimate target should we set?868 SPU, possibly as early as the first 2 weeks of September.So in conclusion, we MUST start to rally very soon, the old lows MUST hold on a closing basis, bonds must NOT break the frequently tested support, or the ultimate target by early September is 868SPU.

VIX Update for close of August 28, 1997: The extra volatile markets we are seeing require a deeper reach into the bag of indicator tricks. There we find an adaptive modified volatility index indicator that compensates for the additional volatility. It went on a sell on 8/21 and has remained in a downward trend since. It is the bottom plot in the MVI828 chart. Something very interesting is shaping up on the AMOSS828 chart. Notice how the 90 day component is now on the neutral/overbought border of zones 4 and 5. It is interesting because it had stayed frozen at top of zone 6 extremely overbought for such a long time. The 5 day is on neutral/oversold and the 20 day has dipped into extremely oversold. The OEX 5 minute chart has a rather distinctive pattern. Note the higher lows starting with the early morning low. Could be the oversold status we are seeing will soon resolve itself into something more than an intraday rally.

Even the "innoculative" effect, of the strongest T-bond rally in weeks{predicted here yesterday} failed to prevent stocks from suffering the effect of the continuing virus in world-wide equity markets today. Today's trading action was 'bookended' by hi-tech problems. It began with the an earnings warning and analyst's downgrade of Altera. It ended with weakness in IBM contributing to the slide in the final hour of trading. Short term indicators gave another buy signal at 1pm edt, and the rally began in earnest. The DJIA was lifted to more positive readings than yesterday at one point. The arms index never fell below 1 however, indicating that the higher volume stocks, including "Big Blue," were not receiving the support needed, to prevent the last hour's sharp decline. In fact, the Russell 2000 index of the smaller cap issues actually set an all-time high today. This highlights the price strength in the lower cap/lower volume traded securities. The 10 day open trin(arms) reading is at 1.04 tonight. This indicator seldom rises much beyond this level, for very long, -a matter of days- before sustainable rallies begin again. The short term hourly DJIA momentum is still in a rising pattern. If the negative SP500 futures premium, -3.77 after today's close, does **not** lead to a heavy trading volume-DJIA 7640 support level-break, on tomorrow's opening, the momentum indicator, and positively diverging RSI, will bring about another oversold reading for the market. This will occur by early Tuesday trading, if prices continue in negative territory until then.

From yesterday's futures comments- 3 out of 3! Almost a full point on bonds from the open to the close today{31/32},150 on silver from the open to the intraday high,200 on oil from the open to the intraday low.The bond position has moved quite fast,I'd consider taking the profit onthe open, or at least half. The other 2 positions, I'd protect with stops in case of retracement.Watch those support levels on the long term chart for the Dow and the S and P, a close much below projects 868SPU.

Friday,August 29th closing comments:

the remarks on our 3 futures positions proved prophetic, as bonds reversed almost from the open, giving back half yesterday's gain.Traders who followed the advice to take profits on the open had a nice bonus, as the close yesterday was113.9, today's open113.10, today's high was113.16, and today's close was 112.24.Profits on the 2 day trade were over 1 point, approximately 33 or 34/32.The other 2 positions retraced as expected; silver's close yesterday was 4.71, the open today was4.75, the high 4.76, the close 4.68.Traders were stopped out with about 149 profit.The oil trade was as follows;yesterday's close 19.58, today's open 19.63, the low 19.55, today's close 19.65.Traders were stopped out with between 130 and 200 profit.Nice weekend to you all!

VIX update for close of August 29, 1997:

Lighter than normal volume and the tug of war between bulls and bears has kept the VIX index running at correction/basing levels. The first buy Alert on 8/22 was generated by the VIX and Put/Call volume ratio. Since then the CODI indicator{change of direction} has gone on buy alert 8/28 but has not peaked and turned down from the 6 level yet. The Adaptive Modified Volatility Index(not shown) has remained at the same oversold level for two days while the OEX index has dropped further, a positive divergence. Our favorite breadth indicators of issue and volume are still working on completion of the right shoulder of the complex bottom. It is beginning to feel more and more like March/April Deja Vu.Notice the similar "2 roots of a tooth, 2nd root lower" chart pattern on the CODI chart from this April 15. We have been expecting a momentum cycle low this last week of August.Often bottoms are made on lower volume prior to market closings, when all but the specialists are away. Note the five day component on the AMOS829 has been sitting its -1 reversal level for quite a few days. The 20 day is in extremely oversold and the 90 day has finally dropped back into the neutral zone 4. The indicator pictures are hinting that conditions are conducive for a tradeable rally.The only caveats are as follows1} the option premium ratio is .79. The best rallies after large declines occur below .53, as in April 15 reading in the .30's. 2} Bob Prechter is looking for a rally to new highs. He's been wrong since 1987.3}As discussed last week, the first 3 days of last week have reliably predicted this week's direction many times in the past 15 years, both up and down.4} Bullish/bearish advisor ratios at the April bottom were more favorable to a rally resumption 5} put- call ratios at the April bottom were more favorable for a rally resumption6}the chart pattern of down 1.2% intraday with a close only down .2% with a weak bond market reliably predicts a net down over the next 2 weeks{that pattern occured last Friday} 7}When the market is down prior to Monday's holiday over 1/4 %, the Tuesday after the holiday is down 75% of the time , average loss 2.25%.8} a down august of 5% or more indicates a 66% chance of a down September, average net loss of 7%.NOTE THESE % COULD INCLUDE A VIOLENT SHORT COVERING RALLY AT ANY TIME. That short covering rally will almost certainly be signalled by a CODI chart reversal, so watch for this carefully!

S&P futures 898.80 is critical on a closing basis, it's probably best not to be long if it closes much below that level. There are probably a lot of stop losses clustered below that level.It's best not to underestimate the emotion a broken double bottom can cause.If the double bottom is broken significantly, this is how it might unfold:Tuesday the market tests pre-holiday's Friday resistance at909SPU or 7660.The bottom is broken ushuring in a running of the sell stops to 880 SPU by Friday postholiday.The Monday after this coming Friday could bring a panic low at 868SPU or 7260, followed by a rally into the last day of September.Alternately, if Tuesday breaks the % probabilities cited above, and the double bottom holds, and we rally, the next cycle turn would most probably be September 8th or 9th, and the turn could be to down for the remainder of September, again citing the % probabilities above.At any rate,the September 8-9 area is a likely short term turn area.It is possible that bonds could diverge, confusing traders who have linked their behavior in lock step with equities for a very long time.Support for bonds has held in the 112 area on a closing basis.Stops on bonds are logical about 111-24 .If bonds do diverge near term , we might see quite a rally to116-25 basis December.

Comments for market open of September 2, 1997:

The repeated pattern of a weak opening followed by strength until the final hour, then a late selloff, has accomplished two things. First, the Nasdaq stocks have continued to increase their relative strength to the SP500, and other larger capitalized NYSE stocks. Second, divergences by the technical indicators, both hourly and daily, are now big enough to drive many herds of bulls through. The rallies in European markets, which were open on the U.S. Labor day holiday, could portend an immediate and unexpectedly huge rally in the U.S. market when it reopens. One sometime overlooked indicator, the NYSE advance/decline line, is indicating substantial potential strength for a resumption of the the large cap stock rally. Another very unusual occurrence, after Friday's close, was the positive premium, and multi-point gains for every SP500 index contract. This was in the face of more than a four point decline in the cash SP500 index itself. In the above charts, we can see The potential for the W bullish pattern for the DJIA to be finished, if the double bottom holds. If it does, it is very possible for the right side of the W pattern to be created by the ***strongest series of daily DJIA point gains in history.*** Remember, the last hour drop on Friday might be ascribed to the lack of market participation due to the holiday. Whether this potential rally has enough pent up momentum and liquidity to achieve new DJIA highs remains to be seen. Still, an initial target of 8000 - 8100 DJIA is quite possible. When it begins, the Nasdaq could surpass its former high of 1638.49 in what might seem like the blink of an eye. The only negative to this scenario is the reduction in liquidity and buying power it will take to accomplish this expected rally. That drawback will be the focus of observation when the time comes.

VIX Update for the close of September 2, 1997:

The buy signals generated by the AMOSS and the buy alert generated by the CODI late last week turned into an upward crash on Wall Street today. A price move like this today is expected to yield some points early tomorrow morning, but the seasonality says any early morning profit taking should resolve itself into higher prices. The issue and volume breadth oscillators fully confirmed the price move today by completing the complex bottom. The issue oscillator broke through the downward sloping trendline and is about to breach the zero line with the volume oscillator in hot pursuit. A close above the zero line will bring in more institutional money that follows this signal.

Comments for market open of Wednesday September 3, 1997:

Too far, Too fast. That's the only logical conclusion to make of yesterday's record one day point gain in the DJIA. As unequivocally called for in Monday's remarks, by this observer, the *unexpectedly huge* rebound left even stalwart bulls out of breadth and in a slight state of shock. How much more? The shortest term hourly DJIA RSI is now at the fully overbought level. However, the hourly momentum of the Dow is still rising. The McClellan oscillator has finally gained positive territory again. In doing so, it has broken the downtrend line, tested eight previous times, since the May peak in this indicator. This is positive for a continuation of the rally, even if there is some pullback to fill the "air pocket" of yesterday's skyward trading activity. To fully validate the resumption of the bull trend, watch for two things to happen shortly. First, a *valid* NYSE follow through day should occur, sometime between Wednesday of this week, and the end of next week. Second, the CRB is approaching its interim resistance high level. It was at this point when the recent decline in equity prices began. Strictly from a technical standpoint, it appears it should fail to break through, and a resumption of its downtrend should begin. This will also be very positive for both equity and T-bond prices. One other minus, which must resolve positively for the rally to have "legs," is the daily DJIA momentum. Today's huge point gain did not move it from it's recent flat negative pattern. A resumption of its rise would signal a longer term rally in the making, instead of a short term bounce. Until there are *more diverging* signs of the advance stalling, however, trading into long positions on pullbacks, should be more effective than trying to pick very short term rally tops. Our best estimate of the next short term turn day is September 8.

Addendum to VIX Update for the close of September 2, 1997:

The strong rally on Tuesday pulled the 5 and 20 day components of the AMOS chart off of their oversold levels and left the 5 day in overbought and the 20 day on neutral. The 90 day bounced out of neutral back into extremely overbought. The VIX Z score turned down as expected on this rally and the Modified Volatility Index(not shown) is approaching the overbought level. Technically from the modified volatility measures there is a bit more room on the upside.

VIX Update for close of September 3, 1997:

Tuesday was too much too soon. Like a big meal it takes time to digest. Price ran into overhead resistance at a downward sloping regression line while the issue and volume oscillators continued upward. They are now both in the neutral region. The five day component of the AMOSS is just into the overbought zone 5. The 20 day is dead center neutral and the 90 day is back to extremely overbought for two days. The VIX Z score is still on a buy, but that could change by Thursday afternoon as VIX enters a day of week phenomena of increased volatility. Wednesday saw the Modified Volatility Index drop below its +1.618 std dev line after being above it for one day.For short term traders, this should be taken as a hint to take some partial profits on Thursday morning and then more later on Thursday and Friday if the opportunity presents itself.Those traders that went long on the vix and codi buy alerts late last week have paper profits that should be protected. Ideally we would like to see the MVI get above +2 std dev, but unlike selloffs, it is more difficult to stretch that far because mkts usually are not as volatile on the up side.


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