MomentumCycles

MomentumCycles commentary for the open of Monday, August 9, 1999:

The annual cycle on the Volatility and Debacle charts is rather clear and undisputable, even when examined over a multidecade period. The differences are seen in the amplitudes of the cycles. Presently we do have somewhat of a predicament in front of us. The long term charts look rather bearish at this point in time, and what should have been a normally positive week is being called a cycle inversion by more than one well respected guru. It would be nice if this were true, because it keeps the game going a bit longer and will present a better shorting opportunity. Personally, I haven't been one to endorse the cycle inversion, and have held out that selling into this period would reflect the action of the institutions and astute traders. Supporting this,new cash takeovers recently slowed to a 1.4 billion rate from 6.1 billion in the first half of 1999.Stock buybacks have recently dropped in half from their previous rate.Corporate investors have recently stopped buying shares and recently have been selling new shares to the public at a 5 billion weekly rate.Specialist firms {and the NYSE itself!} want to sell their shares to the public.Institutions that can't hedge can only sell stock or borrow a limited amount of cash; thus, they will sell into strength, or whenever they have to.

We have to look closely at the facts to see if the cycle inversion folks have a pit to stand in. Unquestionably, the tried and true oscillators are oversold on short and intermediate term basis. Long term price oscillators are still overbought. Valuations are either 40% overvalued by fed measures or 15% undervalued by equally justified approaches per the interview last week. {She believes that bond yields are peaking and will drop to 4.5%, and the S&P500 will rally to 1600(DOW to 12,400) in the next six to twelve months.} Beyond the technical and fundamental aspects, there are the psychological aspects that are quantified by EquityC/P and Sentiment and implied volatility as measured by the VIX. Our Equity C/P is closer to buying calls than puts and the Sentiment is neutral to positive.

The McClellan Oscillator is a popular intermediate term breadth oscillator, as is the lesser known STIX oscillator. These reached oversold levels when the NYA hit the long term support lines on the McClellan Oscillator chart, as they are doing now and have in the past.

Sometimes the market shows its hand in price patterns through divergences at panic lows or in price action on consecutive days and even intraday, or in bar relationships for specific indices. For example, we had a higher high and higher low on the OEX on Friday (compared to Thursday). A higher close was lacking to make it a perfect trio. VIX has signalled a buy mode for two days now, and it is quite a drop to its lower band implying the possibility of a significant OEX rally. If you look at the VIX chart you see that the VIX and OEX bars are now in what is called congestion as they overlap the PlDot and BRDot on the VIX chart and PitchFork chart. VIX had a move above its upper band with a close back inside, and the VIX RSI has also given a Buy signal. Note that the OEX projection bands are beginning to curve up in agreement with the cycle inversion folks. From the breadth standpoint, the New Lows have stabilized at negative 200 with fewer new lows on Friday than on Thursday. OEXfibret is showing a 1/3 retracement at 692.85 and 2/3 at 710. This is what the swing traders will be targeting if we, in fact, have a cycle inversion and have made a pivot low. AMOSS and MOSS have both come off the Extremely Oversold levels and made zone crossings to the upside followed by a pullback and higher low. These appear to be confirming the cycle inversion hypothesis, but it has also been stated here before that bears leave footprints when these oscillators track in the lower zones for extended periods. The most optimistic pattern is the higher low on major indices Thursday to Friday and the intraday double bottom on Friday (see INDU daily fib). If the elephants wanted to tank this thin market on Friday, they could have gone on a rampage, yet they didn't. We don't mention the Momentum Cycles chart very often because it represents unfinished business, but as long as we are discussing the cycle inversion, it is appropriate at this time to point out some intermarket concepts that might support the view. It is apparent that the OEX and US Dollar are coming off of oversold as T-bond yields, Gold, Commodities are coming off of overbought. What this represents is an extremely powerful setup for an OEX rally if the cycles continue and it does in fact support the cycle inversion notion. Reliable CODI is in a strong buy trend as it drops through the whipsaw zone. A couple of other items of note are the inside day on the NHB index (not shown). That is the NYSE High Beta index, and it makes narrow range or inside day bars at key pivot points. Another one to watch is the XII. That one contains the stocks institutions flock to with huge sums of cash. On Friday it had a HH, HL bar after seven consecutive days of LH and LL. Advanced Get Elliotwave analysis(not shown) is labeling the Thursday low as completion of a wave 5. There was a time in the past when the date that Congress adjourned for summer recess was a rallying point for stocks. Next week will show us if this indicator is still valid.

Do we dare mention the solar eclipse next week? The astro buffs are saying it will be negative for stocks, but now that we've talked ourselves into the inversion phenomenon let's say this eclipse will bring a very strong rally instead of an Arch Crawford crash. This must be one of the most discounted eclipses ever, since the advent of the Internet. It should be pointed out that the popular astro tools don't pick direction; rather, they pick trend change and high energy points. So if the market has been going down into the EP, it then turns up, and vice versa. Unfortunately, an acceleration in trend is also considered a trend change, so now you know how to make perfect forecasts. In conclusion, MomentumCycles concedes the case to the cycle inversion types for the next week or two but holds out in the longer run for the annual cycle. OEYHP is a call play on the cycle inversion hypothesis for next week.

Now, we are not trying to discredit the Volatility and Debacle charts with this line of reasoning. We just don't want you caught on the wrong side of a long trade if one does develop in the next week or two. So here are a few more items for your consideration. One subscriber donated these one year snapshots of the astro based Bradley forecasts as representative of most years during the summer. They include the three most recent years and 1987. The conclusion is that around August 1 is an astro energy point using daily charts. If we look at a typical weekly bar chart of the Dow Jones Industrials going back to Jan 1997, we see that three week declines are followed by consolidation and or rally. Looking at the NSync charts {shown below in the chart paragaraph at the end}below starting with daily/weekly/monthly we see some very profitable trades occurred when the daily pulled back to 20% and the weekly to 50%. Since August has 3 more weeks to go, the downturn in the monthly line should be ignored or at least weighted less, in my opinion. Next, if we look at the NSync hourly/daily/weekly, we see that the profitable long sides occurred when the hourly and daily were oversold and the weekly pulled back to the 50% line. The weekly should stay above or near the 50% line if the bull is still snorting. Then, if we zero in on 15 minute and 30 minute charts, we see some very dominant cycles that closed last week in buy mode. Now, if the DOW can rally above 10829.60 for a few weeks, then last Thursday's low may just have been the low needed to start the next rally. Of course, it is posible that the weekly could drop further and the dailies could pull back again in the coming weeks. All we can say is that a setup is present that has been profitable throughout the bull trend. At some point, things will change, and it is premature to conclude that the market is going downhill in August. I guess the caution here is to not be overinfluenced by negative talk of a solar eclipse occuring in concert with a market crash. It might just be a short covering rally to end all rallies.

XAU and its component ABX reached an overbought STOCHASTIC 20 reading of 90+ on Thursday,and therefore we recommended short term traders take profits at 19.5.ABX high Friday was 19 9/16,close was 19.25,off 3/8.We are still long component HL from near 2,close was 2 7/16.HL has formidable resistance at 2 1/2 on long term charts.Above 2 1/2 would be very bullish.This play is a long term call on this oversold and maligned sector.

Here are more charts:

CONE CHART. INDU WEEKLY CHART. MT3 CHART. NSYNC30 CHART. NSYNC HOURLY CHART.< a href="nsynch.gif">NSYNCH CHART. NSYNCLT CHART. NYA CHART. OEX FIB CHART. OEX 30 MINUTE CHART. OEX WEEKLY CHART. SUPERT CHART. TYX CHART. WEEKLY CHART. XAU 30 MINUTE CHART. XAU DAILY CHART.

MomentumCycles commentary for the open of Tuesday, August 10, 1999:

First off, we should point out that the daily fibs for Tuesday are of the narrow range quality and facilitate a gonzo move in the indexes by breaking resistance and/ or support levels, thus triggering buy/sell orders that reside there. New highs expanded from 43 to 59, whereas new lows were 235 on Monday vs. 216 on Friday. Next, we have a 5 point minor change to the upside in the McOsc, which means we have better than even odds of a gonzo move coming within a few days. Monday provided another -1070 basing type TICK. XII and NHB both had termination type inside days on Monday. We had a 30% trin thrust suggesting buying on Tuesday. Moontide came close to making a higher low with the NYA making a higher low. Super T appears to be saying long term support is holding at the "Correction" level. Analysts seem to be alarmed that the Arms index and Put/Call ratios and implied volatility are not signalling a bottom; well then, it must mean we are just having a correction to be followed by another advance and any "crash" low is to be delayed a few months. At that point, they might see the kinds of numbers they are expecting in a panic low.

So what's the deal with bonds, yields, and the potential for a relief rally? The secret is that treasury refunding auctions have a tradeable pattern that goes something like this... In the past, the government has issued new debt once each quarter. This has been reduced to 3 quarters, and soon will be reduced to two or no quarters to replace expiring debt. Bond houses have been set up to capitalize on the auction, and as I understand it, they and any other T bond traders short bonds in a big way going into the auction. Because of this, bond buyers go on strike until the auction, holding out for a better yield. The houses buy bonds from the government, sell to the institutions, and finally cover their shorts. This is a no-brainer. You will hear CNBC talk about things like the tail and the bid-to-cover ratio as measures of how well the auction went. The net result is yields rise prior to the auction and retrace the rise during and after the auction. Rumors are used to get the auction off, such as, "the government plans to stop issuing new 30 year bonds and buy back bonds thus drying up supply". By Wednesday and Thursday we should see the reverse side of this auction with yields dropping back to 6% and perhaps a relief rally will be on its way. Forgive the oversimplification of this. If you recall a few weeks back we had mentioned that an institutional bond fund manager, Bill Gross, appearing on CNBC, expected a half point trading range on bonds for the near future, approximately 5.75 to 6.25. So here we are at the upper side of his range. The equities market is not dumb. It knows the name of the game and is preparing for the post bond auction period. Otherwise, it would have sold off big time on Monday. The equities participants know this is a short term phenomenon, and the S&P futures types are chomping at the bit to take advantage of the post bond auction snapback.Adding credence to this is FNM STOCHASTIC 20 at a level of 0.This issue often rallies just prior to T bond rallies,and we are as oversold on FNM as it gets using the STOCHASTIC indicator.

Sentiment is divided pretty evenly. It is not at either extreme bullish or bearish. EquityCP is closer to buying calls than puts. Cone Projection oscillator has been trending upward and testing the 50% line. The Cone OEX candlestick looks like a trend termination type signal. So, if we are correct about this, then the Projection oscillator should cross above zero shortly and the OEX should begin migrating in the upper cones.

Ease Of Movement indicator, EOM, on the Debacle chart has formed a reversal double bottom. It is still on the negative side of zero but is headed upward. If we get the anticipated rally, then it should continue up through zero as it has following prior double bottoms.

XAU/ABX/HL are overbought short term,and XAU is approaching the upper 14% trading band at 70-71,where formidable resistance is often seen.We counseled short term traders to take ABX profits above 19.5.Today saw 20.25.HL is 2 1/2.We are long from 2 and holding as a core position.

Finally,this strategy from long time reader,subscriber,and trader Gitanshu Buch:"The OEX price plot has formed an inside day with a Close in the bottom of its range, together with short term volatility having compressed to 57% of its long term mean.

In English, this sets up a range expansion breakout in the next 2 days with preference for the downside, but with no clue at present.

I would therefore a/Buy the 670-630 put spread in September as a position trade for a net debit of about $14 per lot on a downside break of 670 b/ Buy the 680-720 call spread in September as a position trade for a net debit of about $16 per lot on an upside break of 680.

I would use the opposite extreme of Monday's bar as a stop-reverse if my commission structure allowed frequent trading into the position.

Alternatively I would simply go long one unit of 670 puts or 680 calls on confirmation of breakout's direction, with a wide (10 OEX point) stop initially."

Here are the charts:

AMOSS CHART. CODI CHART. CYCLE CHART. DEBACLE CHART. INDU CHART. INDU DAILY CHART. INDU WEEKLY CHART. MT3 CHART. NHNL CHART. NYA CHART. OEX FIB CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEYHP CHART. PITCHFORK CHART. TYX CHART. VOLAtILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Wednesday, August 11, 1999:

One down, two to go. Five year T bonds went off today, ten year on Wednesday and 30 year on Thursday. TYX yields hit our upper target of 6.25. Demand for 30 year T bonds is not great because of the perceived rise in inflation. Yields had to back up to get them sold. We still expect yields to be lower Friday than they are now and lower on expiration of next week than they are now. Expiration week could end up being the best week in two months... that isn't saying much,is it? Someday we will learn to not pay attention to any of the street gurus. We have been rightly bearish since the summer rally ended with the Volatility and Debacle charts ever since we entered the OEZTF. Remember that 730 put? Seems like a long time ago... a long price ago. Just thought you might like to see what happens to an option when it goes deep in the money and delta approaches 1. Of course, we can't claim to have held it all this time, because an exit was recommended half way up the rise. Fact is, we talked ourselves into looking for a low this week because of a possible cycle inversion and have been looking for an at the money Call entry. Well, tomorrow is the long awaited astral event. Perhaps it will be as pivotal as the MomentumCycles www alert when the OEX hit the Red Cone. We don't usually post the Bingo chart, but I thought it would illustrate what prompted the www reminder. Price does have discrete energy levels and seeks them at times. We will admit that sounds as far out as an eclipse affecting markets around the world. Markets should get back to reality shortly after the open tomorrow morning. VIX has made somewhat of a double barreled buy signal, and if Mcosc was oversold yesterday, then it is unquestionably so today. The rubber band is stretched to the limit. Either it will rebound or break. SuperT refuses to call this downdraft anything more than a correction.

Mutual fund holders are beginning to feel the pain of loss. Over a month back I showed the Volatility chart to several people whose retirement and trust funds are in mutuals. {Now they are asking if it is time to sell!} After a correction like this and the potential for yields to drop to 4.5% by the end of the year I would like to sell them on some call options. One of them was my ex-wife, so she has a little more respect now.

The INDU chart shows an interesting situation. During the recent corrective trend the 5 day RSI has failed to move above the 50% level. It shows how oscillators can trip up the best laid plans for buying as an oscillator rises out of oversold territory, when the reality is that the cycle length has increased OR the trend of its underlying has changed. Fact is, the INDU is at the -3.5% band. Fact is the OBV is closing in on its lower band. Fact is, the 21 day moving average of the INDU is about to cross below the 50 day, and fact is, the 10% band has crossed below the 200 day average. This, coupled with all the other breadth information, does indeed support the paradigm shift in early July.

Using a slower method of trend reversal identification,we have noted that 3 day cumulative smoothed breadth is STILL falling.A reversal in this indicator near the lower band usually signals a good rally.This indicator is slower to get you in and slower to get you out,but is often good in catching the bulk of the move.

HL,the XAU component we recommended as a long near 2{there were 2 or 3 days when 2 was tagged},banged up against 2 1/2 again,which has proved to be resistance.A move above 2 1/2 on rising volume would be significant.XAU and ABX,a blue chip component,are approaching the upper 14% band of price,which is normally a sign of overbought.We recommended short term traders take ABX profits at 19.5 or better.

Nets and techs which were former leaders have made huge head and shoulder patterns and are now positioned at the right shoulder,having made a large round trip from the February lows to the highs and back to the February lows again.AOL {80-175-80},CMGI{70-169-70},and QWST{25-53-25} are representative examples.We don't think those individual price highs will be seen again in these issues in this cycle,but we think a short covering rally in these oversold issues is way overdue.That said,the next rally will probably show new leadership in issues that exhibited good relative strength in this decline and that are near new highs,unlike the aformentioned issues.With these kinds of hot money stock declines,there is an enormous overhead supply of stock with owners itching to get out even.

Here are the charts:

AMOSS CHART. CODI CHART. CYCLE CHART. EQUITYCP CHART. INDU DAILY CHART. INDU WEEKLY CHART. MOONTIDE 3 CHART. NHNL CHART. NYA CHART. OEX DAILY CHART. OEX WEEKLY CHART. PITCHFORK CHART. SENTIMENT CHART.

MomentumCycles commentary for the open of Thursday, August 12, 1999:

Two down and one to go. This has been a good lesson in Treasury refundings. Tomorrow and Friday will complete the instruction in yield movements prior to, during, and after auction periods. You know, if Greenspeak had justification to raise rates, he could do it anytime... things must not be that urgent. So, as usual, market fear has overdiscounted the pending action or inaction. It is quite possible rates will be left where they are until the following FOMC meeting. Of course, the decline in stocks can be attributed to more than interest rate fears as they are just one component of the equation. Whatever the reasons, the market behaves like a bouncing ball between the floor and ceiling. McOsc, SuperT, and Stix say the ball has just begun its bounce off the floor. Today was a strong volume impulse and made a distinct shift in the 5 Day Advancing Declining Volume plot. We would like to see these red and green lines cross on Thursday and continue on into expiration next week. Remember, we have the Buy the Friday of pre-expiration trade coming up. Most of the indicators looked improved on Wednesday. The Cone Projection oscillator did cross above the zero line, and if the OEX will close above that regression channel line on the Cone chart, we should have a nice run next week. The three minute moontide has closed above the one hour, one day and two day lines.3 day cumulative volume has finally flattened out after declining since July 19th. This leaves the market in buy mode for Thursday. So, baring bad news on the 30 year refunding Thursday, let's look for a one day green cone and daily fib target of 583, then another runup by Friday close. The next week or two should take the McOsc back up to the zero line, where the Bear can reassert itself. Some are looking for new highs on this upswing, but I would be happy with a one half to two thirds retracement of the drop from the July high.

Hourly NSync crossed above 50% line as the OEX bounced off an upsloping trendline that runs back to 3/18. OEX 697 is a very reasonable retracement expectation where we should see the hourly and daily NSync's move up to the overbought magenta line.

HL went above resistance at a close of 2 5/8. Hecla could eventually provide a double or more from our entry at 2 a few weeks back. Remember, this position is considered a perpetual option on gold and silver. The leverage factor of metal reserves in the ground can do wonders for the stock price as metal prices inch upward. We should see the XAU ramp up with stock indices this time around, but don't wait for a stock collapse to sell the metal stocks. You actually want to do it in advance.XAU tagged the upper 14% trading band today,with a STOCHASTIC 20 reading near 95; extreme short term overbought.The upper 14% band is often short term resistance.

We stated yesterday that the nets and techs would rally from the February price lows revisited Monday and Tuesday,but would probably mostly not make new highs in this cycle.Specifically,CMGI,AOL,QWST.AOL was up 9% today with a STOCHASTIC 20 crossover.CMGI and QWST made small moves on either side of unchanged.

FNM made the predicted momentum reversal along with the predicted T bond rally.

Here are the charts:

AMOSS CHART. CODI CHART. CYCLE CHART. EQUITYCP CHART. INDU CHART. INDU DAILY CHART. INDU FIBRET CHART. INDU WEEKLY CHART. NYA CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEYHP CHART. PITCHFORK CHART. SENTIMENT CHART. TYX CHART. VIX CHART. VOLATILITY CHART.DEBACLECHART.

MomentumCycles commentary for the open of Friday, August 13, 1999:

Special late p.m.update:

I suppose we should make some kind of statement about a weak globex and mention the url for nighttime and pre- market opening. Also note Yahoo world markets{link to international markets on OEXTRADER front page} and how if London is down then the US is likely to open down, etc. If the market opens down weak then look for support at a lower green or red cone, watch the NYA chart for plurality of advances or declines, TYX, etc.

OEYHP looked like a winning trade with a tag of the upper green cone on the August 12 cone until power problems got in the way at the CBOE and CBOT. It was a crazy period. I was comparing BMI quotes with an electronic broker at the same time, and when BMI said the calls had doubled, preferredtrade was quoting them at 99. Whew, what a trading opportunity, and the OEX was rolling over. It was like a time warp. Wonder how many electronic brokerages have adjustments to make for wrongful executions. They must have some kind of out of range tick detection to prevent that. Maybe Arch Crawford will get his 1000 point drop after all when traders can't get access to their accounts. Someone is going to get screwed royally when that day comes. This is just a prelude.

Selling into rallies still appears to be the mode de jour regardless of what the gurus say about a bottom being in place. There are people who want out of this business and rallies won't hold until the sellers are exhausted. In fact, the afternoon selling may be indicative of mutual funds filling sell orders that came in during the day. So the hit and run strategy, calls at lower cones, exit at upper, or puts at upper and exit at lower, has to be the plan, especially with August options. Technically, things still look marginal, as they always do at major turning points. INDU is fighting the intersection of the 21 and 50 day moving averages with the Force Index now above zero for two days. NYA had a positive plurality until midday, when the curvature changed to a downslope. The big question is, "Has the trend changed from down to up?" Let's look at the Keltner channels for some insight. This chart has channels based on 15 minute and hourly OEX. On Thursday, both the upper and lower 15 minute channel bands closed inside the upper half of the hourly channel for the first time since 7/15. We would first look for support at 671.33 on Friday using this approach. Resistance would be at 678, 684, then 689, optimistically speaking. On some of the charts such as the PitchFork and OEX fib retracement, you can see a thin cyan line and a yellow dot. This is one way of measuring price trend and support and resistance. Today's cyan line is tomorrow's yellow dot, which becomes tomorrow's support at 671.50. As of Thursday's close the OEX now has one "clear bar penetration" of this line/dot indicator. Clear bar means the High and Low are both above or below the line and dot. Congestion is the state in which there is overlap. New trends can emerge after this clear bar penetration. So for this Friday, one would look for a buy entry at support. VIX is still into a Buy mode, with bands pinching in preparation for another gonzo move. Some say Friday's PPI will be benign as will the CPI on Tuesday. Perhaps this will be enough impetus to move the OEX a couple of strikes higher. Look closely at the Cone for 8/12 chart and note that the high today was a perfect tag of the green cone and the close was dead on the regression channel line. With improving breadth conditions we can still expect the OEX to close above this channel. Friday's pivot intersects this channel line at 675.87 and the Green Cone is at 678.X. Note how this resistance compares with the Keltner first resistance. Then second Cone Resistance is at 684, which is the Keltner second resistance, and also upper daily Fib Resistance. AMOSS did cross above the center line in a bullish zone crossing. McOsc is improving as is the 5 day advancing, declining volume. CODI has been a mystery on the last few overbought/ oversold signals. Right now it is in the Sell Alert zone, but before you jump all over puts, consider the fact that CODI can trend in this zone if the market ramps up. We've got an hourly view MT3 and a daily view MTLT of the moontide. MT3 hourly appears to have made one of TJ's ABC corrective waves prior to the close, and the MTLT with one and five day lines is compressed and ready for an explosion. Now the trigger for Friday is the PPI, as everyone must know by now. Good luck trading.

Looking at the Debacle chart,Ease Of Movement indicator has crossed into positive zone.It will take only one day of good breadth to turn 3 day cumulative smoothed breadth up from declining,which would be a positive.

XAU fell back once the upper 14% band at 72.15 was tagged,as discussed yesterday.ABX was off 3%.HL,our long since 2$,consolidated at 2 5/8.

The bounceback tech/net rally in the representative issues QWST,CMGI and AOl unevenly continued,with CMGI seeing 80.25 intraday,close 76 15/16,AOL seeing 95 7/16,close 92.75,and only QWST off marginally.

We were wrong on the FNM reversal,as 30 year T bonds and FNM fell again Thursday.FNM STOCHASTIC 20 is at 5-very oversold.The inability of interest rate sensitives to rally on such oversold readings is troubling.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. CONE FOR AUGUST 13 CHART. CYCLE CHART. EQUITYCP CHART. INDU DAILY CHART. INDU WEEKLY CHART. NSYNC CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. PITCHFORK CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. VOLATILITY CHART. XAU CHART.