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VIX update for the close of 9/12/97:

High levels of VIX are distorting the signals. One consequence appears to be the more frequent buy and sell signals. Trends are not lasting the 6 to 9 days expected in the past. The AMOSS distribution is still painting one of neutrality. P/C data was not available at the time the chart was updated. Neutrality in a highly volatile market leads to wide swings without sustained trend in either direction. The Modified Volatility Index is flirting with the neutral or center line also. A crossing of the center line is a short term buy, whereas if the MVI had dropped all the way to the bottom line and turned up a more sustained rally might have developed. McOsc are still in neutral with a cross back above the zero line on the issue oscillator. Both CODI and TICK had good followthrough on the buy side today. The buy is expected to continue into next week.

RSI update for market close of Friday September 12, 1997:

Friday's market action, though finally advantageous to the current bullish model of the indicators, must be viewed as a serious warning to those who believe a quick rush to new DJIA highs is inevitable. Whether it is in the planets or stars, as some claim, or more likely, an unexpected impending change in fed policy, the behavior of Friday's rally was such that it should give pause to those who would singlemindedly follow certain indicators exclusively for market directional guidance. This is not to imply that the value of those, or any indicators, are diminished, or that their parameters should be altered. It's just that other market influencing factors, more nebulous, less subject to 'precise' computation or analysis, may begin to play a stronger part in the market movement equation, namely ***liquidity*** This observer attended a seminar this weekend, presented by Neil Weintraub, highly regarded educator and lecturer, and author of the well-received book, "Tips of the Floor Trader." When talking about the trading in the new E-Mini SP500 contract, he pointed out that there are some things that watching only numbers on computer screens can't describe about market action. Foremost, is the ability for traders to see, in person, the actual 'players' entering and leaving market positions, even before their trades are completed and reported. Even though most of us don't have that ability personally either, we can avail ourselves of trading connections at the exchanges, who could relay those observations and impressions to us. With computer to computer trading, this seems much less likely, if not downright impossible. So it is with measuring market action in total, quite often. Though many software and charting packages purport to show so called money-flow, or other parameters tracking liquidity changes, in individual issues or the whole market, many major price movements can occur long before definitive interpretation would say that was obviously a major top, or bottom, or that a significant change in direction is taking place. So- should the guidance of any indicator be seriously questioned or disregarded until clear cut action is perfectly predicted by such indicators? Of course not. Prudent traders, however, should concentrate ***even more now****, on following proper money management, i.e. loss protection techniques, if expected price patterns do not meet the predictions of indicators which have worked *well* previously, and certainly should again, on a regular basis. An intelligent stop loss might therefore be 910 on the December S&P 500 futures. Along these lines, some of the best material written on the subject of money management, and stop loss techniques, was done by Ralph Vince, whose first book, "Portfolio Management Formulas," should be available in many libraries. Possibly more practical for most traders is Stan Weinstein's "Secrets for Profiting in Bull and Bear Markets." This has excellent discussions of stop loss information for the typical stock, option, and futures trader. Getting back to the now "suspect" daily indicators, the strongest seems to be the NYSE advance decline line. Having recently gone through an "O'Neil cup and handle pattern," it looks like it is ready to bound to immediate new highs. The DJ utility average would have had a bona fide follow through rally day Friday, save for the volume being lower than the previous trading day. Short term daily RSI readings for the DJIA were at oversold, or bullishly diverging levels, compared to price, and are now rising. Depending on the continuing strength of this rally, these should get to overbought levels in 2 - 5 days as we head into the end of the usually *more volatile* September SP500 futures contract expiration.

RSI update for market close of September 15, 1997:

Even the vaunted Microsoft is suffering September market struggles. The one ray in today's trading was that someone at the world's largest software company had the good sense to get the bad news about the windows 98 delay out in the open simultaneously with the unflattering Barron's article this past weekend. MSFT and INTC led the Nasdaq to almost a one percent drop with 9 of the 10 most active Nasdaq issues down on the day. Other large caps on the NYSE finally capitulated, causing a 20+ point drop in the DJIA, and more than 70 points off its daily high. While the NYSE advance decline line was still positive, it is not likely that those other lesser cap issues can hold together the overall market, since they can accept much less capital than money managers may want to liquidate in the big caps. The notable situation tonight, in that respect, will be the additional slashing KODAK probably takes tomorrow. Continuing earnings warnings for EK were announced following trading today. Still, the now labeled 'suspect' indicators continue to show oversold, rally producing numbers and patterns, virtually across the board. Daily momentum of the DJIA is now starting to slip more into negative territory, however. With the confluence of tomorrow's PPI and industrial production reports, and the continuing march to September expiration, a breakout either way of the SP500 trading range{ 940 high 900 low} can be expected. With reports that Warren Buffet is buying bonds for his Berkshire Hathaway portfolio, and a high fair value, or even buy program level for SP500 futures premium at the close, a rally resumption would seem more probable.Howevver, savvy traders must be prepared for stop loss action as mentioned yesterday, whatever happens.A close below 910 on the S&P 500 December futures is another level other traders are using as a stop loss.

VIX update for close of 9/15/97:

All of the indicator charts are looking pretty neutral after El Nino swept across the southern California financial basin. AMOSS components are all in neutral zones as are the McOsc issue and volume oscillators. MVIs are oscillating about their neutral line. CODI is back in the indeterminate region, although it is on the oversold side. Sixty minute TICK chart indicator, TDAC, was struggling to advance. The whole picture looks neutral to weak after Monday's trading. The adage is, "never sell stocks on Monday".

VIX update for close of 09/16/97: The market roared upwards and the VIX related indicators are on a sell alert, not a sell yet. There is still room for some more upside and there is no predefined level of how overbought a market can get. Both the MVI standard and adaptive are at their upper bands. They could turn down tomorrow or they could move up through for a day or more and then turn back down. The point is they are now waving a sell alert flag. Be prepared. Now, if CODI was below its lower trigger line while the MVI and AMOS indicators were in overbought territory, then the abandon ship signal would be sounded. Issue and breadth put in a good performance today. The very puzzling and somewhat worrisome view comes from the hourly tick indicators. Even as the NYA advanced today it was not confirmed by the intraday tick indicators. This is a case where intraday data is painting a divergent picture different than end of day data. The NYA chart is a chart worth looking at to get a feel for issue curvature. Note how advancing and declining issues start at zero each morning and rapidly build to higher levels. 1200 is a significant level to reach and gives a clue as to the kind of day it is going to be. This 5 minute NYA chart with advances, @NA and declines ,@ND, has an advance decline line at the bottom of the layout. One item of significance on this chart are the 1200 levels on the @NA and @ND plots. It is a good idea to keep an eye on the advance minus decline number as well as which one is greater and if it is over 1200. This should provide a clue as to whether to enter a long or short option trade. The advance decline line also helps to decide to stay with a trade or exit.

RSI update for market close of Tuesday September 16, 1997:

For days, it felt like this part of the rally would never happen, and, for those in Kodak, it didn't. EK, along with co-group stock Polaroid, were two of the few multi- point losers on the NYSE today. Not exactly a Kodak moment, to say the least. Considering other stock disasters earlier this year, notably AOL and Apple Computer, perhaps EK will provide the next miracle turnaround. The problem is, just when you think you've got a sure-fire strategy as the way to riches, like buying very depressed out-of-favor stocks, the infamous GOTCHA beast takes a huge bite out of your portfolio. Of course without the additional Kodak slide, the DJIA might have been up another 10-15 points. The rally naturally benefited from the bond rocket, the strongest single day rise in three years, *AND* an up day in the U.S. Dollar index. As Kathleen Hays, CNBC credit reporter noted after the close, "..a beautiful bond landscape as far as the eye can see." Also after the close, Oracle reported earnings in line with estimates. It was promptly sliced $2 in after hours trading. This highlights the problem that many more issues may face in three weeks, as third quarter earnings, and future estimates, pour out of corporate offices. Today's inflation numbers probably guarantee no change in fed policy at the end-of-September meeting. Also, though the industrial production number was slightly higher than the previous month, a bar chart of that index from November still shows a general downtrend in the rate of increase. Sometimes the 'good' news influencing immediate fed policy is discounted abruptly by the market,which is looking toward future worse numbers and their effect on subsequent meetings. Not today. The *only* two keys that can unlock much greater equity price gains are the continuing stable to lower interest rate scenario, and positively received earnings info in October. The most **noteworthy** feature of today's market action was a valid rally follow-thru day in all major market sectors. This possibly paves the way for continuing, increasing price movement, after some days of back-and-fill trading range activity. Since the SP500 finally cracked the 940 resistance level, it **must now hold** that area as support. Any dip should only be a half-dozen points lower, to 934-935 closing. Any greater weakness will make the follow-thru day very suspect, if it happens quickly this week, or immediately following expiration next week. The daily momentum of the DJIA is still slightly negative. The McClellan oscillator reached the short-term overbought area of +100. The summation index, at the 2350 level, is now aiming for the downtrend line from the +4000 peak. That current number is approximately 2800. The extent of the current rally, on an hourly basis, is now the same as the equivalent ones of mid-August and early September. For the market to have any chance to assault the all-time DJIA and SP500 highs, this rolling pattern must give way to a sustained uptrend after the next modest consolidation.Remember, we project 8996 on next March 23, 1998 as the next top if the all time Dow highs are taken out substantially and hold.We project 6900 if the lows of the quadruple bottom are violated substantially.

RSI update for market close of Wednesday September 17, 1997:

The usual back- and-fill trading activity, often seen after huge one day gains, was the main feature of market action today. Each time the DJIA fell to the -25 to -30 point range, short term bargain hunters stepped in and boosted prices off the low. Good gains were noted in several tech/computer stocks such as Dell, Compaq, Western Digital, and Texas Instruments. Two other sectors received broad support. The papers benefited from a key brokerage recommendation, and the brokerage stocks themselves moved higher, upon the announcement of Quick & Reilly's acquisition by Fleet Financial. Curiously, Quick & Reilly stock did not rise, compared to others in the group. The CNBC reporters seemed to be grousing that one of Leslie Quick's sons strongly denied the takeover possibility in an interview a few days ago. Perhaps the son is considering a political career after the merger is completed. The bond market managed to stay in positive territory most of the day, and the dollar also made some minor gains lending support to the equity market. While caution is still warranted for some quick pullback, 935 SP500 closing, as mentioned here yesterday, most internal indicators and breadth measures are continuing to gain strength. The advance decline line seems poised to make new highs. The DJIA macd pattern is beginning to turn upward from its recent base. The daily momentum of the DJIA became slightly less negative. Daily RSI level of the DJIA is rising but not yet at oversold or bearishly diverging numbers. Averages like the Russell 2K and the Dow transports are in 'runaway' upside patterns. The expectation would be for pullbacks in the 2 previously mentioned indexes to be concurrent with consolidation in the SP500. The DJIA is meeting resistance at its flat 50 day moving average, about 7930. The next resistance level is at 8030 on an hourly basis; the 66% retracement level from the bottom to all time top range. Since the final volatility of futures expiration may not be finished, further short-covering upside price explosions by Friday should precede the consolidation move typically seen after expirations.

VIX update for the close of 09/17/97:

Expiration week is noted for surprises and fake outs. What we have today is a dichotomous view of the VIX Z Scores generating a weak sell signal from its mid zones(would be considered a strong signal if it came from -2 to -3 zone) by having the Closing green line cross above the Average red line. At the same time the OEX P/C volume ratio is almost at the buy trigger line. CODI is trending lower as though its recent buy signal were still in effect. The NYA advances and declines reflect the profit taking temperament suggested yesterday by the divergent tick and TDAC indicators. These latter two looked a little better today. McOsc oscillators also were turned back down at upper resistance. Take a close look at the @NA and @ND plots in relationship to the NYA plot. The MVI indicators generated sell signals by pulling back and crossing under their upper boundary lines. TRIN was climbing most of the day reflecting the flat price performance today. Overall the indicators are closer to being neutral rather than issuing strong sell or buy signals. Lately traders have come to expect Thursday to be a down day. Expiration week's purpose is to confuse the retail trader so this Thursday may not fit the recent historical pattern. Remember NDX and S&P500 settle on Friday's open and the OEX on Friday's close. A typical pattern is to rally on Thursday's close, settle Friday AM, sell off and then rally on Friday's close.

Cycle comments: we should start to look for a gold low shortly after a bond high late this month, if the technicals support this view.Multiple time cycles make the start of October a good possibility for this.Mideast tensions often escalate in early October; so a gold rally from this time frame,especially if oil shows an impact as well from possible political tensions,would fit the cyclical scenario. We will start to monitor bearish and bullish divergences in these 2 markets at the end of the month.

VIX update for close of 9/18/97:

Resistance or expiration week phenomena? Doesn't really matter. Fact is the market was up pretty strongly and gave back most of the gains. Remember, rallies that cannot hold their gains are a prelude to lower prices. CODI is still on a buy signal, although it has reached the mid point between the buy and sell alert levels. VIX Z score is still hinting at a sell. MVIs are still on a sell. They have been known to be early. NYA advances and declines had a mid day reversal but still ended in a positive confirmation of the price move. Expiration unwinding occurs all week and big moves like today take some of the fire power out of Friday's action. Still the tendency is for an upward bias on the open, correction mid day and rally into the close. Issue and Volume oscillators are struggling to hold their advances. Sixty minute tick indicators were not confirming the early day rally today and provided a nice intraday reversal point for those with a live feed. Anything goes for tomorrow. Next week should have a more sustained trend.

RSI update for market close of Thursday September 18, 1997:

Today a third bell was rung on Wall Street. What seemed like a never-ending series of buy programs was suddenly ended as the market reversed from the highest intraday level at the previously predicted resistance of 8030 on the 'proverbial dime,' at 1pm edt. Fueled by both the extreme volatility of September futures expiration {and a bond market that reached for the resistance of former highs set in July }the Dow managed to gain 133 points, before the late session trading retreat. Does this mean the ultimate end of this rally is at hand? Very unlikely, if strict liquidity-driven, momentum factors are considered. For example, the NYSE advance decline line made a new yearly high again today. Also, the daily momentum measure of the DJIA returned to positive levels for the first time since shortly after the monster post- labor- day rally. Along with the continuing rise in breadth momentum, the following is noted: In a CNBC interview, Henry Cavanna, senior portfolio manager at J.P.Morgan, observed that markets usually do not suffer significant reversals as overall participation increases. This has certainly been the case, as noted here, and by most other market observers the past two months.However, the short term market environment became completely overbought at the aforementioned 'third bell' time. Hourly RSI of the DJIA diverged at the interday Dow peak. Hourly momentum peaked, and is now declining. The near term target for the Dow is the 30 hour moving average, now at 7846, and rising. **The 'fail-safe' lowest level that should be seen in this consolidation is 7730.** This is the flat level of the 30 hour moving average, during the 'rolling' pattern, referred to earlier this week. Normally, the first half-hour of trading, at quarterly future's expirations, is especially high. Subsequent much lighter volume, during trading tomorrow, and for several days after expiration, will give the market the appropriate constructive 'breather' it needs, if the rally is to be resumed. When short term momentum indicators reach oversold, and bullishly diverging levels, three to six trading days from now, end-of-quarter 'window dressing' should lift the DJIA past the current 8020 - 8030 resistance level. Cycle comments:It is conceivable that an end of quarter bond short term top may coincide with a short term S&P top, and be followed shortly after with a gold low, then a gold rally.We will attempt to monitor other indicators to confirm at that time.

RSI update for market close of Friday September 19, 1997:

Question: What will it take for the broad high-cap market to race past former highs? The answer is simple. Just eliminate the DJIA stocks from any index or average calculation. During what was a rather benign 'triple witch' expiration day, the main Dow stock culprit this time was UNION CARBIDE. The four plus point loss in UK helped keep the DJIA under pressure most of the day. It also put a lid on the late buy programs, which at one time had the SP500 some points higher than the final close. T-Bond firmness and a 'screaminginly' high transport index contributed to equity strength. Regarding the latter, the current straight-up price pattern, with higher prices almost every session since Labor Day, can easily succumb to a severe short-term pullback due to profit taking. The two higher resistance levels for the SP500 are 958 and 964. The Nasdaq,as predicted here, continues to lead other broad indices as it trades/consolidates above recent former highs, which were in the 1638 to 1650 range. Since little more earnings news will influence prices before mid-October, and the Fed's present course seems a foregone conclusion, the only detractive factor is the still relatively high equity valuation compared to fixed yield instruments. Whether these levels, at 10 - 25%, depending on methods and sources of computation, are justified, depends on the continuing influx of liquidity willing to bid such prices. Also, the contrast between the 'leverageless' markets now, and former equally overvalued times, such as 1987, may give equities lots more upside potential. This was mentioned here in comments regarding 'mania' following the mid-August San Francisco Money Show. Nonetheless, short to intermediate daily readings of RSI and stochastics *of the lagging DJIA* have reached overbought levels. Post expiration trading is normally corrective, but the typically weaker action may yet be postponed, at least until 'turnaround' Tuesday or Thursday.

VIX update for the close of 9/19/97:

There is a very interesting development shaping up on the AMOSS and MVI charts. The VIX Z score is at a low level where a significant sell signal could be generated next week. At the same time the OEX P/C volume ratio is below 0.99 where sells are generated. Even the MVIs may make a failing second tag of the upper bands in a few days. CODI is diligently clinging to its last buy signal as it drops closer to its sell line. Finally the McOsc and NYA charts show the deterioration in advances - declines. Take note of the 1200 levels on the @NA and @ND each day this week. It would seemingly take a rather significant drop in interest rates to push this market above current resistance. The odds appear to be in favor of a down market part of next week.Note that the option premium ratio is over .92 on an expiration day, and over.78 on a futures expiration day. This can lead to price retracement. Tick volume and tick accumulation,TDAC, both reflected internal market weakness on Friday. These two indicators lend support to the price and volatility analysis suggesting a pullback in the averages next week.