MomentumCycles

MomentumCycles commentary for the open of Monday, September 13, 1999:

Let's start with a definition of the current problem as MomentumCycles sees it. The first chart to look at is the End of Day Cumulative Volume with the Dow Jones Industrials overlay. Cumulative volume theory per Colby and Meyers says, "As with most cumulative indicators, the trend of the Cumulative Volume Index is more important than its actual value. If the market index is rising at a time when the Cumulative Volume Index is declining, underlying market weakness is suggested--a bearish sign for stock prices. On the other hand, if the market index is declining while the cumulative Volume Index rises, underlying market strength is in place -- a bullish sign for stock prices." This overlay chart clearly shows that CV has been dropping since the peak in June and July while the DOW has struggled to hold above 11,000. CV is now testing its 200 day average for support. Day after day market pundants lament about the weak volume. This beginning of the month {first week} should have seen strong volume, yet it did not because the money flow trend has had a negative bias relative to price for two months. Distribution has accelerated since April. If we make the assumption that the DOW should drop proportionately to CV then the target is 7.5% lower to 10202. It would be a 6.9% drop if the INDU dropped to its 200 day exponential average at 10267. Coincidentally, this is near the -10% band on the INDU chart. It is also near the yellow support line on the SuperT chart. This scenario assumes that CV does not deteriorate in a price drop of 7.5% {which is, of course, ridiculous}. 10202 is a best case conservative scenario because as price drops the cumulative volume will drop until price facilitation occurs.

This needs more discussion. Price facilitation alone is reason enough for the blue chip market to drop. There is a rather large industry that lives by transactions. Note all the brokers wandering around the floor of the NYSE. If sufficient transactions do not occur to support the industry in the manner in which it has become accustomed, then price will drop to a level where transaction volume picks up and CV and Price converge.{Like sharks,brokers must have movement or they die!} It won't take an increase in interest rates, it won't take an increase in inflation, it won't take a weak dollar. The media is missing the point(s). A 7.5% drop in the OEX from Friday's close is 53 points or to 659 Yellow line support on the CODI chart. Support will be found at 680 before {and if} it drops to 659. OEX RSI has weakened significantly; BR_Momentum has turned down. Sentiment chart is essentially in sell mode. McOsc of issues and volume are within one day of dropping below zero. This expiration week is filled with economic reports nearly every day. Most notable is the CPI on Tuesday. If you recall, the last PPI was followed by a rally because the players only saw what they wanted to see, i.e. less food and energy. Unfortunately this comes back to haunt them when the CPI is released because the energy factor in the PPI cannot be extracted from the finished goods in the CPI. The result is the CPI reverses the market action following the PPI. Therefore Monday should be weak and Tuesday will lay victim to whatever the spin is on the CPI.

Weakness in September and October is primarily a tax related thing. Investors have to ask themselves if the stock with a loss is more valuable over the next three months as a tax loss, or as an investment. Losses are written off dollar for dollar against gains. Up to $3,000 can be written off in excess of the gains, or even if there are no gains. Additional losses can be carried forward each year until they are exhausted. Some investors who fear missing a rally in the stock will sell it anyway and buy an equivalent number of call options, then wait thirty days to avoid the wash sale rule and then buy the stock back and dump the call or exercise the call if it is in the money, whichever is more profitable. The point here is that a market drop does not require any of the factors everyone is so worried about to occur. This tax weakness can occur, will occur, is occurring, without a rise in interest rates, without an increase in inflation, without currency problems and it can last into October. It usually is better to sell stocks with losses now rather than later as there are others,perhaps even large mutual funds, who will be dumping the same stock in a large way. It is better to be ahead of them in the liquidation phase.

Cadbury's Option Premium Ratio analysis at is forecasting an SPX level of 1329 or lower on the close of 9/17/99 and 1323 or lower on 9/24/99. His free updates are available at the beginning of each week and his subscriber updates are delivered by efax on Tuesday and Thursday. Sometimes the market will jump ahead to his target and then back and fill. So if you have put options and 1329 is hit early in the week it is a good idea to take profits, then re-enter on rebounds.

Websites of interest this week are audio interview with David Tice and his mutual fund, the Prudent Bear, at .

XAU Stochastic 20 is now 30,after a bounce from the 20 level.The best rallies come from a penetration below the 20 level for several weeks,then a rocket above on increasing volume.We might look for a further probe below that level,and a basing action before trying to pick up ABX again.We are long HL from near 2$;close was 2 5/16.

OEX implied volatility as measured by VIX is in the zone from which owning puts has been a profitable venture. Sentiment as measure with the modified Hines Ratio is indicating the next OEX swing move may be down.

Here are other charts:

CONE CHART. CYCLE CHART. EODCV CHART. EQUITYCP CHART. KELTNER CHART. MONEYFLOW CHART. MOSS CHART. NYA CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. RISK CHART. TYX CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Tuesday, September 14, 1999:

Not a whole lot changed on Monday. The picture is still pretty neutral to overbought. Expiration week trading is compounded with the economic reports to be released. Some say the unwinding occurred last week to avoid the uncontrollable turbulence surrounding the reports. However, some hedging must remain right up to the expiration. Very negative breadth on the NYSE was not reflected in the DOW. Nasdaq had a tough day. We have added a CODI chart for the NDX and it indicates a Sell Alert mode. A few of our indicators are acting like they are in sell mode: CODI has turned up into the whipsaw zone, and BR_momentum has turned down. Others are quite neutral looking; for example, McOsc and Moss.Both 3 day cumulative smoothed breadth and volume are flat-reflecting a compression of motion that is usually followed by volatility. Trendless days like Monday you avoid, or buy support and sell resistance with the risk that you are caught on the wrong side when a breakout occurs. The market took all the negative forecasts quite well. Stovall of Standard and Poors says the market is in for rough sledding with DOW support at 1050 and SPX at 1280. Kerchner of Pain Webber says fair value is 10 to 15% lower. Schoben says a Nasdaq correction would not be over until it hit the 200 day moving average and a more extreme P/C ratio is neccessary to mark a bottom. Additionally, he says 5.82% on the long bond would be required to kick the market back in gear.

EOD Cumulative volume is still working the 200 day average. It is questionable whether even a favorable CPI can save it from dropping down through the 200 day line as the tax quarter is all powerful. The Cone Projection oscillator is working on overbought. OEX resistance is at the channel downtrendline. It would take a close above it above Monday's highs to break out of it.

The 5 day historical volatility is below the 20 day and 90 day historical volatilities. It is also dropping to a level at which sharp price moves occur. Implied Volatility is still closer to the indeterminate range than either a strong buy or sell. Another day or two should resolve this directionless issue.

XAU STOCHASTIC 20 is 28,getting near to the oversold 20 and under area.Price is near the lower 3.5% band.We are long HL as a core holding from near 2$.Close was 2 3/8.We will pick up ABX if XAU gets more oversold.

Here are the charts:

CYCLE CHART. INDU CHART. KELTNER CHART. MONEYFLOW CHART. NHNL CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. SENTIMENT CHART. SUPERT CHART. TYX CHART. VIX CHART. VOLATILITY CHART. End of day cumulative volume 2Chart.

MomentumCycles commentary for the open of Wednesday, September 15, 1999:

It was a tentative intraday buy signal when the OEX crossed above the balance point on the daily fib chart. Even the Moontide had crossed above its three hour average. Then in the last hour more selling came in, and down volume overwhelmed the Moontide. {Moontide is almost synonymous with cumulative volume, but is a variation, and was given that name because of its wave-like nature. Fortunes or misfortunes are washed in and out with the tide.} The hourly picture is somewhat grim; the tide made a lower low as the NYA tested the day's lows. Generally price should follow but when divergences occur it is time to take notice. Today's action felt climatic with a -1132 TICK. OEX essentially closed on Wednesday's pivot at 704.80 on the Cone chart, giving 50/50 directional odds in the same way the Projection Oscillator does at the 50% level. Even MOSS and AMOSS are neutral. EODCV closed below the 200 day MA. RSI's of INDU and EODCV are inconclusive.

However, two items that are distinctly clear are the new highs and new lows and the 5 Day Advancing and Declining Volumes. Both of these are clearly reflecting the negative sentiment.

It is almost useless to try and predict direction before a government report is released. It is even risky to hold positions into the day of the release . One tactic is to wait until the report is released and then trade off of the reaction. The consensus is that it should not hold any surprises and does not support a rate rise. So far this expiration is like others in that it is choppy. When the week is finished we may have had little net direction.

If the indicators were extremely oversold we could call for a rally, or if extremely overbought call for a selloff. Breadth indicators are neutral to oversold but not grossly so. Price indicators are neutral to oversold also. CNBsee brought on John Bollinger this afternoon for the final word on whether the dollar should be getting the bad press it has recently received. His answer was "decidedly no".

XAU STOCHASTIC 20 at 27;not greatly oversold.The best rallies come from basing below the 20 level for several weeks,then an explosion above.The recent action is confusing.We are long HL as a long term call on this hated sector from near 2$.Close was 2 3/8.

Here are the other charts:

CODI CHART. CONE CHART. HOURLY CUMULATIVE VOLUME CHART. EQUITYCP CHART. INDU CHART. MCOSC CHART. MONEYFLOW CHART. OEX DAILY CHART. OEX WEEKLY CHART. SENTIMENT CHART. SUPERT CHART. VIX CHART. VOLATILITY CHART. OEXFIBRET CHART.

MomentumCycles commentary for the open of Thursday, September 16, 1999:

Another choppy expiration day with some fake outs. At one point it looked like the hourly moontide and OEX green cones had set up for a buy signal. It turned out the hourly MT was a fake out, as it was followed with more selling that took the OEX below the daily fibo. INDU daily stopped at the lower fib level, but the main problem is that price also closed below the weekly fib support and below last week's low. This could be construed as a downtrend in the weeklies, but remember the week is not over yet.Rescue in the weeklies would imply one heck of a rally to salvage the picture... (This is not a forecast, by the way.) MOSS has now entered the Oversold zone and needs to turn up. CODI is in a sell trend. Nasdaq CODI is just starting a long overdue sell mode. End of Day Cumulative Vol2 has decisively closed below the 200 day average.{Also,3 day cumulative breadth and volume are still dropping,and for slower,more conservative investors,a turn up in both these measures with DJIA at the lower 3.5% band would be necessary for an "all clear" signal.} The RSIs on the EODCV2 chart have dropped below the 40% level that is construed by some to be a critical level. MoneyFlow and Risk are breaking down out of their confinement channels. Super T found support at the 10800 support line. NYA on the McOsc chart is within a day of a support line at 606.49. INDU on the MoneyFlow chart is at channel support as of Wednesday. Of course, Support is a construct of our own perceptions, and it needs to prove itself in the market action. VIX rose a bit further into the Buy Alert Zone and closed back inside the Indeterminate channel. It needs to trend downward to validate a bounce off of price support. The breaking of weekly support is also shown on the OEX Keltner chart. The previous week's weekly support is at 692.74. The Force Index on the INDU chart might be a day away from the green line Buy Alert, which might turn out to be nothing more than consolidation. 10656 is the -3.5% band on the INDU chart and 10648 on SuperT is the next support level. OEX dropped to the CONE regression channel center line with a Projection oscillator in the oversold zone. The overall picture here is one of nearby support. There is always the possiblity of further breakdown. Since this is expiration week it would not be surprising to see a significant up move Thursday or Friday to maintain the choppy character of the week. It has been a wait and see mentality due to hurricane Floyd which will soon be history, and the present value of the dollar {about which there may be some misinformation} and of course, the T bonds. Rumors of hedge fund failure and insurance company fixed income liquidation have had the effect of keeping rates up and equities under pressure. If those reasons are not acceptable, then old fashioned profit taking is the one given. Well, the Volatility chart commentary has pointed out the concerns for months now and the EODCV has been leading price downward. Remember Cumulative Volume theory says that price follows CV. At the bottom CV should begin turning up and then Price should follow. More likely RSI of price will turn up and Price will chop around at the low while the last sellers are shaken out. Some of what we are seeing may be expiration related, but the effect is the same and it may act as a catalyst to inspire more selling. True bottoms are marked by an elevated VIX, i.e. 150 in 1987 and 50 in 1998. Bottoms are also marked by a very high 5 day historical volatility.On Tuesday 5 day Hisvol reached a significant low, like the calm before the storm.

XAU makes its way slowly to the oversold STOCHASTIC level.We pointed out that recent XAU action had not based in oversold for a prolonged period.The best rallies come from STOCHASTIC 20 below 20 for several weeks,then an explosion on high volume into overbought.Nevertheless,we are long HL as a core holding from near 2$;close was 2 3/8$.Longer term,this sector is drastically oversold.STOCHASTIC 20 only measures the probabilities of short term rallies and declines for days to weeks.Using that measure and the 3.5% and 14% bands of price,we can often call tops and bottoms in the index and its components.

Here are the charts:

5 DAY ADVANCING VOLUME CHART. HOURLY CUMULATIVE VOLUMEE CHART. CYCLE CHART. EQUITYCP CHART. INDU WEEKLY CHART. NSYNC CHART. NYA CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. OEX WEEKLY CHART. SENTIMENT CHART. TYX CHART. CONECHART.

MomentumCycles commentary for the open of Friday, September 17, 1999:

Relief rallies have a way of keeping hope alive during the day.They are tradeable, and can be profitable. Unfortunately, when the numbers are reviewed at the day's end, things don't look so encouraging. There are day trades and position trades. It does not look like it is time yet for a multiday position trade. It may be close and yet the market may be on the verge of a more serious breakdown. The reason for this perspective comes from viewing the End of Day Cumulative Volume #2 chart. CV has decisively broken below the 200 day average. Last weekend it was calculated that the INDU would have to drop to 10202 to make a proportional correction to CV. It was also pointed out that, as CV dropped,so would the INDU target. VIX came close to 30 today and could be within a day of generating a short term buy signal. But it could also increase to a higher level if CV is telling the truth about how weak the breadth components are. New Highs New Lows are atrocious, as is the 5 Day Advancing Volume. The McClellan Oscillator is still headed down. It dropped below -100 intraday and closed at -94. It has been known to drop much lower this time of year, as has VIX. No doubt there are a lot of investors who are still in denial of what is going on. Well, even in an average year, a typical Nasdaq stock will move 50%. The NDX is just beginning a correction as it drops out of its regression channel and as CODI for NDX trends upward. All markets can bounce for a few days, but the way things are shaping up, this looks like a serious seasonal correction is in progress and will not be finished until September and October have taken their toll.

One daytrading site that is packed with useful information is . Their Market Bias Indicators have a plurality of up green arrows after Thursday's trading. The CVR indicators are based on implied volatility as measured by VIX. McClellan Oscillator and CHADTP are breadth based. TRIN Thrust is also breadth related and the Momentum Index is based on the number of issues in a custom index. The point being made here is that we may have a short term buy on our hands with the emphasis on short term. Volatility buy signals can be aborted the next day if the selling resumes. Yet, they do reflect the extreme movement in VIX and are found at lows of all kinds, so they are to be respected.

XAU made a tag of the lower 3.5% trading band,but not the 14% band.STOCHASTIC 20 is now in oversold position,with an On Balance volume non-confirmation of Thursday's 63.66 low.We would add slightly to the HL position on weakness.

Here are the other charts:

CODI CHART. CONE CHART. CHART. EODCV CHART. EODCV87 CHART. EQUITYCP CHART. INDU CHART. INDU DAILY CHART. KELTNER CHART. MONEYFLOW CHART. MOSS CHART. HOURLY MOONTIDE CHART. NYA CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART. RISK CHART. SENTIMENT CHART. SUPERT CHART. VIX2 CHART. VOLATILITY CHART.