MomentumCycles Commentary for the open of Monday. September 14, 1998:
Intraday computer systems are slowly being brought back online. As you know, we had a hard drive crash last week and had been trying to restore data. For the last several days, only the end-of-day systems have been available. We hope to have everything running back to normal within this week.
Here are the charts we have been able to restore. Here is the DJIA with the bands. CODI is on a buy trend after being deeply oversold, however it is residing on the center retracement line in the middle of the whipsaw zone as of the close on Friday. Here is the OEX pivot chart for Monday. Here is the McOsc. Here is the NYA chart. Here is the OEX fib chart.
Advance word that the Starr material may not be sufficient for impeachment, good earnings from big NASDAQ companies such as Intel, relative stability in Russia, and prepositioning before options expiration week led to a rally Friday that may continue into early next week.
On the bearish side was an extremely high positive closing tick, which would normally lead to a correction within 1 or 2 days, that is, starting Monday or Tuesday. 5 day rate of change at neutral, unlike the extremely oversold -13% at August end at 7400, or the recently extremely overbought at +6% at 8000. Markets still trapped between 7400 and 8000, with a break of either direction implying further movement past the break. That is, a close below 7400 gives 7000 to 6800 as a target. A close above the previous high, slightly above 8000, could project 8300. Cumulative breadth smoothed by 3 and 5 days is neutral, implying momentum slowing. The moving average above 8166 theoretical is the first area of resistance above the lower 3.5% band which is containing prices. Trading in the middle of the range where we are presently is subject to intraday whipsaws of up or down 300 points within a single day. In this environment, day trading using the trend line is the wisest course. While these extreme daily up and down whipsaws take place, and while we are in the middle of the present trading range, end of day advice is very difficult.
XAU found resistance at our initial target above 70 with an intraday high Friday of 71.77. 71.77 is at the June-July highs and also at some of the lows of March to May, before the breakdown below 70. At 71.77 stochastic 5 and 20 were very overbought, above 90. It is to be noted that the recent XAU move was strongly counter to the general downtrend in equities. A resting point or retracement back to the 61-62 area might be seen before the retest of the 71.77 high. Stops should be at the breakout point, as previously mentioned. Those who entered at 65 might use the 61-62 area as a stop. Both ASTN and CMR are suffering along with most small caps, and due to early tax selling. ASTN made a significant break of support. New support is 1 1/2 to 1 3/4. New resistance is 2 to 2 1/4. We expect an announcement on a cobalt contract within several weeks from CMR. Cash flow figures should be many times a normal multiple of the current share price. A spikeup into previous resistance would likely occur on a positive announcement. FNM resistance at 62, support at 56. A close below or above either important level reveals a sea change in the perception of interest rates.
MomentumCycles Commentary for the open of Tuesday, September 15, 1998:
It looks like buying the close of pre-ex week, that is, Friday, September 11, and selling into the first sign of strength in ex week, that is, Monday, September 14, worked once again. We had hesitated, seeing the recent tendency of intraday 300 point up and down moves. As it is, Friday's close was the end of a strong rally day, which continued into Monday with global support before Monday's open. Friday saw a large uptick before the close, and Monday's action saw an uptick of +1147. No large downticks were recorded Monday to counteract the large upticks near the open. 2 days of large upticks, including a large closing tick, might normally see a retracement within 1 or 2 days, that is, starting Tuesday. This being options expiration week, however, a short covering panic into expiration is possible. If we clear 520 to 530 on the OEX, we might see some real upside fireworks. CODI suggests present high risk for longs, unless we are about to reenter up cycle mode. The market has been recently unable to put more than 2 rally days together in a row. Those who bought the pre-ex close might well take some profits due to CODI position, as well as RSI STO. Money flow cycles normally would see a low on or about September 24, and astrocast (see chart) projects a low several days after that. After the jockeying that occurs during options expiration week, we might look for a short trade into the money flow low cycle and/or the astrocast low cycle prior to the month end seasonal rally. Monday saw resistance at the previously touched level of 8050, where the initial rally off the 7400 bottom failed. We are now looking at a possible move above the declining 21 day moving average, a target which might be 8166. A move above 8166 might project 8300, which is where support was found before the breakdown into the 7000's.
XAU closed above the upper 3.5% band in 5 of the last 6 sessions. A small retracement off the 71.77 recent high back to 66.92 is normal. A close above the recent high at 71.77 projects the secondary target of 75-78. A mechanical buy signal on one of the systems we use is signaled by 5 of 6 closes above the upper 3.5% band. It is not unheard of, historically, to have the XAU lead the metals up and be strong in a deflationary environment, witness the 1930's.
We have bought the XAU at the move above 65, with 61 to 62 as a stop.
CMR basing in the 70 cent level, awaiting the cobalt contract, which admittedly at this point is rather late. Any announcement on this subject with good numbers could easily lead to a spike up into resistance at $1 to $1.30. ASTN probing old support, now resistance, at 2 1/16. Here are the OEX pivot and fib charts.
Here is the MCosc chart and NYA chart. Here is the 5 and 15 day RSI and Stochastic position.
MomentumCycles Commentary for the open of Thursday, September 17, 1998:
A normal expiration cycle might see a Tuesday or Wednesday high, a Thursday retracement, and a marginal Friday intraday high. Money flow cycles and Astrocast see a low between the 24th and 28th prior to month end seasonal reinvestment. CODI is in the sell zone, but has not yet pivoted upwards. In a trending market, the pivot upwards can lead to a short retracement followed by higher highs. In a trading market, the pivot upwards is the start of the tradeable decline of some duration. RSI STO shows an overbought short term position. A fall below the top line often brings a tradeable decline as well. In a trading market, an oscillation well above the top line, as in sto 5, reveals an extremely short term overbought position. Notice today another high closing tick of +613. The DJIA closed right at the 21 day moving average. Congestion at the 21 day moving average in August brought a decline. Further rally here projects 8300 and a successful close above 8300 projects 8700, which is the top of a horizontal channel. Wednesday's trading saw a negative OEX when Greenspan said the G7 had no coordinated interest rate lowering policy at present. When Clinton came out and said he wasn't resigning, the OEX turned positive. Bonds held the breakout below 52.75 closing at 52.09. Any tag intraday below 51.38 will bring strong new highs as a day trade. In a related vehicle, FNM closing above 68 would be wildly bullish for that stock. Notice, however, 2 important charts, one a commodity chart and another a cyclical. Almost unnoticed, the commodity index has made a spike low and reversal, and some important downtrend lines are in danger of being violated. XAU closed at 64.06, still above our stop loss of 61 to 62. The breakout at 65 has admittedly been tested here. If OEX can continue to rally, and world stability continues, then XAU may make another try for new lows and we will get stopped out. XAU is running out of time to make for higher highs above 71.77. The OEX smust start to decline and the XAU start to run again if this is indeed a significant XAU move. ASTN and CMR both suffering early tax selling and from the weakness of small caps. Large cap issues thet make up the indexes such as the S and P 500 and S and P 100 are taken up with buy programs. Smaller cap issues can often be best reentered into at the mid-December lows, where they often see a cessation of selling pressure. NYA showed a large number of declining issues above the magic 1200 level. MCosc showed we are tagging some important channel lines.
Here is the OEX pivot chart and astrocast. The OEX Ratio oscillator is overbought and the OEX is in the weekly fib resistance zone. A downward reversal is likely into the weak Thursday syndrome. Here is the cone chart.
1. OEX Momentum: Pivots down to support MA band in spite of price increase - STIX still indeterminate region but rather rapidly reaching overbought region. OEX tracking 10high /8low MA bands - sending this to show how I apply it on intraday.
2. OEX AMOSS now at same psychology level as August trading range highs. In absolute terms, still has a ways to go before touching static overbought zone or dynamic overbought band. Longer term chart sent to show previous psychology spike low perspective.
3. OEX HVT: 4/100 ratio now = coiled spring. 6/100 ratio fast tracking down. Price still tracking upper bound of flag. 4/100 was primary trigger for short entry at yesterday's R1 retest.
4. OEX PCones: Support at 498, 486. StochRSI = I'm trying out something from Tushar Chande. Its an oscillator of an oscillator.
5. OEX CVRs:
CVR3 (reversion to mean): went on sell yesterday open. CVR2 (RSI of VIX): RSI touches 37 line, close enough to sell. No pivots yet. My CCI modification still wandering in the indeterminate meadows.
MomentumCycles Commentary for the open of Friday, September 18, 1998:
There were a lot of caution flags waving on Wednesday that facilitated the drop on Thursday. Many flags were in the Sell Alert zones, breadth 5 wave structure was completed on Wednesday, probability pointed to a down Thursday, Astrocast is in a downtrend. DJIA 8000 was holding as a resistance level. It was more of a conditional consensus that added up to "Sell Thursday". Call it the Greenspan plunge in that the market had rallied on potential interest rate cut and that prop was pulled out from under it. Basically we are in a bear trend for a few months and rallies are being sold when they run into resistance. Thursdays have a high probability, 70%, of having VIX close in the high end of its range for the day. That means a down day. "W" days have become fashionable, meaning Wednesday is the pivot point for the week. McOsc reached an overbought level, and the 10% component was approaching the zero line from below, i.e. a trader's sell point in weak markets, which we have been having. This is even more critical if the major index is reaching a regression channel line that is sloping downward. The McOsc and cumulative volume charts both had a fifth wave develop Wed afternoon with that fast run up. Astrologically speaking the energy is for a down market, and the Dow tends to zig zag around the astrocast line. Short term stochastics were in overbought but had not turned down. CODI was in the Sell Alert zone but still needed to pivot upward for the sell. Recent days have only seen 0.5 std dev moves on the upside. That is characteristic of weak markets. It seems fashionable now for big players to influence the next day's opening by pushing the thin Globex to an extreme. The NDX and S&P (Here is the fib chart) settle Friday morning and there is usually a pop at that time that fades mid morning. The indexes cycled between R2 and R3 all day as though "they" had it positioned where they wanted it for expiration. Lets see tonight if they run Globex up so there is upward pressure in the day session for expiration. Just speculating of course. Here are the two cone charts, one for the 17th and one for the 18th. Here is the RSI sto chart that shows the overbought short term nature of the market on Wednesday. Here is the OEX fib chart, and here is the OEX pivot chart.
On Monday of this week, we had speculated that Tuesday or Wednesday would see a high, Thursday would be down, Friday would be up, at least marginally in the morning, and that post-options week would see a low most likely between the 24th and the 28th, prior to month end seasonal reinvestment due to pension fund flows.
XAU and bonds both acted in a battle of money flow into the preferred refuge for fear. XAU was up 5.31% to 67.46. Some of this may be pre-options positioning, but any further weakness in OEX may mean XAU really is making a run for above 71.77, above the recent high. You will remember our initial target for any move past 65, which was resistance, was 70 to 78. Stop still at 61 to 62. In the battle of money flow, in the refuge for fear, bonds also acted inversely to the OEX. Bonds are in a very tight trading range (30-year T bonds). The recent 5-day range is between 52.75 and 51.52. Any intraday tag below 51.38 means a probable day trade to 51. A close above 52.75 projects 53 to 54. This recent tight range means an explosive move is about to occur.
One of the longer term methods of establishing trend on the OEX is to look at 3 day cumulative breadth smoothed. IN today's trading, 3 day cumulative breadth turned down for the first time since the gradual rise from the 7400 level bottom. Failure at the 21 day moving average at about 8050 projected a probable tag near the 3.5% band, and the closing tick of +553 is a signal that we may have an early Friday rally attempt.
Both ASTN and CMR are suffering from the general weakness of small caps. We still expect some kind of a pop in CMR on the announcement of any cobalt contract. ASTN present resistance at 1 7/8 to 2, temporary support at 1 5/8. Traditionally small caps make lows in the mid-December area prior to a lifting of tax selling pressure.
Further thoughts... 1. STIX: We take a longer term view to see exactly what portends a bottom. Much reference has been made to 1998 being close in character to the 1990 bear market. Preliminary indications draw a stronger correlation to 1987. In every bottom following a selloff except in 1990, the STIX seems to have traced out a double bottom, with the space between the two bottoms separated by months. In 1998, we have made the first spike low and started the churn that looks much more like 1987 than 1990. We seem to be setting up for a protracted STIX double bottom. 2. DOW: One of the characteristics of Andrews Pitchfork that find use in making a judgement call about price direction is proximity of price to the median. The median acts as the price attractor in almost every trading range market. This chart shows a longer term view of the Pitchfork anchored on three critical turning points in recent Dow history, with the cyan line overlaid to highlight where the popular 7400 support level rests. >From this chart, it is evident that an eventual move to 6800 is within conceptual realm. The path to 6800 is obviously not linear. To the trader, it does not matter whether this is classified as a bull market or a cyclical bear market within a secular bull market. A trader's fundamental goal is profitable deployment of capital in the pursuit of opportunity. In the pursuit of opportunity, it does help to have some perspective on index behavior using constant reference scales and road maps of the minefields; such as the AMOSS psychological peak reached in the August 1998 trading range highs being equated with Wednesday's peak, or the pattern STIX is now weaving out, or where we may go in the intermediate term. 3. OEX AMOSS: Pivoted lower in keeping with rising VIX. It is now dangerously close to its middle support band, indicating that it may blow through towards the lower band in continuation of a selloff, or may abruptly reverse midway through. The latter scenario of the abrupt midway reversal has greater probability. In its entire history since 1995, this indicator has never made two back to back spike lows within 10 trading days. Short positions therefore need to be strongly protected. Backing up this feeling is the very little evidence of crash-type deterioration in today's market breadth. 4. OEX HVT: In a perfect world, we should see follow-through in the following 3 components in order to see a crash on Friday: a/ Historical volatility ratio expansion to much above. This stands at 1.1, fairly controlled for a one sigma move Thursday. b/ Stochastic oscillator to plunge south. This has just pivoted, implying further weakness is possible but not guaranteed. c/ Volatility itself needs to expand. In spite of prices closing in the bottom 10% of Thursday's range, VIX closed closer to the middle of its range. This indicates the pre-expiration tug of war between price direction and volatility implosion that we can expect on Friday and/or Monday. While futures traders will remain neutral to the volatility fallout, option traders will actually lose money unless the market really crashes. The only property that can expand volatility into a crash-type mode is Auto-Correlation, the tendency of the nearest volatility trend to continue. We saw VIX base on Tuesday and Wednesday after collapsing between Friday-Monday. Thursday was a spike up. If this tendency manifests itself on Friday, the most likely point of bottom will be around OEX 483 as evidenced on the OEX Proj Cones chart. 5. OEX Proj Cones: Support at 490 and 483 Resistance at 500 and 507. These levels work ideally when correlated with the Pivot and Fibonnacci charts.
OMomentumCycles Commentary for the weekend of Sunday, September 20, 1998:
The institutions, being big sellers of options, have a vested interest in seeing that expirations are neither too high nor too low. That is why we did not end at the recent trading low of 7400 nor at the recent trading high above 8000. A lot of options expired worthless. The trading market, since the 7400 low, had been marked by a gradual rise in breadth smoothed by 3 days, which is a slower measure of trend. Late last week, 3 day breadth turned down, accompanied by 4 consecutive days of large closing uptick readings. (+688, +612, +550, +966.) Some other systems that we look at gave sells on Wednesday. In fact, seasonality and probabliity was mentioned before mid-week as suggesting a Tuesday or Wednesday high, a Thursday retracement, and a marginal Friday rally. The stubborn tendency of the recent option premium ratio readings to remain in the .40s rather than entering the low .50s for multiple days is also troubling for the bulls. Seasonality would suggest a drop to the money flow/astrocast low between September 24th and 28th followed by a seasonal rally into early October, with a drop culminating in late October, with a target mid-October or alternately, on Tuesday the 27th, or as late as Friday, October 29. The Fed meets on September 29th and this would be a good setup for a relief rally on an interest rate cut, which might be precipitated by global downside action. If and when a rate cut does happen, a short rally in 30 year T bonds and equities could be followed by a selloff in both, due to poor earnings and selling on the news. As for our recent comments on T bonds, we are now slightly overbought and the 51.38 Friday 52-week high mentioned as probable once 52.75 held is the bottom of the recent narrow trading range. In a similar way, FNM has been cycling between 56 and 68 1/2, with recent trading action showing a high at 66 and support at 58. Once it breaks out of either end of this range, a major move will result. In a similar pattern, XAU is in the congestion channel between 66 and 71.77. XAU bands have been rising, which is the first time in a while. We are long from the break above 65 with a stop at 61 to 62. GNX, which often leads the commodity futures, is not making new lows. The 52-week GNX low was 136.55, and the recent close was 152.44. In summary, we are long XAU from the close at 65 with a stop at 61 to 62, short term profits in 30 year T bonds should be taken if a long entry was made on the break below 52.75, OEX bias due to seasonals and the usual post-options weakness suggests the 24th through 28th as a place to look for a short term low, followed by a possible rally into early October due to pension fund reinvestment (notice lows are often made before or around the time of TIAA CREf paydays, such as Wednesday, September 30). We would look for an important low in the last week of October mid-week to late week.
Both CMR and ASTN are suffering from early tax selling and small cap negative bias. We still expect a pop up to resistance in CMR, once the cobalt contract is announced (cash flow of which is denominated in U.S. dollars). At that point, another selloff would likely occur in that issue. Most small caps will likely suffer until December 15 or thereabouts.
OEX still needs to prove itself here. Still looks short term overbought from the breadth standpoint (here is the Mcosc) and is encountering resistance at channel bands. There is a possibility for some upside fireworks here on a break of the regression channel lines on a daily basis. Fibos start next week on the Balance line with the Ratio Oscillators in overbought and attempting to turn down. Here is the OEX fib chart, and here is the S and P 500 futures chart. Caution is, an up trend could continue with the Ratio Osc tracking the 80 level as we have seen before. CODI is in a sell trend and nearing the Buy Alert Band, need to wait for a pivot though and the OEX is about to fall out of bed on the short term channel line on the CODI chart. The IRIS chart compares buying an in the money call and out of the money call on the Friday expiration. One was a big winner, the other was temporarily a winner and then became a loser. This should be a big hint for what strikes you buy when gambling on expiration Friday. Here is the Cone chart. Here is the pivot chart for the OEX for the start of next week. Here is the status of the short and longer term RSI and STO oscillators for the DJIA.
MomentumCycles Commentary for the open of Tuesday, September 22, 1998:
We had suggested over 5 trading days ago that new highs were in order for 30 year T bonds,although they were overbought, once the retest of 52.75 was successful,and once yields fell below 52.50.We had suggested a long entry on the penetration to new highs.On Sunday,we had suggested that long profits for 30 year T bonds should be taken Monday, and that bonds were short term overbought. A nice exit was made into strength about 10:00 Monday, before the violation of the trend line took place. Long from the move below 52.50,took profits at 50.44 Monday a.m.
XAU failed at 69.54 Monday and closed at the low of the day at 64.52. As fear in the OEX subsided near the negative tick of -1254 at about 9:30 Monday morning, XAU lost its momentum in the same way as bonds. Both bonds and XAU are competing for global fear capital. We are long the XAU from the break above 65. Initial target above 70 reached at about 71.77. Stop presently at 61 to 62. If this is another false breakout, then the XAU will quickly fall apart, in spite of the trading bands curving upward for the first time in a long time. In addition, the XAU closed above the 3.5% upper band for 5 consecutive days. A return of global fear would be necessary for more fear capital to flow into these markets. Many of Japan's banks hold securities that show increasing illiquidity below 14000 on the Japanese stock index. (NIKKEI) The recent fear is that Japanese banks will have to sell dollars and dollar denominated assets in order to prop up their banks. This situation led to early morning drops in major European markets of as much as 5%.
One short term OEX oscillator, our CODI chart, has now entered the buy zone, although a buy pivot has not yet been made. ADHL shows a gradually improving situation since the 7400 low. Today's closing tick of +543 would normally generate a short term pullback in 1 or 2 days. DJIA chart shows resistance at 8000 and short term support at 7700 with more important support at 7400. Money flow low is due on the 24th of September. Astrocast suggests near the 28th as a low. Notice that last week's four consecutive high closing ticks led to quite a decline from Friday close into Monday morning, especially Friday's closing +966. 4 day breadth smoothed and 5 day volume smoothed are still dropping. It would be unusual to have a V bottom on such weak breadth. A W or extended W implying a retest of 7400 to 7500, at the very least, after the present rally is over, would be a logical expectation from previous market behavior. An important low on or about October 29th or 30th in the OEX might be a pattern to prepare for. Here are the OEX and S and P 500 fib charts for Tuesday.
Here is the cone chart for Tuesday. Here is the MCOSC chart. Here is the NYA chart.
Both ASTN and CMR are suffering from weakness in small cap issues versus large cap and early tax selling. Small caps normally make important lows on or about December 15, prior to a seasonal rally.
In summary,big cap stocks are still working off the excesses. WMSR chart shows the cumulative price volume support and resistance levels. 8000 is nearby resistance with 8179 above that. 7743 is nearby support with 7313 just below that. Super Timer appears to be working its way out of crash mode but the CumST is still reflecting a down to flat market dead ahead. ADHL is on a buy trend as of Wednesday last week. McOsc are overbought and rolling over. Codi is in the Buy Alert Zone but the OEX is hanging right below its short term regression channel.