MomentumCycles

MomentumCycles commentary for the open of Monday, September 20, 1999:

CRASH ALERT

At times the broad market acts very rationally, and at other times it is schizophrenic. Rational times are evidenced by distinct price patterns. It is said the market does not ring bells at tops or bottoms, but we have to disagree vehemently. Right at this very moment the broad market {as measured by the NYA} is on the verge of a meltdown. Its rationality is in evidence by the red Bearish pattern shown on the NYA chart. The idealised and realized bullish and bearish price patterns shown on this chart have confirming breadth patterns in the McClellan Oscillator based on issues and the EODCV2 chart based on net advancing /declining volume. As the price pattern reaches the vertex of the triangle it is important to note what the breadth strength is, and also what the trend is. That is the clue to the direction of price resolution. This is also the point in time when "oversold" oscillators become more oversold. This includes stochastics and RSI.

The "Desert Oasis Think Tank" tells us that the "currency Czars" who are meeting in Washington this weekend are discussing not only the dollar/yen relationship, but also how to deal with the currency turbulance caused by a meltdown in US equities.

The time between Rosh Hashana, 9/11/99 and Yom Kippur, 9/20/99, has a history of being a weak period in equities trading every year. The three weeks following Yom Kippur are also notoriously weak and volatile because of the end of quarter liquidation and the "musical chairs" game of sector rotation. Money goes into the increasing relative strength sectors even if they are dropping...not such a good strategy when the better buying period is in October/November. Stocks with losses are best sold sooner rather than later. It is no use praying that they will recover until after tax loss selling is over in a few months. Stocks that are down and under performing will drop further than anyone expects. Friday's little expiration pop as shown on the Money Flow chart{critical level 10626.25} only kept the INDU on the regression channel line. This is the exact point of the 1987 crash breakdown as illustrated in the http://www.dowguru.com charts. A break below this channel should bring in massive selling. It is poised to happen next week at the earliest and Halloween at the latest. The Risk chart also shows downward zone migration to a better buying period.

Quoting from http://www.dowguru.com, "If the Dow breaks under 10,650 in October, we should fall to SUPPORT at 8,500 and then 5,000. In 1987, the selling began in earnest on October 14. I expect the same in 1999."{Note there are at least 26 price "hits" in this area between April and September 17.}

Super T found support and resistance at the 10803.92 line; in fact, it closed right on it. It is expected that the green line at 10650 will be tested and will fail, and that the EODCV2 target at 10274(or higher since it is rising) will be tested before the wicked witch of Wall Street arrives on Halloween, 10/31. This would put the DOW Industrials in the neighborhood of the 200 day average or lower. Midas software also picks support at 10650, 10259, 9982,and 8585. CODI remains closer to the Sell Alert than the Buy Alert level and the OEX remains in a downward sloping regression channel originating from this summer's high. Next support in the channel is at 680 and dropping. CODI NDX is still in a Sell Trend even though the NDX had an expiration pop back into its regression channel. The NDX has a weakening RSI and should be shorted again as it is completing its summer top after the industrials. This is how bull markets end, with the most speculative stocks peaking last. NYA on the McOsc chart will see 600 again and lower as the McOsc drops to a more deeply oversold level in the next six weeks. The Option Premium Ratio target for the SPX is 1309 or lower on 9/24/99 close of trading. Expiration days are characterised by heavy volume, usually up, yet the Moontide hourly could not make it back to a one third retracement of the previous Friday's high. In fact, it looked like it was peaking again in bearish fashion during expiration. A month ago the media was full of news about increased earnings for DOW stocks. On Friday it was revealed that IBM will come in under expectations Oct 20th. {4% vs 6%.} Thus, we can expect it to be a drag on the DOW. IBM is not alone in this revision downward. A peak in earnings momentum and massive layoffs by companies are part of the topping syndrome. Lately we've seen Compaq, AT&T, and others announce layoffs numbering in the tens of thousands. For some traders it is hard to understand why these things happen in the best of times. It is argued by perennially bullish broker/analysts that liquidity will keep the bull running, but it is clear from the EODCV chart that liquidity runs downhill as well as up. The divergence between the INDU and the EODCV is widening- with the result that the INDU will have to fall further than 10202 to make a proportionate drop. Our Modified Options Strategey Spectrum and AMOSS should cycle in the zones below zero as the next six weeks unfold. The bear seasonally increases his feeding activity in preparation for a long cold winter of hibernation.

Quoting from "The Japanese Chart of Charts" page 22 by Seiki Shimizu, "One should keep in mind that like our four seasons, market prices move in a circular pattern with periods of stable bottom prices, recoveries, rises and falls. Within large markets there are many small speculative cycles occuring over and over again. (A price cannot go from a rising position[summer] straight to a stable bottom price[winter]. It must have a fall[autumn] in between....When there has been a change in direction of market prices according to the chart, even if one is unable to move in that direction, one should never hold onto opposite positions.(One of the secrets of market prices is even if one can't make a profit, one should never lose.)"

We end this weekend's commentary with a quote from Marc Faber, who is interviewed on http://www.wallstreetuncut.com

http://www.marcfaber.com

August 28, 1999 US Bear Market -- Phase One

Marc Faber writes that he has established that something doesn't seem quite right in the US. In his "The Gloom, Boom & Doom Report" Faber talks about "excessive Speculation", "excessive gearing", "financial stress", "dubious practices", "fraud", "unrealistically high valuations" and a large number of technical "non-confirmations". Faber continues by saying the most important point to consider is that in today's financial environment, where all risks can be hedged through derivative products, a bear market has to be almost invisible at its onset. In other words, he notes, the bear market has to be so subtle that the short sellers don't dare to short the market, while the holders of stocks are caught by the delusion that the market is still rising and will continue to do so. {Quoted from Hoening Independent Research Summary}

Another site with an article titled "Did the bull market die and Wall Street miss it" is at http://www.newsalert.com/bin/clipstry?StoryId=Cn:g8Wb8ZtJe0mZqXmJCW&TopicName=topic1

"We believe the next two months will be very chaotic and take those perpetual grins off those who think the bull market is still alive," Hays said.

McCabe said the market sell-off could take place in October.

"It has the reputation of being a 'crash' month for stocks but October is also known as a 'bottoming' period because market weakness often sets the foundation for recoveries," he said.

"Then, there's the Y2K computer problem, which may provide the market with an excuse for a setback in the big-cap stocks as we get nearer to the end of the year," he said.

Here is a valuation summary from numerous sources. It is available at http://homepages.together.net/~wbarnes/stockmarket.htm

Here is the measure of overvaluation.

They may take the XAU and its components down with the rest of the market,but remember some components of this sector, as evidenced by the long term HL chart,are 90% off their price high of years back.STOCHASTIC 20 of XAU is at 15,STOCHASTIC 5 is at 20.We have suggested holding a position in HL from near 2$;close was 2 5/16.

Here are other charts:

CONE CHART. CYCLE CHART. EQUITYCP CHART. INDU CHART. KELTNER CHART. MONEYFLOW CHART. NHNL CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. RISK CHART. SENTIMENT CHART. VIX CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Tuesday, September 21, 1999:

You heard it numerous times today: "Leadership is getting narrower and narrower." Also, "NASDAQ and S&P have toplike breadth divergences with fewer new highs and a ski slope A/D line." I idolize that technician;Ralph Block says it like it is with his historically 100% accurate crash barometer. It is not if, but when. Perhaps a catalyst or some shock therapy is needed since a review of the fundamentals and graphic descriptions does not seem to do the trick. The reason for the market still holding up is the majority of people with money in equities don't understand what is being referred to and don't care. They won't care until it hits them in the account statement. Let's coin a phrase, "old bulls die hard". Can't vouch for the originality of that but it aptly describes the current existing complacency. The truth of the matter is that the majority of "mom and pops" {and especially young investors have bought the notion of longterm investing} are having their pockets clandestinely being picked by the professionals. The shock therapy source can be external via economic or political news, or it can be internal as in tax loss selling and profit taking. The indigestion is the same. Without shock therapy the bull will die a slow death.

We know what is going to happen, we know how far it is going in terms of price, we don't know when, we do know it can happen any day, we also believe it will start when the least number of investors expect it and probably when they are sleeping. They will wake up with a living nightmare. The most important chart tonight is the Sentiment chart. The HRBBVS, i.e. modified Hines Ratio, is close enough to the optimistic level to buy puts. Reviewing other charts we see that the OEX 30 minutes has retraced to a lower fib level 5 times. INDU is on a collision course with the 200 day moving average. Moontide daily is now below the hourly, one day and two day averages. This continues to say that down volume is consistently eroding the foundations of the market. Trin closed near the Sell Tomorrow level. OEX projection bands on the VIX chart are 691.67 and 678.08 with a neutral VIX buy/sell oscillator. NYA on the McOsc chart ran into resistance right on our WMSR line at 614.90 and generated another sell arrow. OEX CODI is working the whipsaw zone close to the Sell Alert level. It could still follow the channel path to support at 680 when CODI zips on up above 6, maybe 6.5 or higher this time. Before it gets there the OEX NSYNC says there is temporary support at 688.48. We enabled the Cumulative SuperT to more clearly illustrate the price breadth divergence seen on the EODCV2 chart. SuperT and cumulative SuperT are created from normalized breadth information. Note that in late August and early September the CumST dropped below the lows in March. What this means is that if price had a one to one proportional relationship to the breadth composite then the INDU would be back down to 10,000 at least. The October 700 put at 13 1/4 might be a way to participate in a lower OEX. Option Premium ratio is still targeting the SPX for 1309 or lower by 9/24 close.

One of the resources we employ is a NASDAQ one week rate of change oscillator.This hints that if the market is able somehow to hold up until October 1,or makes a lower high than the August high on October 1,an important low is likely about October 27.

FNM registered a short term downside nonconfirmation at 62 on Monday.This nonconfirmation in the past has presaged a short term 30 year T bond rally.Those who wish to trade FNM for a bounce under these risky conditions for longs should enter near 62 and use a stop of 2 points at most;that is,60 to 60.5 as a stop loss.

XAU STOCHASTIC 20 and 5 both crossed above the 20 level.We are long HL;close was 2 5/16.

Here are the charts:

CODI NDX CHART. CONE CHART. CYCLE CHART. EODCV CHART. EQUITYCP CHART. INDU DAILY CHART. KELTNER CHART. MONEYFLOW CHART. MOSS CHART. HOURLY MOONTIDE CHART. NHNL CHART. NYA CHART. OEX DAILY CHART. OEX FIBRET CHART. OEZVT CHART. RISK CHART. VOLATILITY CHART.

To quote from the e-mail update at 6:41 am Tuesday:

"Usually a FNM downside nonconfirmation at the lower 3.5% trading band means a 30 year T bond rally is in the offing.World markets are down.This often means T bonds will be weak in the U.S.We would therefore not go long the T bonds here.Those who try to buy FNM near the lower band should be aware they may be stopped out as we have placed the stop at 60 to 60.5 on entrances near or below 62 {Monday's close 62.0625}."

MomentumCycles commentary for the open of Wednesday, September 22, 1999:

This FNM CHART shows that a.m. entrances in FNM would have been between 61 and 61.5,with an average of 61.25.Low was 60.5 at 3:15 for a only a few minutes, so many would not have had the oppportunity to have been stopped out.We would move the stop to 59.75 for entrances at 61.25.STOCHASTIC 20 and 5 are at the 15-18 level,extremely oversold, with several downside nonconfirmations of price.30 year T bonds were actually up on the day with open 61.06 and close 60.93.

This XAU CHART shows the action for the last 5 days in this index,and therefore its components ABX and HL.XAU is now at the upper band of price with 4 momentum nonconfirmations short term of the Tuesday 6% move.HL was up 8% to 2 1/2 and ABX was up 6% to 19 13/16.We expect some retracement here with the possibility of a retrace to the recent trip near the lower band.We are long HL from near 2,with the recent retag near 2.25.Holding as a long term call on the sector.

On to the OEX...

If you have been reading this commentary very long, you know that this writer has the "contrary-itis" syndrome. So what would you expect tonight except an attempt to put a positive spin on today's shock therapy, as foolish as that may sound? It's not that he has any great love for an up or down direction, he just wants movement, and fast movement is best, no directional partiality here. Even countertrend moves are accepted for a trade. Premiums tend to bloom at reversal points so it is important to be watching the OEX at-the-money option bid/ask as price slides into the pivots. The at-the-money B/A may give you the directional timing almost as fast as watching the futures, and definitely faster than watching the cash. It was a bit unfortunate that Globex jumped the gun on the OEZVT put entry at 13 3/8 as recommended in the previous commentary. An entry three points above was still very profitable. The Sentiment BuyPuts was dead on and is now neutral. That is hit and run trading.

The question is, "Can we find anything positive to say about the technicals after the close?" Of course, the answer to that is yes, because that is what we want to see. On the other hand, we don't want to shut both eyes to the negatives that still exist. As much as we fear the use of oscillators, we have to use them because others trade with them. Our SuperT Oscillator dipped below the Correction level. That's one positive in the contrary sense. It says a long trade is nearby. NYA held trendline support on the McOsc chart as the McOsc tested the Oversold level below -100 again. Tuesday was not the breakdown day. Chaos theory says price will accelerate to support/resistance boundaries near the end of a move. Of course the S/R can be broken and the trend continue, but the first expectation is for a test of the S/R and a reaction bounce. Support was also found for the OEX on the fib retracement chart, and on the hourly Keltner band, and on the 100 day Xavg on the NHNL chart. We realize that Keltner is commonly used for breakout trading. In this case the bandwidth is set for channel trading so we look for an exit puts/enter calls at the lower bands providing the NSYNC is coming off of oversold as it is. Cumulative volume on the daily and hourly Moontide hasn't turned up yet. They could turn on Wednesday {no guarantees though,as this is a negative}. Note the 5day declining volume has reached the Oversold level on the NHNL chart. OEX CODI is in the whipsaw zone and the OEX RSI is oversold. BR Momentum is only three days into an uptrend. VIX did generate another intraday buy in our view. Time will tell if it is aborted or continues up on Wednesday to fill the gap between Monday's close and Tuesday's open. That might be another level to reinstitute shorts. This view paints a picture of a market that could turn up shortly, providing the cycles hold.

Risk monitor is entering the lower risk buying band. OEX NSYNC daily is near the Buy band.

Clyde's Swing Machine lays out some historical probabilities for the OEX. Three of five swings show the low is in. Four of five have near term highs 710 and 715.

Here are the other charts:

TUESDAY'S CONE CHART. WEDNESDAY'S CONE CHART. CYCLE CHART. EODCV CHART. EODCV2 CHART. INDU CHART. MONEYFLOW CHART. MOSS CHART. NYA CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART.

To quote from the e-mail update at 12:18 pm Wednesday:

"We were stopped out at 59.5 today from entrances near 61.25.Looks like this was wrong or early,even though T bonds are up a bit."

MomentumCycles commentary for the open of Thursday, September 23, 1999:

FNM momentum may have reversed to the upside Wednesday late...unfortunately we were stopped out below the lower 3.5% band and previous support.This was one of the few FNM trades-long or short in the past year-that wasn't successfully contained within the trading bands we use to time entrances and exits.

OEX found better support than the narrow DOW which held onto its 10500 support line. Also the NYA held its AB support line. One important item is the daily change in the McClellan Oscillator. A change in the neighborhood of 5 points presages a 66% probability of a gonzo type move in equities. Tuesday to Wednesday had such a positive change. Coming off of a McOsc low below -100 can be an upward explosive move. That is something put holders and shorts should wary of. This is in contradiction to normally weak Thursdays, but don't forget that positive seasonality sometimes kicks in 5 trading days before the end of the month. That means strong front running buy programs could hit on Friday. And since traders don't want to be short ahead of potential currency announcements from the G7 this weekend- there might be some added go power before Friday's close. Still trying to put a positive spin on things we see that the EquityCP is sandwiched between the dotted and solid Buy Call level lines. OEX fibret shows decent support at today's lows. CODI is still in the whipsaw zone and never finished its BuyMode. With the OEX RSI oversold and CODI not yet overbought we could see a buying thrust into next week which would then put CODI into the Sell Alert territory. OEX shows support on the CODI chart also. The Risk Monitor is close enough to the lower grey Buy bands that we should begin to see larger buying volume beginning to feed into the market on a broad basis. We did see that temporarily today. Moontide hourly, cumulative volume, looks like it is putting in a bottom. Something should be said about the low volume and declining advance/decline that has been going on for months. As stock prices rise volume can decrease for numerous reasons. Valuations is the common belief. But think for a minute...as the price of a biotech or internet equity goes from $10 to $100 you might reasonably expect that the buy side volume would decrease. It is priced out of the hands of many investors. This is true for other sectors also. This decrease in volume aspect says nothing about earnings, or valuations, or the equity's admiration society. Some companies rectify this situation by stock splits to facilitate trading volume and thus commission generation. Another factor that may be deceiving the technicals is off-exchange trading of large blocks of blue chips that go unreported. Finally MOSS and AMOSS are in the Oversold zone.

We have received several non-confirmations of XAU price in its current place above the upper 3.5% band.STOCHASTIC 5 and 20 are not extremely overbought;the extreme 14% band is at 76,and XAU only tagged 71.06 Wednesday.Nevertheless, be prepared for price retracement here.We are holding HL as a long term call on the sector from near 2$;close was 2 1/2.

Here are the charts:

CODI NDX CHART. CYCLE CHART. INDU CHART. MONEYFLOW CHART. NHNL CHART. NSYNC CHART. OEX DAILY CHART. OEX WEEKLY CHART. SENTIMENT CHART. SUPERT CHART. TRIN CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Friday, September 24, 1999:

Well, we got the McOsc gonzo move on the 5 point change in McOsc. We also got the Terrible Thursday syndrome with VIX closing in the high end of its range above 30. This should not come as a surprise to any readers of MomentumCycles, as we have been pointing out the seriousness of affairs months back and tracked it to this crisis period with the NYA bearish triangle and McOsc breakdown going into the vertex. EODCV and EODCV2 have been pointing to a proportional drop in the INDU. SuperT was targeting the EODCV2 yellow support line. We initially said it would be 10202, but the line was rising, so the level would be higher. The INDU chose to stop at 10318.59 (just above Thursday's SuperT level of 10280.97), which is close enough, due to the errors in the process. We don't want to jump up and down yet claiming a turn around is near, but we do have to point out any divergences we see in anticipation of a turn. The SuperT has made a higher low as the INDU made a lower low in the last three days. There are also INDU and CV RSI divergences on the EODCV2 chart. Weeks back we figured that when the INDU and CV RSI converged in Oversold a bottom would be near. It is hard to say at this point if there was sufficient panic to justify a bounce going into the so-called positive seasonality. It is very possible for the market to bounce going into the end-of-/beginning-of-month seasonality and then correct again in October. To repeat a statement from a few months back, September has the worst record for total points lost in a month, but October holds the record for most points lost in a day or two. VIX and Trin did end above the level for a weak open the next day. We will soon find out if the "buy the dippers" are still alive, and if the pros have been bidding prices down during their accumulation phase. Their distribution was over in the summer and they have been rebuilding inventory for the next up phase when the positive earnings come out. One way to increase price facilitation is to drop the bid and keep dropping the bid and that is what has happened. Climaxes occur when it becomes obvious to everyone. Then like commodities price turns and runs after the panic. Each night we post the daily and weekly fibos for the OEX. Take a look at the low today on the OEX weekly fibos. Another indicator fullfillment we have been advising waiting for is the RISK Monitor to drop to the lower band. This too gives odds that a trading low is being put in.

Once it becomes obvious and talk is constantly about a bottom, there it is. Just like the high last summer when the bulls were trotted out and proclamations of DOW 12,000 by year end were made the question was, "how high is high?" All the time our DJWM WinMidas TopFinder was pointing right on it and today the DJIA landed right on S3. Likewise for the SPXWM landing on S4. When the market gets near, s/r chaos theory says price accelerates. We have seen this recently. Trying to remain contrarians and not panic with the crowd we are looking for the end now that the INDU has finally kissed the 200 day average and the OBV has landed on its lower band. One interesting view comes from the Advance, Decline, New High, New Low chart, ADHL. When the new high strength is below its magenta line and the new low strength is above its magenta line, the market is within days of a trading low. Also, it may surprise you to know that the new lows were 293 on Tuesday, whereas they are 276 on Thursday. The NHNL indicator is a very sensitive one at turning points. TYX dropping today was quite a surprise as it fell to our support line at 6.02. A drop below that line would be commensurate to a breakout in bonds, as there are no support lines below until 5.8X pivot back on August 25th. Bonds are seasonally strong going into the fourth quarter and first quarter of the next year. Mortgages are best obtained during this period. Once upon a time years back a broker told me it was customary for their firm to clear inventory in the third week of the third month of each quarter. He called it book squaring. That gives the accounting types time to have reports done at the end of month and does contribute to selling pressure until the assets are reallocated.

XAU barely moved in all the hoopla,with HL stable at 2 1/2.

Here are the other charts:

CODI CHART. CODI NDX CHART. CONE CHART. EQUITYCP CHART. MOSS CHART. HOURLY MOONTIDE CHART. NSYNC CHART. NYA CHART. OEX 30 MINUTE CHART. OEX FIBRET CHART. SENTIMENT CHART. VIXPF CHART. VOLATILITY CHART.