MomentumCycles

MomentumCycles commentary for the open of Monday, September 27, 1999:

Seasonality started kicking in with small buy programs on Friday and we should see many more of them next week as the most lucrative two week trading cycle of the month begins. Market support was also aided by a drop in T bond yields below 6% and a stable dollar/yen. It is rather clear now that a rush into yen and Japanese equities was a bit premature. Rather than see a dollar to yen exodus as the media has promoted, it is more likely we will see a yen to dollar repatriation as the US equities market is still the best short and long term game on the planet, and as the three to four best months of the trading year heat up. Markets discount the future, so don't be surprised if this October is a crash up instead of down. The positive aspect of a relatively lower dollar in currency terms is that foreigners can effectively buy more shares. If it is perceived that the dollar's decent has stopped, then foreign funds previously on hold should once again enter our markets helping to fuel the year end rally. They will get the double kicker of a rising market and stronger dollar. Perceptions are beginning to change that 1999 is not a "1987" at all. In fact, it is beginning to correlate with years that have a strong market in the fourth quarter... with the Christmas rally starting as early as the last week of September. The old cliche is "In by Thanksgiving, out by Easter." In 1998 the market bottomed in September, and then rallied in October and November. Portfolio managers have been in sell mode and next week will enter buy mode to dress up their portfolios with issues they want displayed in the quarterly prospectus. What this means is a steady flow of funds back into a broadening base of equities for a sustained rise in all indices right into the New Year. Mutual fund distributions will occur and cash held in reserve will find its way back into play. With continued low inflation what more could a bull market desire? Even the Y2K fears are subsiding...Y2K is also beginning to be perceived as a nonevent in regards to equities. Investors will have the best of all worlds; low inflation, low interest rates,a stable to rising dollar, positive seasonality, increasing corporate earnings, low employment, and consumers with insatiable appetites.

This repatriation of money back into the market comes as the Modified Implied Volatility indicator on the Risk Monitor chart completes its 4 month 3 week cycle low. This MIV low accompanied by a pullback in the DJIA to its 200 day moving average is perfect timing for the next up cycle. This point in the cycle has historically provided a lower risk entry for intermediate to long term trades. The most points in a new swing come within days and weeks of a significant pivot low as volume and price swell. This two week or longer rally should carry the McClellan oscillator back up to between zero and +50. CODI generated a Buy Alert signal on the upper edge of the Whipsaw zone as the BR momentum dropped deeply into its Buy Alert zone. The same is true for the CODI Mrket Thrust. EquityCP is sandwiched in the Buy Calls zone as the SMI and 3XIND form a bottom. The OEX hammer candlestick is also a tell tale sign that the downtrend from the August high is nearing completion, if not completed already. SuperT held its yellow support line at 10280.859 with a close at 10279.33. Sometimes it is nothing short of amazing for a dynamic trendline to exist for nearly a year and still have an influence on prices. Assuming the above scenario comes to pass, the Probs chart has a mean reversion to OEX 703.77 with current upside at 712.44 and 732.62. In actuality a new cone set will be created at the current pivot low and then provide an upward curving path for prices to migrate along. You can see this action at previous pivots. Since we are playing mindgames this weekend let's put the former bearish triangle on the NYA on the MCOSC chart into new perspective. Since it violated the lower horizontal AB support line with a negative McOsc (it did what it was supposed to do) it has now turned into a declining wedge with an oversold McOsc. This is a potentially explosive Bull move, as such formations are typically broken out in an upside direction. The first upside targets on the NYA are therefore the green and grey lines at 606 and 625. Remember- bulls charge with their heads down, and bears charge standing upright. That was a Bear attack back in July at 660 where the yellow wedge is. Adding to the bullish picture are the Option Premium ratio in the .60's at a new DJIA low{the premium was much lower at higher price levels last week},and EODCV RSI and INDU RSI converging at 20 and beginning to turn. Cumulative TICK (not shown) actually began turning up Friday. Next week we should begin seeing the TICK spend much more time above zero and the PREM spend much more time between fair value and buy program levels. These two are about as intimate a view as you can have into market personality. Happy trading.

XAU is not at the upper 14% band,but STOCHASTIC 5 and 20 are at areas where reversals are often seen.XAU Price is testing the August resistance;above here is the 80+ seen in May.We are still holding HL from near 2-close was 2 7/16.

FNM entrance {thus 30 year T bonds} was early,so we got stopped from the 61.25 entrance when 59.5 was tagged late last week.This last FNM turn was unfortunately one of the few in the last year we didn't call right on the dime.

Here are three views of theOEX, SPX,and the INDU IF Friday was the pivot low.They are based on swing length in terms of time and price,and created with Dynamic Trader Software. { Further information available at .} On the OEX Daily gif{thanks to Clyde Lee of the Swing machine} the Fib retracement is all the way down to 2.00 ,and the range for this last Friday...in Candles they call this a Hammer.It becomes part of a set up for a rally. How big a rally?Many traders will wait for a close above the High.

Here are the other charts:

CODINDX CHART. CYCLE CHART. INDU CHART. MOSS CHART. HOURLY MOONTIDE CHART. NSYNC CHART. NYA CHART. OEX DAILY CHART. OEX WEEKLY CHART. TRINVIX CHART. TYX CHART. VIX CHART. VOLATILITY CHART.CONECHART.

MomentumCycles commentary for the open of Tuesday, September 28, 1999:

Monday got the week off to a good start. It would have been much better if the gains had held more points; however we did make a higher high, higher low, higher close from Friday. So that's three out of three. The ten day rate of change has been turning up for two days now and the INDU held the two hundred day average for the second day. On Balance Volume even turned up and the Force Index has turned up. Breadth was much much better with the McOsc rising and the Hourly Cumulative Volume ramping up all day until the last half hour, yet it did end higher on the day. What that means is those who bought the up volume did not liquidate and might have longer term plans for it. That is one essential ingredient of a sustainable rally, i.e. buyers don't do a day trade flip but hold on for more gains longer term. Every day the action is composed of the short termers who create the noise and the longer termers who buy the dips and hold for days, weeks,and months. If Friday was the pivot low, then we now have a pivot of strength one. Another day or two of higher highs, higher lows, higher closes will begin to attract attention. In fact those who only look at end of day charts will see this first step into forming a pivot of strength more than once. SuperT is in buy mode, it just needs some believers. Cone Projection Oscillator is coming off of oversold and could cross above midpoint line in buy mode on Tuesday very easily. OEX has some resistance at 685 on the CODI chart but the CODI and Momentum signals are both in Buy Alert zones. A decisive move through 685 projects to the low 700's. Time and Price Swing Zones are targeting 685.87 to 722.33 between 9/29 and 10/12. Upper channel line from April to September has an upside of 722.33 on October 12. NSYNC daily is oversold and VIX is in buy mode. We had to get through a day like today. It might be easier tomorrow and Wednesday as the seasonality gains steam. Up volume and up issues were decidedly positive today. Changing psychology is best done by price performance. Nothing aids success like success.

3XIND on the EquityCP chart has made a buy crossover. EquityCP is moving up out of the Buy Calls zone which is a bullish indication. Risk Monitor is at the low risk band for intermediate and long term buyers, i.e. those who are buying depressed issues to position trade and not flip out of in a day or two or even a week or two, but to hold into a year end rally, say to January.

Expert Ratings for the OEX and DOW are giving confirmation of upward movement in price as we enter the positive seasonality period. Generally it is a high risk time to be short. Best policy is to be long or flat in the next week and a half vs trying to short and being squeezed into submission.

Gold and silver stocks are beginning to come alive as the fundamentals have turned very positive. Value Line targets Hecla around $11, I believe. Hecla {HL} got its start in silver, but has diversified into gold.It might behoove an owner of HL to read up on it in Value Line.

Note that the XAU ran above the previous resistance in the 70's to 52 week resistance near 87.We had pointed out that above the 70's we'd get 80+.We are well above the 14% trading band-a rare occurence-up 21% on the day.STOCHASTIC 5 and 20 are near 100;that's overbought short term.XAU and its components tend to make short term highs at the ends of months and the very starts of months.We are long HL from near 2 {average price 2.125}.Assuming we see 3$ early tomorrow on late comer follow through buying,we will be up 40% on this HL long.Although the price action is short term overbought,the sector is long term oversold and still unloved.As contrarians,we are holding this HL position as a long term call on the sector.

Using open interest in OEX options to make a directional call is virtually impossible, but let's give it some thought this time. The prevailing psychology has been one of down September and October. Looking at the open interest in the OEX options shows the call OI for many strikes having twice or more OI as the corresponding puts. The OI columns start with 289 for calls and 5518 for puts. Look down around the 700 strike. In fact is is downright shocking that there is such a disparity between the open interest in puts vs calls. If we accept the notion that most OEX OI is because of spreading and if we accept the premise that psychology has been bearish, then someone(s) has made an extremely bearish posture with selling two or more calls for every put they buy. One belief in normal times is that the OEX will move in a direction so as to minimise the CBOE market maker's liability. If we also are correct that much of the call OI is naked, then there should be one heck of a rally to turn the puts into teenies and take the shirt off the back of the naked call sellers to ensure they remain naked.

Here are the rest of the charts:

MOSS CHART. HOURLY MOONTIDE CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. SUPERT CHART. VIX CHART. VOLATILITY CHART. XAUER CHART.

MomentumCycles commentary for the open of Wednesday, September 29, 1999:

What an exciting day! OEX Cone caught the low right at 660 on the lower side of the regression channel. Since Tuesday's low was below Friday's the Time and Price zones for INDU, OEX, SPX had to be recalculated. These are created with Dynamic Trader Software. The zones are based on swings back to the spring of 1998 in order to include enough data to be statistically significant, but not so far back as to lose the volatility of recent years. Going back too far {such as 1994} muddies the picture with narrower range swings. Breadth improved again today and we had a divergence between the MThourly which measures cumulative volume and its comparison to the NYA. The NYA made a lower low whereas the MT made a higher low setting up the late day upward explosion in prices.3 day cumulative smoothed breadth and volume both marginally turned up Tuesday. The 5 day advancing volume is looking better too. McOsc is working higher. These are the kinds of indications expected going into positive seasonality, and are also what you would expect at a pivot low. CODI continued its buy mode from the upper edge of the whipsaw zone as the OEX RSI rises from oversold. IF the time and price zones are correct, and if we do get some positive seasonality the remainder of the week and into next week then CODI should continue dropping and the BR_Momentum should rise along with the Market Thrust. INDU held the 200 day moving average for a third day as the 10 day rate of change continues to rise. Even the End of Day Cumulative Volume is trying to put in a low as the RSI of INDU and EODCV pivot at the 20 level. OEX NSYNC is cycling up from oversold levels. The OEX Cone Projection oscillator did cross above the 50% line back into buy territory. That chart has a one day look-ahead based on implied volatility. The Probs chart has a multiday view based on historical volatility with the probability cones attached to swing points. The Vix signal on the TRINVIX chart closed close enough to the green line to declare strength on Wednesday's open. And did you notice that Tuesday started weak and ended strong....a personality trait for Tuesday's?

EquityCP has the SMI and the 3INX in a Buy crossover with the ECP on the edge of the Buy Calls zone. Here is a little trick you might want to do. The dynamic midpoint of each day appears to have some trading significance. It is calculated by keeping track of the current day's high and low. Add the two together and divide by two, real simple. Note on the DMP chart how that level provided resistance and then became a breakout level on Tuesday. Other day's price will cycle around that level and on others it will find support or resistance. MomentumCycles is still of the mind that a trading low is being put in and that much of the selling has had to do with end of quarter window dressing as the dollar and interest rates have been rather stable as of late. Once the psychology changes and interest rate fears are past 10/5 we could see one heck of a barn burner rally as breadth broadens and indexes make new highs.

As for Hecla, we would not chastise anyone for taking over 50% profits. Hecla may never see 2 1/8 levels again, and it may have much further to go on the upside.The high Tuesday was 3 3/8.Close was 3.Be aware that the XAU and its components are extremely short term overbought.

Here is something for speculation. Looking at the OEX Open Interest table (columns beginning with 9 for calls and 3932 for puts) we see a preponderance of Put OI below strike 720 and Call OI distributed throughout a 105+ point range from 660 to 765. The speculation here is that much of this OI is due to spreads by professionals... some of who may be in control of significant volumes of S&P 100 components that can position the index advantageously, and by others who take courses from Fishback and Fontanills. Tuesday's drop and recovery smells a lot like a raid on the naked OI of delta neutral traders. Thus it would not be surprising to also see a raid on the positions above 700 as high as 740. Of course, this is pure speculation.

We usually don't try to pick price levels more than one day ahead, but this is a special time, so we are looking out to 10/10 with the long term Cone chart. If we make the assumption that 9/28 is a pivot low and if we assume an average implied volatility of 25% then the OEX could be expected to be bounded by the grey cone and the cone mean at 675. The July high is 735.65. The August high is 724.92. September high is 716.8. The October high is the million dollar question. Taking the same rate of rise as swing AB and applying it to Tuesday's close we have a projection to 710 on 10/10. That falls well within probability expectations and falls within the OEXTPZ price target above.

Here are the other charts:

5 DAY ADVANCING VOLUME CHART. CYCLE CHART. DMP CHART. MOSS CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. RISK CHART. SUPERT CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Thursday, September 30, 1999:

Market is still trying to find a bottom and is developing the characteristics found at pivot lows. Swing Cycles for the pivot low say we are in the time zone for it now;that is,from 9/27 to 10/5. For the next swing high we have Time and price zones of 10/1 to 10/14, and for a price zone of 683.9 to 721.12. New high/new low strengths are behaving as they do at pivot lows (see NHNL2 chart). McOsc is coming off of oversold; price will follow as seasonality unfolds.

OEXTPRZ2 has is a more detailed view for the time and price zones. The upper three point time projection has bars at 9/30 and 10/6.

The UC Payroll indicator struck after the market close on 9/29. This adds to the positive bias of the upcoming seasonality.

Bank of England announced selling 25 tons of gold on September 21 for 255.75 per ounce.The sale was oversubscribed by about 8 times.Gold mining companies bought some of the total.Recent changes in the universally bearish gold sentiment and violent short covering recently led to a spike well above the 14% trading band in HL.The price of HL settled at 3$ on Wednesday.We expect a return to tag the upper 14% band as normal behavior,as seen in mid-July and late August.For those that didn't sell HL for a 50% plus return at 3 3/8 on the spike,we will recommend holding this issue as a long term call on the sector.At 2.125,HL had lost over 90% of its value.That is often a sign of "give up" in a sector or equity when price overshoots on bearish sentiment.

Here are the charts:

CODI CHART. CONE CHART. EQUITYCP CHART. INDU CHART. NHNL CHART. NSYNC CHART. OEX DAILU CHART. OEX FIBRET CHART. OEXTPRZ CHART. OEX WEEKLY CHART. PROBS CHART. RISK CHART. SUPERT CHART.

MomentumCycles commentary for the open of Friday, October 1, 1999:

Investor/trader psychology for the fourth quarter is gradually changing as the fear factors underlying that psychology for the last few months are losing credibility. End of quarter liquidation will no longer be a depressant on the up/down issue and volume ratios. This will give the first few weeks of October a rather startling positive technical picture. My bones tell me we could have an upside run straight into expiration in two weeks. Yes, it is only two weeks away, not three this time. Not all Octobers are a misfortune, and many really are the start of a three month Christmas rally. RISK Monitor says we hit the nail on the head for the start of such a rally {of course only time will tell}.Remember that 3 day cumulative smoothed breadth and volume turned up earlier this week while price was still indecisive.

There are lots of positives that could carry the market for a few weeks providing the earthquakes don't hit New York and Chicago. Personally it is a bit troubling that there have been so many so close together in time but so widespread around the world. Who needs Y2K problems with natural disasters such as Floyd, breeder reactor accidents, and three major earthquakes. Y2Knot will soon be history and the market will have discounted it. Those who stashed cash away in fear of Y2K will be buying stock again at antique prices at the next high unless they begin participating pretty soon. Thursday was a great volume day for total volume and 5 day advancing volume. The 5 day up and down volume will cross on Friday in buy mode as seasonality kicks in full gear. Change of Direction, CODI, indicator is still in a buy trend within the whipsaw zone. We should see CODI drop to 4 over the next week and the BR momentum indicator move up above 2. Even the TRIN thrust is kicking in gear. With any luck these would put the OEX at the upper side of the regression channel around 710 or higher. Cone chart has a nearby target of 684 with a rising Projection Oscillator. RSI of INDU and End of Day Cumulative volume are rising out of deeply oversold. Historically, this has the capability of taking the INDU to new highs before the year is over. NHNL is giving further confirmation of the pivot low. McOsc closed above the zero line. A higher move should suck in more reluctant buyers over the next two weeks...reluctant to give up the negative thinking and fear of buying. Much misinformation is attributable to this negative thinking. For example,the 200 day moving average... well, there are actually 252 trading days in the year, that is what options calculations use, so why not use a 252 instead of 200? The SPXma chart has both, and note where support is found- kind of interesting. Super T says the INDU should work higher to the green line at 10634 for the first stop. Then the red line at 10773 would be next. Bullish historical swing projections on the OEXTPRZ are pointing to a pivot high between 684.39 and 718.54 over the next two weeks. It could be higher than 718.54. Recent action has created a new distribution cone set on the hourly OEX. If we are correct in our consideration of a bullish two weeks, then the OEX should climb along the upper red half of the Probs cone. Level for Friday is 690...also within the TPRZ zone. So, we have a wall of worry, T Bond yields dropping, oil dropping, no rate rise next month, benign inflation, a grossly oversold market...therefore Abby Cohen wins over Ralph Acompora by a couple of thousand DOW points. EquityCP and Sentiment are neutral looking. SMI and 3XIND are turning up.

After a vertical move,all indices retrace.XAU/HL is no exception.STOCHASTIC 5 and 20 near 100 were grossly overbought positions,as mentioned the day of the 92 print-now the XAU is working off that overbought condition.HL longs had a paper profit of 50%+ that day from entrances near 2$.We are holding HL as a perpetual call on the sector,although we admitted many readers would be justified in taking the 3 3/8 or even the 3$.

Here are the charts:

INDU CHART. MOSS CHART. NSYNC CHART. NYA CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. VOLATILITY CHART.