MomentumCycles

MomentumCycles Commentary for the open of Monday, September 28, 1998:

Lingering fears over the implications of the bailout for the LONG TERM CAPITAL MANAGEMENT hedge fund served to achieve a spike high in the Swiss franc and the XAU near Friday open. Those who entered long the Swiss franc near the above commentary of September 4 achieved an entry price of between .705 and .71. Friday's failure at .74 for the Swiss franc, the second such, means long positions,if they were taken, should be exited in the Swiss franc on Monday.Swiss franc has been in an almost uninterrupted rally since the September 4 commentary.

Our advice was to exit long XAU on Friday,into the expected "a.m. spike of fear "and "followthrough momentum" from Thursday's 8% gain, and indeed the ideal exit was near the open at the Friday climax in fear past our posted secondary target price of 78 at the exact high of 78.74. Subsequently, the XAU sold off gradually to exactly the low and close of the day at 74.11. Resistance in gold was seen at slightly past 300. In addition, on Barron's this weekend, one of the commentaries gave a buy signal in gold. Usually that means that there will be another short XAU rally on Monday morning following the Barron's article, and then a selloff. Articles in Barron's are sometimes very good short term contrary indicators.

It is to be remembered that our entrance on the XAU was 65, and so an exit near 79 in this short a time was an excellent short term trade.

What served to light the spark in this last week's predicted Wednesday's high/Thursday's selloff in global markets?The LTCM bailout- and all that it implies.

The bailout of LTCM was necessary because they had over $100 billion exposure in incorrect derivative bets. Anyone ever heard of stop losses? Oh well, that's why they gave some of its founders Nobel prizes{the ultimate contrary indicator!}. The markets are still rightfully nervous from the theory that where there's one dead cockroach, there are likely others. The amount of incorrect derivative positions still yet to be discovered or unwound by other hedge funds overseas, in addition to unrecoverable money center bank loans to Third World economies, cannot yet be estimated.

We had pointed out that both US 30 year treasury bonds and XAU are currently competing for global fear capital. On Friday, bonds continued their increase in price from Thursday's rally. We had speculated that the end of the OEX rally on Wednesday would end the short term downward pressure on 30 year treasury bond prices. Indeed, Thursday did bring a strong OEX retracement and a nice day trade long the 30 year treasury bonds. That rally in the bonds continued into Friday, enabling traders to capture more profit and/or close the position.

We have some conflicting signals in the OEX,in addition to the position of cycles at this time of month. Barron's has as its cover this week "Time To Buy?" We would have preferred not to see this on the cover. Failure was seen late last week in the DJIA at the dropping upper 3.5% trading band,where sell programs are often preordained. In addition, DJIA stochastic 15 is overbought at 80. In our RSI STO chart, buy entries are made at a crossing above 20 and sells are often made at a crossing below 80 from above. However,both cumulative breadth smoothed by 3 and cumulative volume smoothed by 3 are rising, which is bullish. The option premium ratio is .66. This ratio has spent an extended period of time in the .40's, which is bearish, and the recent move out of the .40's into the .50's and .60's would normally precede or accompany a morket rally. Public/specialist short sales ratio is near a 5 year high of 2.18. IBD has above .60 as bullish and below .35 as bearish. Commercial hedgers are short the T bonds but long the S and P 500. The market seems to be pricing in a Fed funds rate cut of .25 points.

In addition, money flow and astrocast lows are due to culminate on Monday, September 28, which would normally be followed by a seasonal reinvestment rally. This will be a real test of the monthly seasonality payroll cycle versus the breadth technicals.

Now we will examine Friday's trading.

Call it a "Touch and Go" Friday with end of quarter and end of month forces pushing up against resistance. Short term bias should be up for another week, although it remains to be seen if it can overcome seasonal tax loss selling. Even a fortuitous discount rate cut may only have a temporary effect of prolonging the basing period. The spectrum of indicators are supportive of some up action next week following the backing and filling this last week. ADHL is on a strong buy, CODI made a decisive Buy pivot, Super T is consolidative, McOsc is "overbought" but can trend up if breadth improves. The early morning selloff Friday gave the seasonality traders an opportunity to enter the October 495 calls at 18 3/4 when the OEX hit the lower green Cone for 8/25 and take them for a nice ride. Here are Friday's and Monday's cone charts. Again, as with Wednesday, an exit of 1.5 below the daily{Friday}high of 25.25 would still have left a healthy profit. The plan for Monday would be to again pick up an at the money or one strike below, preferably on weakness in the morning if given the opportunity. Hopefully we can get a multiday rally going here. VIX in the mid 30's means there is lots of volatility premium built into both calls and puts....a premium that can evaporate on a strong multiday rally as the implied volatility collapses. And don't forget, time decay works against you every day regardless of an up or down market.

Here is the OEXWM chart. Here is the OEXJS chart. Here are the OEX and S and P 500 fib charts. Here are the OEX and S and P 500 pivot cirts. Here is the NYA chart.

To quote from the MomentumCycles Commentary for the open of Monday, September 28, 1998:

"Lingering fears over the implications of the bailout for the LONG TERM CAPITAL MANAGEMENT hedge fund served to achieve a spike high in the Swiss franc and the XAU near Friday open. Those who entered long the Swiss franc near the above commentary of September 4 achieved an entry price of between .705 and .71. Friday's failure at .74 for the Swiss franc, the second such, means long positions,if they were taken, should be exited in the Swiss franc on Monday.Swiss franc has been in an almost uninterrupted rally since the September 4 commentary.

Our advice was to exit long XAU on Friday,into the expected "a.m. spike of fear "and "followthrough momentum" from Thursday's 8% gain, and indeed the ideal exit was near the open at the Friday climax in fear past our posted secondary target price of 78 at the exact high of 78.74. Subsequently, the XAU sold off gradually to exactly the low and close of the day at 74.11. Resistance in gold was seen at slightly past 300. In addition, on Barron's this weekend, one of the commentaries gave a buy signal in gold. Usually that means that there will be another short XAU rally on Monday morning following the Barron's article, and then a selloff. Articles in Barron's are sometimes very good short term contrary indicators.

It is to be remembered that our entrance on the XAU was 65, and so an exit near 79 in this short a time was an excellent short term trade.

What served to light the spark in this last week's predicted Wednesday's high/Thursday's selloff in global markets?The LTCM bailout- and all that it implies.

The bailout of LTCM was necessary because they had over $100 billion exposure in incorrect derivative bets. Anyone ever heard of stop losses? Oh well, that's why they gave some of its founders Nobel prizes{the ultimate contrary indicator!}. The markets are still rightfully nervous from the theory that where there's one dead cockroach, there are likely others. The amount of incorrect derivative positions still yet to be discovered or unwound by other hedge funds overseas, in addition to unrecoverable money center bank loans to Third World economies, cannot yet be estimated.

We had pointed out that both US 30 year treasury bonds and XAU are currently competing for global fear capital. On Friday, bonds continued their increase in price from Thursday's rally. We had speculated that the end of the OEX rally on Wednesday would end the short term downward pressure on 30 year treasury bond prices. Indeed, Thursday did bring a strong OEX retracement and a nice day trade long the 30 year treasury bonds. That rally in the bonds continued into Friday, enabling traders to capture more profit and/or close the position.

We have some conflicting signals in the OEX,in addition to the position of cycles at this time of month. Barron's has as its cover this week "Time To Buy?" We would have preferred not to see this on the cover. Failure was seen late last week in the DJIA at the dropping upper 3.5% trading band,where sell programs are often preordained. In addition, DJIA stochastic 15 is overbought at 80. In our RSI STO chart, buy entries are made at a crossing above 20 and sells are often made at a crossing below 80 from above. However,both cumulative breadth smoothed by 3 and cumulative volume smoothed by 3 are rising, which is bullish. The option premium ratio is .66. This ratio has spent an extended period of time in the .40's, which is bearish, and the recent move out of the .40's into the .50's and .60's would normally precede or accompany a morket rally. Public/specialist short sales ratio is near a 5 year high of 2.18. IBD has above .60 as bullish and below .35 as bearish. Commercial hedgers are short the T bonds but long the S and P 500. The market seems to be pricing in a Fed funds rate cut of .25 points.

In addition, money flow and astrocast lows are due to culminate on Monday, September 28, which would normally be followed by a seasonal reinvestment rally. This will be a real test of the monthly seasonality payroll cycle versus the breadth technicals."

MomentumCycles Update for the open of Tuesday, September 29, 1998:

We had predicted another chance to exit XAU due to the positive Barron's article on the weekend. Indeed, today brought a low to high move in the XAU from 72.55 to 78.46 close, a move of 5.8%. How much of this is due to the Barron's article, and how much is due to a new bull leg in the XAU, is open to speculation. In a trading market, over the last year especially, any move in the XAU above the 12.5% upper trading band has quickly been contained by short term tops. Stochastic 5, 15, and 20 are saturated in extreme overbought. Saturation of stochastic in extreme overbought is a characteristic of new bull moves, but also signals the end of trading morket rallies. In any event, traders had a chance to exit again on Monday above our target of 78. If this is a new bull move, retreats will be shallow, and we can hop aboard again.

Traders had another chance to exit the long position in 30 year T bonds at 51. The multi-day downtrend in yields ended at 9:45 to 10 am Monday morning and the close was 51.43.

If one wanted to be extremely cynical, one might imagine a conversation of hints and raised eyebrows between Greenspan and the rescuers of the LONG TERM CAPITAL MANAGEMENT HEDGE FUND. Perhaps it was communicated elliptically that long positions in DJIA and other derivative instruments should be taken and profited by and closed out in order to pay for the trading losses incurred by the bailout. This is only humorous speculation, of course.

At any rate, we closed the T bond long position at a profit.

From the action in the markets, traders want a 50 point rate cut. They'll probably get a 25 point one. Selling on the news or selling on the disappointment could cause a downdraft on Tuesday after 2:15. Traders should be aware of this possibility and also be aware that the closing tick was +719, which would normally predict a correction within 1 or 2 days. Therefore, actions might be considered prior to the afternoon announcement to avoid excessive exposure to an adverse market reaction in case the Fed disappoints.

For the same reason the Swiss franc long position versus the dollar was recommended to be closed out on Monday.

Entry was at .705 to .71. Friday's failure at .74 for the second time prompted the closeout.

When it comes to technicals vs betting on moneyflow, the latter wins more frequently as that is what drives the technicals. What this means is you buy the lows going into the end of month cycle and exit during the moneyflow. The calls are giving us another chance for a nice ride over the next week. Normal monthly money flow would have the 7th and 8th as a high (the end of new month seasonal reinvestment), and October 15th or 16th and October 29th and 30th as important turns, either highs or lows. It may be a bumpy ride, however. The market is encountering some resistance at 8200, reference the RSISTO chart. We recommend a 1.50 trailing profit stop and/or a 1.50 stop loss from an initial entry. Here are two representative call charts for the last several days showing the price action. (OEWJA, OEXJS)

Here is the CODI chart. Here is the MCOSC chart. Here is the CONE chart. Here is the RSISTO chart. Here is the SUPER TIMER chart. Here is the OEX pivot chart. Here is the S and P 500 futures pivot chart. Here is the OEX fib chart. Here is the S and P 500 futures fib chart. Here is the Astrocast chart for the rest of September.

Ntraday update 11:30 am:

Here is an OEX chart of the current intraday action.

MomentumCycles Commentary for the open of Wednesday, September 30, 1998:

Another XAU long exit was possible today at about 78.53. Subsequently, the XAU lost 6.32% to close near the low of the day at 73.50. It does seem that the 78 target level was not only correct, enabling multiple exits, but is also strong resistance. It appears that the 78.53 level is where the index broke down from in May, so a close above 78.53 on much higher volume projects the next level of 86, and then 92, but for now, the 78.53 is resistance. Next support below the recent lows is 67 ,then 64. For now, we're going to leave any XAU trades alone, as multiple exits above 78 satisfied even the slowest acting traders.

30 year T bonds enabled those with long positions to exit again Tuesday at favorable prices. The close at 50.96 was near the high price of the day. Again, with end of day advice, we always try to attempt to allow more than one exit during a favorable trend. The 25 point cut in interest rates by the Fed did not enable the DJIA to surpass resistance at the upper 3.5% trading band. 8150 stopped the market at 9:45 am, 2:15 pm, and 3:30 pm. Support was at 8000. A move on either side of these boundaries on increasing volume means the current impasse is about to be broken. Recently, much of the equity up action has been seen in Mondays and Tuesdays and Wednesdays, followed by Thursday and Friday corrections and consolidations.

Quite a few traders appear to have sold the news,but Tuesday held up pretty well all things considered. OEX and S&P gyrated around the pivot line waiting for interest rate resolution. CODI is hanging out in the Buy Alert zone, ADHL remains on a strong buy, McOsc 10% is fighting the zero line as price indexes struggle with resistance. SuperT says the Dow has to close above 8169.30 and then 8204.85 to get some fireworks ignited. Its associated price forecaster is pointing to lower prices at the moment. Since the OEX has inched upward the OEWJA is being monitored for day trading activity. Decent daytrades one strike in the money can usually be made if you pick an entry when the OEX is at a Pivot or Cone support level, like this morning for example, and then sell at a resistance or upper cone. Pick the calls if seasonality and regression channel is up, pick the puts if they are down.

Here are the OEX and S and P 500 futures FIB CHARTS. Here is the INDU CHART. Here is the RSI and STO CHART. Here is the ADHL CHART. Here is the ASTROCAST CHART. Here is the XAU CHART. Here is the XAU DAILY CHART.

To quote from the MomentumCycles Commentary for the open of Wednesday, September 30, 1998:

"Another XAU long exit was possible today at about 78.53. Subsequently, the XAU lost 6.32% to close near the low of the day at 73.50. It does seem that the 78 target level was not only correct, enabling multiple exits, but is also strong resistance. It appears that the 78.53 level is where the index broke down from in May, so a close above 78.53 on much higher volume projects the next level of 86, and then 92, but for now, the 78.53 is resistance. Next support below the recent lows is 67 ,then 64. For now, we're going to leave any XAU trades alone, as multiple exits above 78 satisfied even the slowest acting traders.

30 year T bonds enabled those with long positions to exit again Tuesday at favorable prices. The close at 50.96 was near the high price of the day. Again, with end of day advice, we always try to attempt to allow more than one exit during a favorable trend. The 25 point cut in interest rates by the Fed did not enable the DJIA to surpass resistance at the upper 3.5% trading band. 8150 stopped the market at 9:45 am, 2:15 pm, and 3:30 pm. Support was at 8000. A move on either side of these boundaries on increasing volume means the current impasse is about to be broken. Recently, much of the equity up action has been seen in Mondays and Tuesdays and Wednesdays, followed by Thursday and Friday corrections and consolidations."

MomentumCycles Commentary for the open of Thursday, October 1, 1998:

As you can see from the above commentary, the constricted range between 8150 and 8000 was broken, but to the downside. Market is now below the 21 day moving average. Bonds and XAU both were the refuge for fear, with the XAU showing good relative strength versus the DJIA. A long trade back into the XAU with a decisive close above the 78.53 previous resistance level could well target 86 and then 92. For now, we're still out of XAU. It looks like our exit long the 30 year T bond was a bit premature. T bonds up 2.35%- DJIA down 2.94%. And banks down 3.6%. (BKX) Commodities showing a little life, with GNX up .27%. The IMF is now requesting coordinated global interest rate reductions.

The market flirted with 8000, with a slight break at 11 am and then a decisive break at 11:45. Once broken, with 8000 being so many times seen before as previous support and resistance levels, no excuse was needed for the institutions to dump their losers for the quarter. Don't forget, we recommend a 1.50 stop loss from the initial entry price for any OEX put or call trades, and a 1.50 trailing profit stop.

The past several days, the market was on the verge of a stochastic crossover from the above 80 level to the below 80 level. You can see this on the RSI STO chart. Many traders use RSI and STO 20 and 80 levels as entries and exits.

And now on to Wednesday's action.

Well, the advice on Tuesday's commentary was to look for support in the pivots and lower cones for a "seasonal" call entry. (See Tuesday, Wednesday, and Thursday's cone charts.) We got the S3 pivot and the Red Cone support, but no bounce today. Do we need an explanation? You could look for statistics that say the last trading day in September is the second worst day of the year. You could look at it as the day before horrible Thursday(down days). Or you could look at it as end of quarter stock dumping...not to mention additional mutual fund redemptions effective on the first day of the month by pension types, and finally tax loss selling. There is no question the forces are negative during this period as laid out on the AstroCast chart. Implied volatility is still running at 40 today meaning we could still have a gonzo seasonality on the upside, providing of course that selling doesn't swamp the buying. Sell first, buy later is the prevalent mentality. We haven't seen the "let me out the door first" panic yet. Behind this view is another long term view, and the most successful of all, to buy the close of the last trading day of the month and sell the fifth trading day of the next month. That is what is meant by the end of month/ beginning of month seasonality trade. In stronger markets the bold enter 3 to 5 days prior to the end of the month and the buying lasts the full 5 days with a peak around the 3rd day. What we have had last month was no "boldness" at the end and no buying in the first week. Again we have no "boldness" and it remains to be seen if 10/01 is any different. Perhaps the modus operandi is to use the seasonality to get short on rallies.

The technicals are certainly beginning to look on the verge of another meltdown. ADHL did have more new highs today than yesterday, but it also had more new lows. McOsc 10% is rolling over at the zero line indicating the weak advance decline numbers. Regression channels are being challenged on the lower side. Really, this thing could fall apart immediately with a little downside pressure tripping off technical stops. There is absolutely nothing positive about current conditions, not even lower yields according to one "expert" who says we are in a deflationary period. Who wants to own stocks in that environment? After 1929 it took 15 or more years just to get even.

OEX T3 did not justify an entry in the seasonality call. It was more representative of the prevalent bearish mentality.

Here is the Astrocast CHART. Here is the XAU DAILY CHART. Here is the OEX FIB CHART. Here is the S and P 500 futures FIB CHART. Here is the OEX PIVOT CHART. Here is the S and P 500 futures PIVOT CHART. Here is the SUPERT CHART. Here is the OEWJA CHART. Here is the OEXJS CHART. Here is the XAU CHART.

MomentumCycles Commentary for the open of Friday, October 2, 1998:

Major markets in Europe were down over 5% on Thursday. NASDAQ was down 4.81% on Thursday. We had speculated that the start of this week would be stronger than the end, and it was so. We also mentioned that a violation of 8000 DJIA would lead to a selloff, and it was so. XAU has made a marginal new high above the level of 78.53, and closed at 79.29. THose who went long on the breakout should expect some kind of a pullback here, as we had a 5.73% move today. But with this marginal new high, targets into the 86 level might be looked for.

Bonds continued as a refuge for global fear, up 1.71%. Similarly to XAU, we've had a very strong, very fast move in price. And so a move countertrend back towards the 5% level in price would not be unexpected.

We would not attempt to go short the bonds during this strong of a move, however. And we wouldn't short XAU, even though it's overbought at this point.

If anything, traders will probably be attempting to ride these trends on any pullbacks.

We closed at the lower 3.5% band on the DJIA. RSI 5 and STO 5 are very oversold, although not extremely oversold. 5 day rate of change is -4%. Extreme oversold is at -5% and lower. In a bearish trend, 5 day rate of change can be in the negative teens. Some positive divergences occured on today's low. A target near the previous lows on the DJIA would be logical to look for. After that, an oscillation between the lower target and the moving average and upper band might be looked for prior to a breakdown to new lows. Traditionally, the market has the worst price action in the middle or end of October, not the very start of the month. In spite of the oversold condition, we do not recommend long trades in OEX at this time.

Not much has changed from yesterday. CODI has made a pivot in the Buy Alert Zone. It might just provide a technical bounce. McOsc is just now beginning to roll over. Sometimes in stronger markets it bounces at the zero line which it is close to now. And sometimes it just plunges through. The McOsc 10% is a long way from generating a traditional buy signal. The longer term ADHL hasn't given up yet and remains on the intermediate term buy. Indexes have broken out of the recent regression channel to the down side establishing a new downleg and dictating the new modus operandi to not play the long side and to pick up puts on rallies until the McOsc hits an oversold level. After looking at the charts a viewer kind of gets the feeling that this could be the worst September/October in US stock market history. Cone projection oscillator is oversold...it can trend in oversold in bearish modes...sorry to be a spoil sport. Here are Thursday's and Friday's cone charts. The lack of any positive seasonality does not speak well of the market this month.

Here is the XAU CHART. Here is the XAU DAILY CHART. Here is the OEX FIB CHART. Here is the OEX PIVOT CHART. Here is the S and P 500 FUTURES FIB CHART. Here is the S and P 500 FUTURES PIV0T CHART. Here is the RSI AND STO CHART. Here is the SUPERT CHART. Here is the INDU CHART.

MomentumCycles Commentary for the open of Monday, October 5, 1998:

Looks like a belated monthly seasonality kicked in a couple of days late on Friday. The DOW Trusts and other index trusts created in recent years have been making the seasonality trade more difficult to time. ADHL remains on a Buy. CODI made another Buy Pivot. McOsc bounced at the zero line. Index prices appear to be headed back up to the underside of the regression channels where breadth should weaken and another shorting or put opportunity awaits. In the meantime, various technicals are in such a position that a multiday rally could ensue.

Important trend turn dates are October 7-8, October 14-15, October 29-30. Statistically, lows are often made mid- or end month of October.

XAU made a decisive breakout above the 78.53 area that had been three times tested resistance. The April '98 highs target 86 to 92. As the dollar drops, gold and silver stocks become more interesting. The dollar is vulnerable because the Fed's bias has turned to ease. Traders who bought on the breakout above 78.53 should be aware that the XAU is extremely overbought with stochastic 20 at 100. A pullback to the breakout point would not be unreasonable. It appears that the major trend, for now, is still up, with October having the reputation for a fear spike in the mid- or late month. The breakout above 78.53 must hold for the up trend to be valid.

Bonds have been forming a channel. They are extremely overbought. It would be logical to expect a move back towards the 5% area. So far, 4.9 has contained any selling. The major trend in price is up, and the major trend in yields is down. People will use any move back towards the 5% area to establish new long positions. If 5% holds, the uptrend must be termed to be valid. With a possible continuation of Friday's OEX rally, bonds may retrace a bit. Bonds, along with the XAU, is still a refuge for fear capital.

Here is the OEX FIB CHART. Here is the OEX PIVOT CHART. Here is the S and P 500 futures FIB CHART. Here is the S and P 500 FUTURES PIVOT CHART. Here is the INDU CHART. Here is another INDU CHART. Here is the OEXJS CHART. Here is the OEWJA CHART. Here is the RSI STO CHART. Here is the S and P 500 FUTURES CONE CHART. Here is the CONE CHART FOR FRIDAY. Here is the CONE CHART FOR MONDAY. Here is the ASTROCAST CHART.