MomentumCycles

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Comments for market open of Thursday September 4, 1997:

The market managed a breath-catching day, preparing for the resumption of high volatility when Friday's employment report is released. The Dow's high reached the first resistance level of 7926 on an hourly basis. This is also very close to the level of the current 21 day moving average. The next resistance level, after this is overcome, will be 8022 - 8080, which is the 66% retracement level from the recent bottom. As foreign markets, especially the Hang Seng index, rebounded smartly again today, the continuing rise of the U.S. Dollar will be a necessity to keep the U.S. rally going. There will be less interest by foreign investors in U.S. equities as a "safe haven," if overseas equity markets regain their balance. The short term hourly RSI (3 period), while nearing the fully overbought level, is still rising sharply. This is also true of intermediate term RSI and stochastics. The daily MACD of the DJIA moved above its moving average for the first time since the August high. Standard measures of daily momentum finally began to rise from the flat negative pattern referred to in yesterday's comments. Perhaps the most significant indication that the rally will continue, *and intensify*, is the still oversold reading of the 10 open TRIN. At 1.07, it is at its highest level since the decline began. Normally, 1.05 indicates a very oversold condition for the market. The Dow Transportation average is nearing its all time high. It also has a better developed W bullish pattern than most other indices. It has been the leader for U.S. markets for a long time. How long? Effectively it has initiated rally action in U.S. markets since the 1970's. One analyst noted the effect of 3% rallies in equity prices during the last ten years, especially following major corrections. His expectation was another 3% rise within the next two weeks. Virtually, the last hurdles to overcome, are the typically weak Thursday and Friday markets, seen throughout this summer. With the example of yesterday's action, and the usual "wild" activity of employment report Fridays, another 3 percent gain could come much sooner than mid-September.The next short term turn day according to the Bradley is September 5- other cycles we study instead show a possible short term turn September 8.One would want to monitor the overbought- oversold, vix, etc. during these days carefully.

Intraday update Friday September 5. The previous chart shows divergences that make yesterday"s profit taking look wise.Traders took additional profits on today's open for more than a double in the remainder of the position. VIX Update for the close of September 4, 1997:

There hasn't been much followthrough since the buying panic on Tuesday. Issue and volume breadth oscillators have both made it back to the neutral zone(McOsc). CODI is still working on its buy signal. It needs to continue to drop to keep it in force. Price is where the proof, or lack of, really counts and that looks more like a count down than up. Just maybe the accumulation of stock by the pros last week is being distributed this week as was alluded to in last week's commentary. Remember we are watching for daily price range vs volume as a clue to the resolution coming out of the beginning of month seasonality. VIX is remaining at high levels for an unusually long time and thus is clouding the signals. Yesterday it was advised to take some profits on Thursday's open because the MVI had crossed below the +1.618 band and the 5 day component of the AMOSS was in overbought zone 5 close to a short term reversal. The 20 day is still in neutral and the 90 is in extremely overbought. It is again adviseable to peel off some profits on any significant rallies over the coming two days.So far the 66% retracement from the bottom has held.A close above 8080 would bring short covering from bears who closely monitor this level.There is resistance at the round number 8000-8020 area also.Cycle dates indicate a possible short term turn September 5 or 8.

Comments for market close of Thursday September 04, 1997:

It seems the market reaches a crossroad each month, just before the monthly employment report. Tonight's "intersection" is no exception. After two days of more or less languishing price action, following Tuesday's big gain, the reaction to tomorrow's numbers could send equity prices skyward once more, or careening down toward support, nearly 300 DJIA points and 30+ SP points lower. On the positive side, the 10 day open trin at 1.03 is still at oversold levels. The McClellan oscillator continued to gain more positive ground albeit by 1 point only. As mentioned in prior comments, there is a tendency for a huge move in the market within 1 - 4 days of low breadth volatility. Normally, the previous recent trend of the oscillator is considered the most likely direction for this move, hence an additional .5 positive factor. Daily momentum measure of the DJIA continues to rise as does MACD. The short term daily RSI will reach its overbought level with one more triple digit gain in the DJIA. The broader market averages were positive almost all day today, even though the DOW itself, was off more than 60 points during the trading session. The close of -27 was almost half due to just one stock, Caterpillar, which had been receiving good support for many weeks. The CRB finally showed some weakness today at the resistance level previously mentioned. If the Dollar or T-bonds, or both, can resume their respective recent rallies, in consequence of tomorrow's employment numbers, the boost to equities should be of **a magnitude paralleling Tuesday's rise.** If not, a better long trading opportunity would derive from the previous support at the DJIA 7600 level, so long as the much tested double bottom holds. The broad picture therefore possibly allows for one more summer rocket launch before fall levels the price playing field.Traders who have mostly taken profits from last Thursday's and Friday's buy signals made approximately a double in one week- enjoy!

Intraday update Friday September 5. The previous chart shows divergences that make yesterday"s profit taking look wise.Traders took additional profits on today's open for more than a double in the remainder of the position. VIX Update for the close of September 4, 1997:

There hasn't been much followthrough since the buying panic on Tuesday. Issue and volume breadth oscillators have both made it back to the neutral zone(McOsc). CODI is still working on its buy signal. It needs to continue to drop to keep it in force. Price is where the proof, or lack of, really counts and that looks more like a count down than up. Just maybe the accumulation of stock by the pros last week is being distributed this week as was alluded to in last week's commentary. Remember we are watching for daily price range vs volume as a clue to the resolution coming out of the beginning of month seasonality. VIX is remaining at high levels for an unusually long time and thus is clouding the signals. Yesterday it was advised to take some profits on Thursday's open because the MVI had crossed below the +1.618 band and the 5 day component of the AMOSS was in overbought zone 5 close to a short term reversal. The 20 day is still in neutral and the 90 is in extremely overbought. It is again adviseable to peel off some profits on any significant rallies over the coming two days.So far the 66% retracement from the bottom has held.A close above 8080 would bring short covering from bears who closely monitor this level.There is resistance at the round number 8000-8020 area also.Cycle dates indicate a possible short term turn September 5 or 8.

Comments for market close of Thursday September 04, 1997:

It seems the market reaches a crossroad each month, just before the monthly employment report. Tonight's "intersection" is no exception. After two days of more or less languishing price action, following Tuesday's big gain, the reaction to tomorrow's numbers could send equity prices skyward once more, or careening down toward support, nearly 300 DJIA points and 30+ SP points lower. On the positive side, the 10 day open trin at 1.03 is still at oversold levels. The McClellan oscillator continued to gain more positive ground albeit by 1 point only. As mentioned in prior comments, there is a tendency for a huge move in the market within 1 - 4 days of low breadth volatility. Normally, the previous recent trend of the oscillator is considered the most likely direction for this move, hence an additional .5 positive factor. Daily momentum measure of the DJIA continues to rise as does MACD. The short term daily RSI will reach its overbought level with one more triple digit gain in the DJIA. The broader market averages were positive almost all day today, even though the DOW itself, was off more than 60 points during the trading session. The close of -27 was almost half due to just one stock, Caterpillar, which had been receiving good support for many weeks. The CRB finally showed some weakness today at the resistance level previously mentioned. If the Dollar or T-bonds, or both, can resume their respective recent rallies, in consequence of tomorrow's employment numbers, the boost to equities should be of **a magnitude paralleling Tuesday's rise.** If not, a better long trading opportunity would derive from the previous support at the DJIA 7600 level, so long as the much tested double bottom holds. The broad picture therefore possibly allows for one more summer rocket launch before fall levels the price playing field.Traders who have mostly taken profits from last Thursday's and Friday's buy signals made approximately a double in one week- enjoy!

Comments for Monday September 8, 97:

Cycle probabilities intersect for many markets this Monday marking a turning point.These include yen,mark,gold, and the S&P.As seen in the above chart, the range of the S&P and the Dow have compressed in time and price, marking a potentially important breakout, either to the upside, or , in a completion of the head and shoulders breakdown, a fall to 6900.Charts in Investors Daily on the futures page{the way we compute probable turn dates} show similar inflection points to the upside or downside for the other markets mentioned above; take a look.A breakout to the upside for the S&P would first require a close above 8020 for three days, next projecting 8259, and ,if 8259 was exceeded, 8996 on about March 23 of 1998,connecting the highs and lows.Moves are getting quicker; the market alternates trading ranges with trending markets, confusing everyone, then powerfully defines trend in a breathtaking vertical move either up or down.Save the above chart!No one knows whether 6900 or 8996 is coming next, but it is clear a breakout in either direction will soon define trend.Our short term projections catch turning points at the extremes of momentum and price; we try very hard to nail down profits.Traders therefore scaled out of long positions Thursday and Friday for a double in OEX calls in one week.An important bond turn may occur the very end of the month; therefore a gold turn is due about the same time, or a few days later.Save this commentary!

VIX Update for the open, Monday September 8,1997:

OEX options are truly a momentum play. When trading them from the long side as psuedo futures you have to expect the index to move far enough and fast enough to counter the decay effects of time and volatility collapse. The odds of success are increased by entering in a contrary fashion and at extremes of price and volatility distribution on a short term basis and holding for short periods. The AMOSS five day component, the VIX Z score, the MVI, the McOsc, and the CODI(change of direction indicator) are tools used to pick off the entry and exit points. By definition, the VIX represents implied volatility of the OEX, and in that sense can be used in indicators that have a forward looking bias. As of the close on 9/5 we are presented with a neutral view. The AMOSS 5 and 20 day components are virtually dead neutral while the 90 day has been flat in zone 6 Extremely Overbought. The McOscs of issue and volume are stalled out in their neutral region and the negative here is that volume is not confirming the breadth in a convincing way. Coming off a bottom in a truly powerful fashion the volume oscillator should power up through the issue oscillator. On Monday watch for a reading more negative than -662 NYSE advancing issues - declining issues. That will put the McOsc issues back below the zero line. The gut level feel here is that very long term momentum cycles are dominating market psychology. There is a nesting of cycle lows coming in like an ocean tide that is virtually impossible to swim against. The MVI compensates somewhat for the AMOSS neutral reading and hinted on Wed that profits should be taken on Thursday's open. The MVI channel has a slight upward slope, but the MVI indicator ran into resistance at 1.618 std dev, a common resistance point. The CODI had a window of buying opportunity the week before last and has now moved into the indeterminate region between the green and magenta lines. Ideally we should wait for extreme readings in one or more indicators before comitting capital to calls or puts. Entering in the neutral region is better facilitated by straddles or combinations.

VIX update for the close of September 8, 1997:

Most of the indicators are giving a neutral reading except for the Modified Volatility Index(MVI). The standard MVI gave a sell on 9/4 and the MVI adaptive gave one on 9/5. OEX price is working within a trading range while the issue and volume oscillators(McOsc)are stalling out in or near their neutral region of +,- 50. So far volume is lacking to power price upward. The AMOSS components have migrated more towards the centroid of distribution except for the 90 day component that is remaining unchanged in the extremely overbought zone. Facilitation is the keyword and price will be taken there by buyers and sellers. This may sound conspiratorial, but there is a gigantic industry that relies on transactions taking place. Markets will move where price is facilitated. CODI is neutral.

Comments for market close of Monday September 8, 1997:

With a whopping 66 point gain, the Dow Transportation average is signaling a continuation of the current rally. This has been evident for the last two weeks, with the lesser capitalized stocks, comprising the Russell 2000 index, making new all-time highs for nine days in a row. The Nasdaq also made a new closing high today. The Nasdaq's new high was made in spite of it's two biggest components, Intel and Microsoft, still several points from their respective all-time highs. The only 'end of summer rocket' yet to complete its launch, is the DJIA itself. The current daily pattern of the Dow looks to be as potentially bullish as possible. Tomorrow September 9, is 'Mini Bang' day, the start of the CME's mini SP500 futures contract. It is likely that many 'smaller' speculators are chomping at the bit. Long have they waited for a 'cheaper' venue to short the overpriced equity market, than the expensive SP or OEX put options. This is another positive factor which could lead the DOW, and the broader SP indices, to join other averages in runaway new high territory. The daily momentum of the DJIA continues to rise. The McClellan oscillator is now advancing rapidly, reflecting the increasingly positive breadth on the NYSE, beyond the DOW. At today's close, short term daily and hourly levels of the DJIA RSI are quite oversold. The 10 day open trin has risen to 1.12, its highest recent level. This, more than any other factor, indicates a high probability of the resumption of last Tuesday's spectacular rally. The only possible negative to a further rally scenario, would be a reversal of the T-bond rally, still in place. However, since the CRB also declined again today, from its previously identified resistance level, T-bonds should continue to make further advances. If a daily rise in bonds of 1 point or more occurs in the next few days, the DJIA rocket *will* blast off again.

Comments for market close of Tuesday September 9, 1997:

Stymied by continuing weakness in T-bonds, and a late trading day selloff in IBM, the DJIA struggled to hold any part of the 100 point rally it made, from the first hour's low to an after lunch high. The Dow saw a net gain at one time of 60+ points. Other sectors fared much better. These included the NASDAQ, which finished at a new all-time high, and major oils such as ARCO, CHEVRON, and PHILLIPS PETROLEUM, all of which also closed at new highs. One possibly overlooked segment, recently, might be the DJ utility index. It had consolidated in a trading range for eight weeks, before making a strong move above that range one week ago. Now it has continued another consolidation pattern since then. This type of action, labeled a 'piggyback' pattern by some, is frequently the most wildly bullish price model seen on any chart. What does this imply? No substantial rise in interest rates in the near future. As mentioned here frequently, a continuing rally in T-bonds, hence lower interest rates, is the single most important factor to fuel the current rally. This would also indicate the next inflation reports, due Friday and next Tuesday, will be 'friendly' to both bond and equity markets. The McClellan oscillator, still rising in positive territory, made another small move, portending a large price breakout again, very soon. Daily momentum continues to rise, now also edging into positive ground. With virtually no significant economic reports before Friday's PPI, marking time is likely to be the order of the next two day's trading.

VIX update for the close of 9/9/97:

Markets that can't hold their gains are sending a signal. Yesterday's VIX posture was neutral on a closing basis and it is still neutral today. At least there is trend in the VIX Z score. On the AMOSS chart we want to see the VIX Z score drop down to between -1 and -2 and turn up for a tradeable sell signal on a closing basis to provide something more than an intraday scalp. Usually the OEX is in rally mode when this indicator trends down, but what we are seeing are rallies that don't hold. Issue and volume breadth are still neutral as far as the McOsc technique presents them on a closing basis. Something should be pointed out here in regards to end of day versus intraday numbers. End of day numbers are subject to manipulation, rather distortion of market truth. For example take a look at the hourly TICK chart and the TICK VOL and TDAC indicators below it. TICK VOL peaked on 9/2 and TDAC on 9/3. These are both in downtrends. The smokescreen presented to end of day viewers watching the evening news is that the DOW was up in the mid teens after a powerful rally. This kind of nonconfrimation is what leads to significant downdrafts in price. It could come within a few more days. MVI are still on sells and CODI is indeterminate.

>Aren't you glad you sold those calls for a double last week after today's action!! To quote the last 2 day's comments "No clear breakout above S&P 500 futures 945 has been seen yet, or above 8020,and the recent lows in the congestion area are holding.The general market is stronger than the Dow, as pointed out by the"RSI master's " comments at the bottom.The "VIX master's" shorter term view doesn't see the present price as a "cheap buy" where low risk OEX calls can be bought for a double, as was the case last week.Cycle analyst viewed the September 8 area as a high probability area for a breakout from the congestion area; at this point unless something dramatic happens Wednesday,no clear S&P trend is proven.Price could still be taken to extreme overbought, yet it is the end of monthly seasonality, and September seasonality is often bearish after the first 5-6 days.So no clear short term trade can be seen this Wednesday, since we are neither extremely overbought or oversold."Sometimes our 3 methods disagree , although it's quite rare.At these points we discuss by e-mail the various indicators and often come to a consensus.When no clear consensus is achieved ,no trade is recommended.

VIX update for the close of 9/10/97:

The hourly tick difference accumulator continues its downtrend that was started last week. This divergence from price finally took its toll with a hundred point drop in the DOW. As might be expected the CODI turned up and the MVI generated a second sell signal. Not surprisingly the McOsc issue and volume oscillators tracked price downward. The VIX Z score turned up and crossed the 5 and 20 day AMOSS components generating a sell signal. Unless there is positive news on Thursday it looks like there will be follow through on the downside. A word on use of timing indicators is warranted. There is no Holy Grail Indicator. The market never repeats itself exactly the same way twice, but there are similarities. So when using indicators based on price, volatility, breadth,and time, certain things are lookd for. Since there are various degrees of overboughtness/oversoldness, statistical zones are expected to provide change of trends. Rather than expecting a certain level to be crossed it is best to expect the event to occur in a zone and be prepared for it with a battery of indicators. Some indicators will generate signals before others so it is best to scale into and out of positions rather than going for broke with one trade. As an example here, the MVI has been on a sell since last week and due to the unusual volatility levels the AMOSS was late in getting on board. Other times the AMOSS will lead.

RSI master's comments for market close of Wednesday September 10, 1997:

Again, continuing bond weakness, and more potential 'blue' news concerning 'Big Blue,' IBM, torpedoed the developing market rally today. The DJIA closed below recent support. The next support level{ 7580 set on Aug. 29} is about 100 points lower than today's interday low. It's a tenet of classic Dow theory that the market is 'troubled,' and likely to head lower, when one of the major averages, DJIA, or Dow transports, fails to confirm the bullish movement of its counterpart. Usually this warning involves the transports failing to confirm the DJIA. Before today's final hour retreat, the transport average seem headed to a new all-time high. Even though the Dow utility average fell 1+ point, it still continues to develop the very bullish 'piggyback' price pattern mentioned here yesterday. These two Dow averages still show positive price behavior along with previous strength in other averages, Russell 2K and Nasdaq. It is much less likely that the current divergence between these, and the DJIA, will lead to a major break in the market as a whole. What the DJIA needs to resume its advance, is further strength in bonds, and a halt to the current decline in the U.S. dollar, which began concurrently with the market high of August 7th. The McClellan oscillator declined sharply today, for the first time since it was lower than -100, at the recent market low. Now, it seems headed to test the uptrend line, begun then, at, or about the 0 level. Six period daily stochastic reading of the DJIA is at a fully oversold level also. Daily RSI will give very bullish divergent readings if the Dow decline is reversed within the next two trading days. The Macd and daily momentum of the DJIA are also bullishly diverging from today's severe price weakness.

Cycle comments: as discussed for 2 weeks, September 8 was a short term turn day.September has statistically been weak, especially after the end of money flows ending on the 5th or 6th trading day of the month.The market has chart similarities to other years ending in 7; notably the chart of 1987; including the failed w shape retracement rally that failed below the 66% retracement level of 8020 .Although internals are different this time,including valuations , interest rates , and nonconfirmations,one must be alert for the possibility that cycle similarities may be operative in here.One similarity is the start of today's decline with Wednesday's option premium ratio of.84.Although readings in range .83 to .85 are not uniformly bearish, severe corrections often start in this range.Obviously for longer term investors,the most bearish sign would be a broken double bottom; for longs,a break implies perhaps 6900.A rally resumtion that closes cleanly above 945 S&P futures and Dow 8020 for 3 days reduces these similarities.A close above 8259 for 3 days projects 8996 on March 23 ,1998, as a target for the next top.

VIX update for close of 9/11/97:

Traders at this address,unlike many others the past week, needed no aspirin for losses from deteriorating long positions the past few days, having closed long calls for a double or more last Friday.The bottom has now been tested 3 times and held again so far. Head and shoulders necklines don't give up easily. The DOW penetrated its neckline but did not relinquish its head today. Issue and volume breadth deteriorated and left the issue oscillator below the zero line. Some would call this an intermediate(19 day) sell signal. Experience has shown that the issue oscillator may cross the zero line four times while remaining in the neutral region before plunging or rallying to extreme levels. In essence caution is urged not to take the first downward issue breadth crossing as a sell signal. To add a little bit of hope on the breadth front is the performance of the TDAC hourly chart. A close look shows the three components bottomed and turned up today. On Friday look for higher NYSE TICK levels to verify a short term bottom is in place. Tomorrow is a big report day so who knows what will happen. Also the Friday close in a pre-expiration week has high odds of seeing some buying on the close. These longs get dumped on the first profitable day of expiration week. On the VIX front there was a subtle buy signal generated after the panic subsided. We have a closing vix below Thursday's average(not shown) of O+H+L+C. This means the fear or concern about the market on the close was mitigated and the intraday reversal may be for real for a few days. It all depends on the reports tomorrow. The MVIs are both on sells or in oversold areas. On another bright note the CODI(change of direction indicator) is now back on a buy alert. What we need to see tomorrow to turn it into a buy signal is a declining TRIN. Look for TRIN to be running below 1.0 most of the day. If it is, then most of the selling we have been seeing may be over short term. Confused? Day traders were short on the open and went long intraday and exited on the close. Intermediate term traders that use end of day data are best advised to wait until the reports are out tomorrow and the indicators are more favorable.

Comments for market open of September 12, 1997:

No sooner had the market finished weathering another day of wild activity, when new storm warnings appeared, immediately after the close of trading Thursday. Motorola was slashed several more points in after-hours action, when it noted a probable shortfall from earlier earnings estimates, due to pager inventory and other problems. Before the opening Thursday, the CNBC floor reporter mentioned a survey he had taken of several market makers at the exchange. All said there were sizable buy orders waiting at lower prices. As if to underscore that possibility, the DJIA seem to turn on a dime when it reached the previous support point of 7580, referred to here, yesterday. The reversal seemed not to be so coincidental either. As if to ring a bell at that moment, the SP500 futures regained several points in the blink of an eye. The premium, which had been in sell territory, quickly regained enough ground to be back to at least fair value, if not buy mode. Later, about 1:45 edt, the tick figure became positive, after being as low as -1100. Though the T-bonds also recouped some loss, they still fell late in the session. Part of that weakness today, might be attributed to the pesky CRB rise. Again it is the T-bond, and current U.S. dollar weakness, that is keeping a lid on large cap issues, which are predominantly featured in both the DJIA and the SP500. Note that the Nasdaq, and Dow transports managed small gains on the day. Many smaller companies such as DATA DOC., PILLOWTEX, and IMMUNEX scored spectacular gains, due to either takeovers or product announcements. This again emphasizes the dichotomy in the current equity market. However, the vast majority of pension and mutual fund money is earmarked for large cap issues. What cash has been sidelined rushes in to those issues perceived to be not so vulnerable to the dollar woes, or hostage to overseas markets and foreign business conditions. Since the effect of Motorola's problems and the upcoming inflation reports{ such as the PPI tomorrow} are still to be factored into the trading equation, daily and hourly readings, of RSI and momentum, may quickly sink again to the low levels reached early in today's trading. It is still difficult to imagine a collapse of all market prices, with the broadest sectors indicating such thoroughly oversold conditions.Our best estimate of a short term turn day near term is September 16. The last one we projected here 2 weeks ago {September 8} was correctly identified as a high conincident with the vix sell from last Friday. From September 4 comments" The next short term turn day according to the Bradley is September 5- other cycles we study instead show a possible short term turn September 8.One would want to monitor the overbought- oversold, vix, etc. during these days carefully."Watch that well tested triple bottom carefully on the above dow chart.

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