MomentumCycles

MomentumCycles commentary for the open of Tuesday, September 7, 1999:

This weekend's recommended website of interest is . As you recall, MomentumCycles favors a seasonally weak September/October/November. The futuresfax site is following the 1929 and 1999 comparisons closely, and has a SPX put spread recommendation. The advantage of using SPX options is that the short side of the spread cannot be exercised against you prior to expiration since the SPX has European type rules, whereas the OEX has American rules. Basically Futuresfax is doing a top to top count.

Here is a quote from futuresfax.com front page.

"Commentary as of 9/04/99: August 25 remains as the high in the Dow Industrials and July 19 remains as the high in the S&P and the NASDAQ. In past market tops, the period of greatest volatility is often between 50 and 60 calendar days after the top. Tuesday, Sep 6 is the 13th calendar day since the Aug 25th top of the DOW and the 50th calendar day since the July 19 top of the S&P. If the age of the high gets above 40 we then need to consider the possibility of exteme volatility. If the age of the high gets past 50 calendar days you should be prepared for a possible market debacle between 50 and 60 calendar days after the top! The market bounce on Friday was a very strong bounce, but UNTIL THE S&P PUTS IN A NEW HIGH TO "RESET" THE CALENDAR DAY COUNT SINCE THE HIGH, WE MUST GO TO "HIGHEST ALERT" IN THE COMING WEEK. SINCE FRIDAY SEP 10 is the 54th day since the high and Monday Sep 13 is the 57th day since the S&P high. WE WOULD NEED A NEW HIGH IN THE S&P TO BRING US OUT OF THIS CRASH ALERT. Market history shows that often market tops are setup by non confirmations. In studying those tops, markets can have staggered periods of extreme volatility. A market debacle on Sep 13th would not necessarily be the end of the market decline. "After shocks" would be expected for several months including the then 50 to 60 calendar day count from the August 25 top of the Dow. So if we can't get a new high to break the chaos, expect returning panics over the next two months....also see and . Moore is showing the literal day by day comparison. WE NEED TO CONSIDER that the new high in the Dow may be a fake (non confirmed), and that the comparison to July 19, 1999 is still valid. IF IT IS, then the following comparison of the S&P index top of July 19, 1999 compared to the Dow top August 25, 1987 MAY BE SAYING THAT WE ARE PAST THE 40 DAY CORNER AND THE CRASH IS IN THE NEXT 2 WEEKS."

For the last few months, MomentumCycles has been belaboring the point that End of Day Cumulative Volume was in a major divergence from the DJIA and S&P strength. We took a week off from this view to trade the short term seasonally positive first week of the month. Friday's type of price action happens less than 3% of the time and never on back to back days. Those expecting such a follow through on Tuesday may be disappointed. There are three Fed governors speaking next week, Greenspan and Meyer on Wednesday, and Furgason on Thursday. Then there is the PPI on Friday. Official end of seasonality is on Wednesday but may be extended until Friday because of the holiday. The market essentially laughed in Greenspan's face with a dose of exuberance on Friday, but may just tread water again next week as September/October crash fears take hold again.

You have to ask yourself what the meaning is when Friday's NYA breadth jumps to the maximum of the day in 25 minutes and then spends the rest of the day at that level. Technically it means supply met demand, i.e., price and breadth went nowhere and ownership changed hands. It also may have been engineered to distribute stock above the 11,000 level and at 6% TYX yields. Various short term indicators look like they are coming off a five day cycle low and could hit resistance a few points higher. CODI will enter the Whipsaw zone on Tuesday after dropping out of the Buy Alert zone. A pivot trader would be inclined to look for a test of the lower Green Cone or the Pivot at 707 intraday before price resumed its advance. It could easily drop to 704 Red cone for about a 50% retracement. There are lots of gains to be taken after Friday. We want to focus on the longer term view in this update and have a few new charts to present. One is called the Risk Monitor and shows the DOW INDU correction patterns for 1997 and 1998 and 1999. It is our belief that before the autumn is over a tag of the 252 day average or the lower Bollinger Band will be made. They are both moving upward, so if it is any consolation the lows may be higher than 8046 and 9752. The correction is currently in progress and is being masked by the rallies failing to stick to the upper band as breadth divergences continue. If the NASDAQ makes a new high and the other indexes don't, then we have the perfect speculative exuberance setup for a crash ala Greenspan's concerns. Another chart of importance is the CPRatio as it shows divergences at previous and current corrections. Lack of bullishness in the Total CBOE Equity C/P ratio at tops is a potent indicator. A third new chart is Moneyflow as measured with price and volume. To make a sustained advance the INDU really does need money flow, and since April it has been a bumpy downhill slide. The Momentum Cycles on that chart is in the progress of doing its annual mean reversion. If you are an intermediate to long term investor, you may find a better entry in the months ahead.

The Equity CP Ratio will give us a divergence or non divergence next week between points E and F.MIV...when 90 day risk measures and 21 day risk measures are high then conditions are good for a sell.

We promised you a T bond price rally and a commensurate rally in FNM early in the week to mid-week last week,before the explosive T bond rally and FNM rally Friday. Lower band was 61-62.5 in FNM,seen several times early in the week and mid-week. Friday saw the upper band at 66.75. At 66.75, we'd sell longs for a quick 7% move. We got some nonconfirmations of price at 66.75. Take the quick 5 points at the upper band. Here is a chart of TYX and FNM.

We are still long HL,the XAU component,from near 2$.XAU is near the lower band.Stochastic 20 is at 30,after dropping from near 100.XAU rallies often set up from Stochastic 20 readings near 20.

Here are the other charts:

FRIDAY'S CONE CHART. TUESDAY'S CONE CHART. INDU CHART. INDU DAILY CHART. INDU FIBRET CHART. INDU WEEKLY CHART. KELTNER CHART. MCOSC CHART. MOSS CHART. HOURLY MOONTIDE CHART. NHNL CHART. OEX 30 MINUTE CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. OEZIA CHART. OEZIT CHART. SENTIMENT CHART. SUPERT CHART. VOLATILITY CHART. XAU CHART.

MomentumCycles commentary for the open of Wednesday, September 8, 1999:

This FNM AND T BOND CHART shows the final result of the long FNM trade that was suggested for early to midweek last week that culminated on Friday. On the weekend commentary we suggested taking short term long profits in both FNM and the correlation 30 year T bonds on the Tuesday open.FNM opened at 65.5l;close was 64.25,nailing down 4 to 6 points on a sample 100 share FNM long bought at 61.5-62.5.T bond day trade short open to close was open 60.28,high in yields 60.67,close 60.67.We'd close short term shorts in T bonds now.The correlation trade works best at the extreme of price at the outer trading bands-infrequent,but usually quite accurate.

Positive seasonality officially ends on the close of the fifth trading day of the month, 9/8/99. It remains to be seen if the Labor Day holiday shifts the seasonality. Credit has to be given when credit is due and the market is due some after Tuesday's performance. Price held up quite well. The NHNL chart shows the new highs and lows neck and neck and the 5 day up volume is kissing the down volume. McOsc is still positive.3 day breadth is still rising,although this is a slower method of trend measurement. If it were not for the Fed Governorss speaking on Wednesday this market would have soared today and maybe it will try again on Wednesday. Strong volume still is holding back. Perhaps it won't appear on the upside and we will see it on the downside first...just a guess of course. Cumulative volume rolled over on the hourly averages and produced a day trade for those so inclined. View here is short term positive until the beginning of month seasonality plays out-intermediate term the view is negative due to 4th quarter stress factors mentined previously.

On a 252 trading day year the Risk Monitor chart shows the DOW struggling to stay above the +1 std deviation band. A reversion to mean would put it at 10,000 and a full blown sell off would put it between 8 and 9,000. Best long term investments are made when the MIV in lower plot is at the lowest bands. This occurs once a year and has yet to occur in 1999.

We are long HL from near 2.Close was 2 3/8.XAU Stochastic 20 making its slow way to oversold readings,where rallies are born.Current reading is 25.We want the lower band of price and Stochastic 20 below 20,then crossing above.

CODI CHART. EODCV CHART. EQUITYCP CHART. INDU CHART. KELTNER CHART. MOSS CHART. NYA CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. RISK CHART. SUPERT CHART. VOLATILITY CHART.CONE

To quote from the MomentumCycles commentary for the open of Wednesday, September 8, 1999:

"This FNM AND T BOND CHART shows the final result of the long FNM trade that was suggested for early to midweek last week that culminated on Friday. On the weekend commentary we suggested taking short term long profits in both FNM and the correlation 30 year T bonds on the Tuesday open.FNM opened at 65.5l;close was 64.25,nailing down 4 to 6 points on a sample 100 share FNM long bought at 61.5-62.5.T bond day trade short open to close was open 60.28,high in yields 60.67,close 60.67.We'd close short term shorts in T bonds now.The correlation trade works best at the extreme of price at the outer trading bands-infrequent,but usually quite accurate."

MomentumCycles commentary for the open of Thursday, September 9, 1999:

This FNM AND T BOND CHART shows how well our advice {see above quote} to cover short T bonds worked on Wednesday's open,which was the exact yield high of the day.60.95 was seen for almost an hour near the open.Low in yields 60.32,close 60.61.We have studied the FNM/T bond correlation for quite some time now,and have found it useful for quick trades in T bonds,both long and short,in calling extremely short term duration trades,as well as longs and shorts in FNM {7% moves in the periodic predictable swings from lower to upper trading bands}.On to the OEX action...

How is indecision manifested in the market's action? How is price finalized after all the up and down whipsawing? The market winds up right in dead center neutral on a short term basis. OEX closed on the pivot for Thursday with 50/50 odds for either direction. Cone Projection oscillator ended on the 50% line. MOSS and AMOSS ended in neutral. McOsc issues remains in neutral. McOsc of volume on the EODCV chart remains in neutral. CODI is in the Whipsaw zone for another day and is wasting its Buy Trend in a consolidation of last Friday's move. BR_Momentum is within a day or two of peaking out. OEX RSI is wimping out as the OEX fights channel line resistance on the CODI chart.

One positive is that the 5 day advancing volume has managed to cross above the 5 day declining volume. New Highs - New Lows are still a bit on the oversold side. INDU is hanging tight on the 21 and 50 day moving averages right in the middle of a gently upsloping channel. MoneyFlow still has a problem. Bless Abby's heart for providing her 1999 SPX forecast of 1385. Her 2000 target is 1450. Those targets sound like a significant reduction in expectations from recent experience. It also sounds like we will have a continued trading range for buying support and selling resistance.

Sentiment chart is as neutral as the above indicators. Neither calls nor puts have a strong buy indication.

We are long HL,the XAU component,from near 2$.Close was 2 3/8.This is a long term call on the sector.HL has lost over 90% of its historical value.It wouldn't take much price action to break the endless downsloping trendline.

KELTNER CHART. NYA CHART. OEX DAILY CHART. OEX FIBRET CHART. OEX WEEKLY CHART. RISK CHART. SUPERT CHART. TYX CHART. VOLATILITY CHART.

MomentumCycles commentary for the open of Friday, September 10, 1999:

Indicators are either near overbought or neutral. CODI is now closer to Sell Alert and, in fact, has made a pivot at the Sell Alert edge of the Whipsaw zone. BR_Momentum is now on a Sell Alert line and Codi Market Thrust has made a downward pivot at its mid band. AMOSS and MOSS are as neutral as can be.

The PPI and CPI will guarantee that they won't remain neutral. Interest rates are creeping up again with punctuating sharp drops to higher lows. The 5 Day Advancing and Declining volume lines appear to be on the verge of reversing their crossover. MoneyFlow and Risk indicate a high risk situation with a better buying period ahead. Expiration week will do its choppy thing as usual.

We have an interesting situation on the Sentiment chart. The modified Hines Ratio, HRBBVS, is close to the "Buy Puts" level. Hines Ratio uses volume and open interest. Also the 3INDX is in a sell crossover. A confirmed sell would see the HRBBVS turn down and the BB_SMI crossover. The EquityCP is still rather neutral to down looking. The long term odds of being short are against put buyers so if you do hold them then expect violent moves against you. The open interest of puts always exceeds that of calls and puts an upward bias on the market. The insurance underwriters do not want to pay off. It is possible to make money buying puts but holding times will be measured in hours or a few days. There is always a pile of money waiting to come back in the market in a big way creating buying power. That is just the nature of the beast.

The late day rally on Thursday could be attributed to numerous things. If you noticed the rally took out any stops above the day's highs and it provided breathing room in case there is more selling on Friday. There is a big effort underway to provide 21 and 50 day moving average support on the INDU at 11,000 and other trendline support. Perhaps it was a relief rally that the market did not crash 55 days after the last high. Of course too many traders were watching it so there was no way it was going to oblige with so many onlookers. If and when it comes it will most likely start on Globex when most participants don't have a chance to escape with the shirts on their backs. CNBsee sends out a lot of misleading and conflicting signals. One day the dollar/yen is a serious problem. Another day it is ignored. Ignoring three year lows is like living in a state of denial as we must be reminded that a weak dollar, rising interest rates, rising inflation, overvaluation were inducements to the 1987 debacle. Now that the Japanese GDP is improving and the Yen is strenthening who could blame the Japanese for expatriating their yen from US bonds and stocks. And we can't ignore the influence of 20 to 30 dollar oil. Inflation is shaping up to accelerate into winter and spring.

XAU,unlike the previous 2 rally setups,only tagged the STOCHASTIC 20 line at 20 without going beneath it.The tag was followed by a pop up to 25.The best rally setups are a dive beneath the 20 level for 1 to 2 weeks and then a cross above on increasing volume until price tags the upper 14% band.Perhaps the recent tag is to be followed by another visit below the 20 level as is usual.In any event,we are still long component HL.Close was 2 7/16.If XAU reaches oversold again,we may pick up ABX again.

FNM tagged 61.5 Thursday,so the sell at 65-66 earlier in the week at the upper band was good timing.No buy was generated at the 61.5 tag by STOCHASTIC or other downside nonconfirmations.

Here are the charts:

CONE CHART. CYCLE CHART. INDU CHART. KELTNER CHART. MCOSC CHART. NHNL CHART. OEX DAILY CHART. CHART. OEX WEEKLY CHART. SUPERT CHART. TYX CHART. VOLATILITY CHART.