Last Signal: 6/23/00, SELL
Dow: 10,404.75 OTC: 3845.61
The Ratio turned down after last week’s technical deterioration, giving a sell signal after working off the oversold condition of recent weeks. As pointed out along the way, the recovery was narrow, divergent and vulnerable to a failure and we did not trust it’s ability to sustain itself.
TUESDAY June 27, 2000: Our suspicion’s regarding the low volume and only modest improvement in daily breadth indicators during the recent rally attempt are apparently proving to be correct, as we do not see follow through buying in any particular issues or market sectors. While there is still plenty of bullish talk about the same old groups that were yesterdays favorite winners, such as the semi-conductors, energy, and biotech’s, there are few issues within these groups that remain near their recent highs.
Yesterday’s rally shows that the market has again lost its fear of the Fed, which begins their June meeting today. They are not expected to do anything this time, but we continue to believe they will act again as the momentum of the economy proves to be too resilient in the coming weeks. Contrary to the majority’s belief that they will refrain from further actions ahead of the presidential election, we think they will act if they think it is necessary. We also believe they will act again at their August meeting, before sitting back to see if the economy slows adequately. The big surprise will come if they actually tighten again as their meeting concludes tomorrow.
Technically, the rally shows growing signs of losing its momentum. Many of our volume indicators have turned down, and our 10 Day A/D Line indicator has turned bearish. The Transportation Average, which often leads the Dow has already broken support (completing a head and shoulders top) at 2680 - 60, renewing its bearish downtrend. The Dow has also broken our sighted initial support at 10,500, but has not yet tested key pivotal support at the 10,250 - 200 level. If this breaks, it will re-confirm the already bearish Dow Theory Sell signal that has remained in affect. Until then, the break in the Transports alone is a bearish non-confirmation.
Our Elliott Wave analysis indicates that the market has either entered cycle degree wave "iii of 3 of (3)", or it soon will. This is generally considered the most devastating part of a primary bear market phase. We call this the "recognition stage" as more and more investors begin to recognize that the bull has lost its grip and the reality of the bear market undeniably sets in. Of course, this is yet to be proven. We remain bearish against the resistance established at the most recent high near 10,860, with next higher resistance at 10,960, 11,100 and 11,425. If prices move beyond "ANY" of these levels, it will be critical to the bullish case to see it on expanding volume. Support at 10,450 - 500 was broken last Thursday before the recovery. An hourly close below the critical 10,200 -250 level should trigger a cascade of further selling, confirming that the trend has turned bearish and significantly increase the odds that the 9732 low will be tested and broken.
TREASURIES
Treasury yields broke back above 6.00% on Friday, so far testing and holding support at our sighted 6.05% level. Perhaps the markets are becoming less confident that the Fed is actually through tightening, but more immediately, the market weakness was attributed to new corporate supply fears. This week, the Tennessee Valley Authority is pricing a $1 billion, 30 year issue and Next week, Deutsche Telekom will price a $5 billion issue. The Treasuries announcement of a seventh buyback of $2 billion did little to help the selling. This will bring the total bought back so far to $13 billion plus of their $30 billion they are authorized to repurchase.
Once the current consolidation runs its course, we think the yield has a good chance of re-testing its April, 6.65% low and perhaps extending itself to our next objective at 5.50%, before completing what we consider the entire bear market rally. This would be a 61.8% Fibonnacci retracement of the entire rise from 4.69% (10/98) to the 6.75% high of this past January. If the yield drops to this level it will be time to pay close attention to the sentiment figures, which we would expect to have become very optimistic. Resistance is at 5.85%, 5.72% and at the 5.65% April low. Support is at 6.00 - .05%, 6.20 - .25%, 6.32% and 6.40%.
GOLD
The XAU & Gold continues to suffer from the Rodney Dangerfield syndrome. I am again puzzled by its lack of follow-through as it finds sellers on every attempt to recover. All we can say is that conditions remain "right" for a sharp recovery that should at least test resistance at $300 per ounce, and most likely much more. A few new bullish signs, Newmont Mining and Battle Mountain Gold announced their plan to merge. This is especially bullish because neither have large hedge programs that would limit their upside in the event of a gold rally, plus, this is a MAJOR consolidation of two major North American operations. Another anecdotally bullish factor, Silverado Gold Mining and Golden Star Resources had some decent insider buying reported last week. I see this as an especially good sign because these smaller companies have not shown insider interest for quite a long time.
The XAU still remains bullish against key support from the 4/13, 54.24 low. A break of this level would suggest a test of the 8/31/98, 48.73 all time low. A move above 64 is necessary to resolve the current "high pole at the bearish resistance" (HPBr) short term chart formation, as well as to break out above the downtrend line drawn from the 92.72, 9/99 high. This would be significantly bullish. We think it will happen eventually. Higher resistance is at 69, 72 -3, and then 82. We plan to watch the market walk before it can run.
PORTFOLIO CHANGES
TUESDAY
JUNE 27, 2000: None Today
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
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