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REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL
2000-MAY
2001 |
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Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
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July 17, 2001 |
| STOCKS |
| REALITY RATIO: +0.194
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Last Signal: 06/29/01, TRADING BUY
Dow: 10,499.72 OTC: 2159.60
The Reality Ratio line turned back up to a "higher high", and last week s strong close also helped to turn up the ratio s moving averages keeping it on a trading buy. The volatility sure has many questioning how this can be the case, but when we look at the sum of all of our many indicators, it does not appear to be warning that the markets will be as bad as it feels when looking at the daily tape. Similar to last Friday when the markets were taken completely by surprise by GE and MSFT s better than expected news, we hope the ratio is telling us that more of the coming surprises will be on the upside as expectations seem to be very low! If our indicators change, we will attempt to remain flexible enough to change with them. It s becoming a close call.
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TUESDAY, July 17, 2001: If the chip and chip equipment sectors represented the entire market, we d ALL be in some deep trouble. The food lines would be growing long, and many would be on street corners selling pencils and apples! Isn t this how the gloom feels? The market s don t seem to be able to get beyond this one sector while giving NO credit to other less problematic areas. We think the related analyst community is partly to blame as they had remained so smugly bullish to have even reflected a year ago that the spectrum of highly cyclical tech stocks were no longer vulnerable to an economic slowdown. The markets are still heavily relying on these same fools to tell them when the sub-groups will be poised to turn higher. Unfortunately, while it may not yet be time, by the time they declare that an upturn is foreseeable, the turn in stock prices will likely have already past.
Yesterday s chip related selloff was not to be completely unexpected as a pullback from last week s strong finish was due. We hope that follow-through selling will soon find renewed buying interest. From what we can tell, we do NOT think the rally that started last week was an insignificant bounce, but something more meaningful. If this is the case, it should have been the start of the summer rally and that should lead to higher prices for more than two good days. So far, the recent volume measures we use have remained stronger on up days than on down days and unless this changes, the odds continue to favor an upside resolution.
Continued worries over corporate earnings and their future visibility, the economy, Argentina s (likely) debt default and the risk of it spreading into a new international contango, an overly robust US Dollar that is hurting the profitability of US multi-nationals, over-extreme bullish investor sentiment, and a weakening EU are ALL great reasons for concern, and create one heck of a wall of worry for the markets to scale. With these many things already recognized by the markets, there should be effort made to overcome them as they are reflected in prices.
Support begins near 10,400, with more near 10,300 and then at Wednesday s more critical 10,120 low. Longer term support is at 10,000, 9880, 9650, 9375m and at the 3/22, 9106 spike low. Resistance begins near 10,640. A push above this would confirm the short term low, with further resistance near 10,760 - 10,785, 11,000, 11,180, and the stiff longer term Dow resistance from the 5/22, 11,350 high. A push above this would confirm the beginning of the next leg of advance and greatly increase the odds that the 11,750 high will be tested, but even a push above 11,000 would be very encouraging.
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TREASURIES
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Treasury yields continue to bounce, mostly over the ongoing concern related to the Argentina debt implosion that has their sovereign debt rating down to junk status. We continue to see two distinct wave possibilities. The first is for a bounce only with no new NET progress below the 6/25, 5.567% low. This would likely be a minor wave "2" consolidation, still well within the larger degree wave (3) bear market. This level was approached yesterday, with the yield closing at 5.58%. Any move beyond the 6/25 low would indicate that a more complex double zigzag rally was developing, still allowing for further progress where it would remain unlikely to go beyond the 5.40% bearish reversal point from late March.
At the 5.567% low, the Treasury yield retraced an exact Fibonnacci 50% from the 5.217%, 4/22 low to the 5/15, 5.90% high, at the recent 5.567% low. This is a typical retracement in a bear market. Next lower resistance is at 5.50 - .45% and then at the 5.40% key level ( with the Fib. .786 resistance at 5.363%). An upturn above the last high at 5.90% would confirm the larger degree wave (3) bear market was well underway, making higher support at the 5.975-6.025% the next upside target for the bear. |
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GOLD
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Gold & the XAU haven t managed to do much of anything. BOTH sides of the trade seem pretty complacent, with the bulls thinking the next move is up and the bears comfortable thinking further losses will continue. Meanwhile, prices aren t doing much of anything since they fell back into early July. We think the markets are looking for a new event from which they can trade. Perhaps this will be a spreading debacle in Latin America, but so far, the gold markets haven t even taken note of those particular risks.
XAU support remains just above 51. Looking at our longer term Point & Figure (P&F) charts, both the XAU and cash gold remain on bearish "High Pole at the Bearish Resistance" chart formations, indicating that prices ultimately have further to drop. The current effort to rally should serve to relieve their recent oversold conditions. Unless these bearish chart formations find bullish resolution, we cannot get too optimistic on gold in the near term.
Our next bullish signal will occur if the XAU can move to 57 where it would be a "low pole" buy alert on the shorter term 1X 3 Point & Figure (P&F) Chart. A push straight up to 61 would confirm the lower initial signal and bullishly resolve the longer term chart, but these numbers are still a long way off. For gold itself, long term support near $254 remains vulnerable to the next challenge for the bears. Support for the XAU remains near 51, at the key 2/14, 45.64 low, and then at the even more critical 7/14/00, 41.61 low.
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PORTFOLIO CHANGES |
Tuesday, July 17, 2001: --none today--
[Part of our offensive is to have a good defense! That means limiting losses and protecting gains]! |
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
The Reality Check Newsletter, and reprinted here with permission.
Market Trend Realities (MTR) is a Registered Investment Advisory which manages personal, corporate, Trust, and retirement accounts on a fee only basis. Several low cost, flexible management fee arrangements are available. Investment Advisor, Mitch Harris has studied the Point & Figure Charting Method under the direct supervision of Michael Burke, Editor of the prestigious Investors Intelligence research organization. Management is based on a unique combination of technical analysis methods and tools which include, The Point & Figure charting method, Elliott Wave Analysis & techniques, industry group analysis, cycle analysis, Relative Strength Analysis, Stochastics, and investor sentiment studies. MTR offers a very uniquely structured managed mutual fund program using the RYDEX family of mutual funds, which offer outperformance potential whether equity markets are rising OR falling! Inquiries are welcome by calling us at
(513) 421-8737,
Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
MTR also publishes a monthly investment newsletter called "Reality Check", which offers technical commentary on the stock & bond markets, the Dollar Index, gold & gold stocks (XAU), Treasury yields, utilities, investor sentiment, and Federal Reserve policy. It also offers stock trading recommendations each month with price targets, stop loss points and insider activity. There are 4 trading portfolios, including a short selling account (we are very proud that our short sale recommendations have averaged 12.5% "compounded" during the roaring bull market of the last 5 years). Short term market commentaries are updated on Tuesday and Friday mornings, along with portfolio changes on this web page. They are also emailed for free to anyone who provides us with their email address. The regular subscription rate is $200 (US) per year. Samples are available upon request. MTR will be happy to send information on any of the above mentioned services. Please email us your home or business address along with your daytime phone number and specify your interest(s). |
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