Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
Our ratio indicator followed through, declining further toward an oversold reading, but it has further to go, keeping the short term trend clearly bearish. We continue to view any attempted rallies to be opportunities for selling in the very near future.
TUESDAY, September 26, 2000: We are now seeing portfolio managers scrambling to dump anything that resembles a falling stock ahead of this week’s last day of the quarter and Rosh Hashanah holiday that begins this Friday evening.. As they say, “sell Rosh Hashanah and buy Yom Kipper”. The expected recovery remained fragmented and short lived over the past few days as bounces have been over run with more selling. The markets seem most worried over the poor Q3 earnings prospects that will begin shortly, but they have not stopped fretting over the high energy prices or the strong dollar either. We think the damage from oil and the dollar’s strength may already be done and discounted by the market, as both had major buying climaxes by moving to 52 weeks before closing lower for the week, as they have quickly plunged sharply from their highs. Marking their highs, President Clinton authorized the release of 30 million barrels from the Strategic Oil Reserve to relieve the pressure of the demand shortfall, and the major central banks of the world joined together, intervening to buy euros for dollars. Both actions may mark the turning points in each that we had been looking for. It should not take much follow-through selling in the dollar to turn foreign investment inflows into the US into foreign capital outflows, another very serious risk of our dependence on their funding of our huge record trade deficit. When their inflows dry up, our inflation rate will go up as cheap foreign goods will no longer make up the difference between what we can produce for our own consumption and what we buy from abroad to make up the additional consumer demand.
Intel’s surprising shortfall was just more evidence that the strong dollar policy is not so great for the US as Treasury Secretary Larry Summers reiterated again publicly, but of course it’s not what they say but what they do, and Larry lead the way in buying euro’s to help prop it up against the greenback. This came early on the 22nd, just as he had claimed that the US had no intention of taking part in an intervention to support the euro, on the very evening before.
As stated on Friday, our technical indicators continue to support the view that the market is due a better and longer bounce than what we had so far. The market’s inability to do so has not changed this, making a bounce likely to emerge soon, perhaps after the end of quarter portfolio window dressing runs its course. The McClellan Oscillator remains very oversold reached a very oversold, as does 14 day Stochastics, and many others. Our 10 day A/D Line Indicator turned bearish last Monday, confirming the overall bearish short term breadth, and Cumulative volume is also below its 10 day moving average, confirming that momentum remains bearish also.
The Dow rallied in 3 minor waves from last Wednesday’s low to yesterday’s opening high. It is difficult to know whether this ended the “minor” wave 3 bounce within the larger 1st wave decline, was a minor wave “a” within a larger corrective rally that will continue a bit longer, or the beginning of the next larger leg of decline, where we are entering the devastating cycle degree wave (3) decline. The first two options allow for more time for the markets to bounce, where the third would likely bring prices much lower very quickly. We should be able to determine the proper wave structure in the next few days. A minor “5th” would quickly take the Dow below its low of 10,567.32 from last Wednesday but would be short lived, ahead of the “better” bounce that we had been expecting. This remains what we consider to be the most likely of the three possibilities above. A decline below what we have been calling critical support of between 10,500 and the 10,464, 7/28 low would open the door for the less likely option that the larger decline was underway. It would also reconfirm the Dow Theory sell signal that is already in force, as the Transports have already broken below their key support near 2620. Lower support for the Dow is at 10,220 and then at the 9732 low that was reached in March. Initial resistance is up to yesterday’s high at 10,897, 11,020, 11,220 and at the most recent 11,401 high. It will now take a close above this to establish a bullish trend and that is a long way off. For the NASDAQ, initial resistance remains at 3800, with more at 3910 and 3980. Support was lowered to Friday’s opening low at 3614.66, with next support at 3530, 3400 - 3350, and then at 3050.
TREASURIES
Treasury yields have benefited marginally in the last few days, rebounding from Thursday’s high of 5.976% to 5.89% yesterday. While we have turned much less optimistic that yields will move sustainably lower, we do think they can retrace a bit more of their recent losses, so we recommend selling bonds into any short term strength. They may still be the beneficiary of further turmoil for equities, but this will not likely be enough to save the bulls. The main fear for bonds is that the economy slows too much, lowering future Treasury buybacks as US tax receipts are not as high as projected.
The yield did become quite oversold late last week after breaking out above the bullish support line that was drawn from the January, 6.75% high. A better technical bounce/retracement remains more likely, especially with further equity selling, but if the progress is choppy and lacks renewed momentum it would be an early indication that the longer term trend toward higher rates will soon re-emerge. This would be confirmed with an ultimate break of next support at 6.00% - 6.05%, with 6 .20%, 6.32% and 6.40% the upper levels. Initial resistance is at the 5.85% that was support, then 5.72% and at the 5.65% low.
GOLD
The XAU hasn’t managed to do more than hold its own, but the metal itself has pushed higher for three days in a row to $274.25 ( Republic Cash), perhaps for some sort of recent record (not really) now that the 8th Bank of England (BOE), 25 ton gold auction is behind us. The BOE is already $3.65 per ounce in the red from the $270.60 they received. This brings the loss on their 804,400 metric ounces sold to almost $3 million in just one week. I can’t say for sure what kind of people they are, but they are certainly not getting the most for the money of the people they supposedly represent!!! Thank God they don’t represent us (as if our politicians would be any better!).
Perhaps the more bullish factor behind the metal’s bump has been the dollar’s sudden weakness on the euro’s intervention. Any sustainable decline in the dollar will be perceived as bullish for gold, as it becomes more valuable against a falling currency. This has been the case in the countries who’s currency’s have suffered due to the dollar’s strength. For the XAU, a push above 55-6 is still required to turn the short term trend bullish on our 1 X 3 P&F chart. On our 2 X 6 chart, a move to 56 would also be a low pole (LP) buy alert. This would also confirm the upturn in the Precious Metals Bullish percentage indicator that was reported last Wednesday by Investors Intelligence [(914) 632-0422]. Higher resistance is at 59, then at 64, and 69. Support is at the 8/31/98 low of 48.73 to this week’s 48.46. Below this, we see support below 44.
PORTFOLIO CHANGES
Friday, September 22, 2000: 9/21: Compaq (CPQ) hit our $28 stop, but we held it over the weekend as we looked for more of a bounce. It was covered yesterday (9/25) at 29 �. We hate to have to do this, and hope to add it back again ASAP.
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
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