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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 2, 2001 |
| STOCKS |
| REALITY RATIO: -0.161
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Last Signal: 04/20/01, TRADING SELL
Dow: 10,579.85 OTC: 2163.18
The Reality Ratio turned sharply higher with last week s rally, giving a trading buy signal by turning up from the more bearish side of a neutral reading. The signal came with the averages within BELOW where they were at the last Trading SELL signal, given on 4/20/01, when the Dow was at 10,579.85 and the OTC was at 2163.18. While the sell signal didn t provide a tremendously lower market to buy into, it did provide us with an opportunity to select trading positions while the market made virtually no net progress, and while many individual issues were slammed by their own warnings. We had been expecting the markets to set up for the beginning of a traditional summer rally, and we think that is getting underway now. We do not know how far it will go, but hope it will be enough to capitalize on it as a trading opportunity.
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MONDAY, July 2, 2001: "Welcome to the computer age&quarters no longer end with a bang or a whimper, but with a glitch!" - Briefing.com Late Friday afternoon the NASDAQ was shut down due to technical problems, an especially bad day for this to happen with it the last day of the quarter, plus, the re-balancing by the Frank Russell Co. of their Russell Indices. We had a computer glitch of our won, discovering the terribly invasive "BADTRANS" virus 1st hand. It forced us to concentrate on getting rid of it instead of on the markets. Sorry, but we could not in good conscience send out our Friday Update while knowing we could potentially infect others with this modern day plague!!!!! Because of this, some changes in our technical indicators while not being able to discuss them last week, and the 4th of July holiday, we are issuing an update today, and may do Friday s update on Thursday.
Several of our important trading indicators confirmed our bullish anticipation of the last week or so, by turning bullish. The McClellan Oscillator turned up through the "0" line to a reading of +41 on Friday, giving a P&F buy signal for the near term. This has the potential to work its way above the +100 level. Our most important "short term" trending indicator, the 10 A/D Line indicator also turned bullish with last Thursday s close. This tells us that more stocks are going up than down, even on a VERY weird day like Friday, when the Dow was down, but many things were higher.
The Dow pushed to an intraday low of 10,394 last Tuesday, but Wednesday s CLOSING low of 10,435.18 essentially held right at our KEY support level "near the 10,448, 4/24 closing low). It also successfully tested our calculated Fibonnacci 38.2% retracement of the 2200+ point rally from the 3/22, 9106 low to the 5/22, 11,350 high [11,350 - 9106 = 2244 X .382 = 857 - 11,350 = 10,492]. As stated last Tuesday, "the market s have so far, been weathering the negative "pre-announcement" season relatively well, the resumption of the rally seems more likely than the resumption of the overall bear market, at least in the short run". Again, we think this is proving to be the case.
Against the bullish view, we continue using the lower level of key support near the 10,448, 4/24 low (and now stretched to last week s 10,392 intraday low) as a "must hold" level. We don t expect a close below this in the event of continued selling, but it is where we have placed our trading parameters on the downside. Lower support is at the Fibonnacci 50% retracement level, near 10,229, allowing another 200 points of "rope" to give if needed for the buyers to regain their exposure. With the past two days of sharp selling, initial resistance was lowered to 10,640 - 10,750 s cluster of consolidation. Above this, resistance is near 10,835, 11,000 and 11,180. Stiff longer term Dow resistance remains at the 5/22, 11,350 high to the 4/00, 11,425 top. 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 a very encouraging sign.
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TREASURIES
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Treasury yields are also accommodating our view that in spite of the Fed, long rates are within a strong RISING trend! Here too, last week s volatility turned the yield higher after reaching a low of 5.67% on Monday, retracing an exact Fibonnacci 50% from the 5.217%, 4/22 low to the 5/15, 5.90% high, at 5.567% low. This is a typical retracement in a bear market. Next lower resistance is at 5.50 - .45% and then at the original 5.40% breakout point ( with the Fib. .786 resistance at 5.363%). An upturn here would provide greater evidence that minor wave "2" within the larger, wave (3) bear market was beginning. The market wasted NO time confirming the bearish reversal by the end of the week, closing at 5.76%. We think the yield is heading (well) above the 6.00% level, with final confirmation that wave (3) is developing with a push above the 5/15, 5.90% high. Some of our trading/momentum indicators (RSI & Stochastics) have turned UP, signaling the end of the rally. Confirming these shorter term oscillators, the slower moving MACD indicator is just turning bearish, offering evidence that the trend will continue for some time to come
We remain confident that the yield is ultimately heading (much) higher, within larger degree wave (3) that began from the 4/22, 5.217% low. We do not think the yield should drop back below the 5.40% breakout point. Again, a push above 5.90% would confirm that the bear market has resumed, making higher support at the 5.975-6.025% the next upside target. Short term resistance is near 5.56% and 5.50%. Contrary to the belief of the majority, we think it likely that the yield is ultimately headed ABOVE the 6.75%, 1/00 high. |
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GOLD
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Gold & the XAU: Both, gold and the XAU look very bearish to us, and their recent downturn confirmed our suspicion of the last rally, where many were calling it the beginning of a new bull market for gold. While this will continue to remain possible, as long as prices do not make lower lows, we do not think the world is yet ready to shift a great deal of their liquid assets to a long term precious metals buying strategy (although we do think that time is quickly approaching). Last week s big announcement from Barrick Gold that they intend to buy Homestake Mining was more evidence from within the industry, that companies are valued at a much cheaper level than the cost of exploration to find the same assets. This is a VERY bullish sign fundamentally, but more of the same may take place from within the industry before this value is perceived by the markets. Hopefully, we will have all the gold at depressed prices that we can hold, ahead of any overall shift to this view!
The continued weakness has allowed us to lower the point of the next BUY signal on our short term Point & Figure (P&F) Chart, to 61, with resistance at the 5/18, 66.54 high. A move above 67 on the XAU is still needed to renew the long term uptrend. This would also increase the odds that the bottom is in after all. In this event our analysis would shift to the more bullish wave interpretation, where the higher high would be counted as the minor fifth wave within a larger degree wave (1) rally. This seems unlikely in the short term, now that the bearish trend has been confirmed and has deepened. Lower support below the key 56 level is at the 2/14, 45.64 low and then at the even more critical 7/14/00, 41.61 low. The silver lining remains the same. If our longer term analysis is correct, we will ultimately clear the way for smooth sailing to higher (and potentially much higher) prices! In contrast to the poor longer term risk/reward we see for bonds, we see the exact opposite here! Not even a new low will change this!
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PORTFOLIO CHANGES |
| Monday, July 2, 2001: Turning bullish last week, we removed all but our oil services stocks from our short sale portfolios: 6/28: we covered shorts on Adobe Systems (ADBE) 45 (-7.14%); Alaska Airlines (ALK) 27.60 (+16.11%); and Xilinx (XLNX) 40.30 (+14.26%). For now, we are still holding short Rowan Co s. (RDC) and Baker Hughes (BHI). |
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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