Wave Signals Update:
Wave Signals Newsletter
By Mike Drakulich 7-15-99
Some general thoughts before I get to the individual sections. The big
picture(long term) charts are indicating that a major dollar top is at
hand, that the CRB(commodity index) is making a major low, that gold is in
its final bottoming stages, and that equities are likely making a very
important top. It is important to recognize first that I believe these are
long term sea changes, and it can be a process of weeks and months for them
to manifest themselves. But I do strongly believe they are occurring, and
that while I do not "correlate" markets in my trading decisions, it is not
lost on me that commodities have been in a huge Bear market while the
financial assets(stocks) have been in a major Bull market. And the dollar
Bull Market has served to attract capital from around the world to help
fuel the huge gains in equity prices. Just look at the price patterns in
the dollar index and overlay them over the Dow, since the stock market
began this huge run in late 1994, the DXY has been almost lock step. And
that correlation has been even "tighter" since the stock market peak in
July of last year. Again this is not important for day to day trading, but
I believe it is very important for the bigger picture, and we should
closely monitor the "progress" of this scenario I have laid out to see if
it is in fact correct. If it is it will have huge ramifications in making
investing and trading decisions in the weeks and months ahead.
STOCK MARKET
The most striking data from the past few days is the sentiment as
measured by actual money being bet on the markets direction, that is money
actually being "bet" in options or invested in funds like the Rydex group.
I like this better than "opinion surveys" because they measure real money
being invested, not someones opinion. The past few weeks have seen the
10-day moving average of the CBOE put/call ratios hit 10 year extremes of
Bullishness. And yesterday we saw the Rydex ratio hit 7.17, I use Rydex
Nova+OTC/URSA, that is an all time record and the second time in the past
few days we have seen a reading above 7.0! This in my view reveals the
incredible Bullish sentiment this recent rally has generated and what is
supposed to occur at a top.
The other data that has become pretty clear is that the Dow has been
doing a 4th wave contracting triangle since the July 6th high, and should
now "thrust" to a new high above that 11,237 level, making at least an
important trading top, and at a minimum decline back to the 10,400 to
10,500 level. This is a high confidence Ewave pattern, and when combined
with the deteriorating market internals of the new highs over the past few
weeks, tells me that this is a high confidence interpretation and that this
rally should be shorted. The next few days and weeks should be very
interesting, good luck.
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