Favors (looks like it was a good read of the market!):
Oct 8, 1999
Over two weeks ago the Cycles inverted, resulting in an
important bottom near September 28, plus or minus 1 day
instead of a top. The Dow reached a low of 10081.l3 on a print
basis on September 28, down 11.30% from the August 24
all-time print high. So far the Dow has rallied over 600 points on
a print basis from that low, to a high today of 10719 on a print
basis on October 11.
The Cycles call for a short-term high near Monday, October 11,
plus or minus 1 day. So we should be fairly close to the next
short-term high. The Cycles suggest the correction from there
should last no more than a few days. The Cycles suggest the next
decline should bottom near October 13, plus or minus 1 day.
That decline should be followed by another rally which should
peak near October 18, plus or minus 1 day. That too should be
just a short-term high.
There are at least a few indicators which now suggest we are
near a very short-term high. We have discussed the 5-Day
Advancing Volume in the past. Until the Dow starts reaching
higher highs, but the 5-Day Advancing Volume fails to reach
higher highs, we normally do not worry about any sort of top,
even short term. However, the 5-Day Advancing Volume so far
peaked on October 6 and is no longer reaching higher highs with
the Dow. This suggests the Dow may be near at least a
short-term high.
The Gann 3-Day Chart on the Dow did turn down last Friday.
We must rate that as a short- term negative signal for next week.
The 3-Day Chart could not turn back now before Wednesday of
next week at the earliest. If the Dow falls below 10424 intraday
on Monday, the 3-Day Chart could not turn back up before
Thursday of next week. The fact that this chart is now pointing
down is a reason for us to be somewhat cautious over the next
few days.
The Trin-5 on 10/7 closed at 3.88. The Trin-5 normally indicates
you are near at least a short- term high when it falls below 4.00.
This too suggests we are probably near at least a short-term
high.
One big problem is that while the Dow closed up over 100
points last Friday, the breadth at the close was actually negative,
showing more stocks down for the day than up. That kind of
action normally suggests you are near some sort of at least
short-term top.
Another problem is that the number of stocks reaching new lows
for the day dramatically outnumbered those reaching new highs.
There were 144 new lows for the day versus only 44 new highs.
That is poor action on a day when the Dow closes up over 100
points.
On the positive side, the 10-Day Rate of Change normally peaks
before the Dow reaches a short-term high. Now, the 10-Day
Rate of Change is not as reliable as the 5-Day Advancing
Volume, but the 10-Day Rate of Change does have a fairly
accurate history of reaching its peak before the Dow Jones
Industrials. As long as the 10-Day Rate of Change is reaching
higher highs with the Dow, as it is now, you have normally not
seen any sort of closing high, even short term. This does not
mean we cannot see a short-term decline next week, as the
Cycles suggest. However, it does suggest that higher prices
should follow any correction in this time frame.
The 5-Day RSI on the Dow closed at 72.76 last Friday. That is
still only mildly overbought territory for that indicator, and in no
way means we have seen an important high yet, even short term.
The Gann Weekly Chart is still pointing up, and as long as it
continues to point up we will remain short-term bullish. For this
week, any decline below 10220 on an intraday basis will turn the
Weekly Chart back down, which will signal lower prices short
term and a potential test of 10055 intraday. If we hold above
10055 intraday during the next correction it will be very bullish
for the next rally phase.
Our bottom line is that we believe the Cycle forecast for a
short-term high near Monday, October 11, plus or minus 1 day
will be accurate this week. The decline that follows could be a
bit scary. |
