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Article contributed by Reality Check Newsletter
Market Update 1/22/2000
REALITY RATIO: -.065 Last Signal: 11/19/99 Trading SELL Dow: 11,035.70 The ratio slipped back again last week, but remain within a band of neutrality, with the marketûs extreme volatility in both directions. The most bearish factors were the slip in the index indicator components even with dramatic recoveries
late in the week, while our over-riding short term A/D Line indicator managed to turn bullish. This remains one
tough market for an objective composite of indicators to sort out.
The volatility raged on ahead of todayûs option expiration, with the Dow and Transports selling off sharply and
the NASDAQ forging blindly ahead into new high territory as usual. Not surprisingly, there was not a single
word mentioned on bubblevision about yesterdayûs most significant event. The Dow Transportation Average
broke below support at the 10/20, 2807.04 closing low, re-affirming the Dow Theory Sell signal that has
remained in affect since late last August. By the theoryûs definition this tells us that the "primary" trend remains in
a bear market, and this should not be a surprise when looking at just about anything EXCEPT for the Dow
Industrials and NASDAQ averages.
Some of our short term technical tools have turned bearish with the Dow and S&Pûs downturns of the last few
days. The McClellan Oscillator turned down on its P&F chart, implying at least a short term correction is in
progress. Also, our 5 day up volume indicator turned down after becoming extended, warning of the current
downturn. This doesnût seem like much, but these are some of our early warning indicators and they are flashing
early warnings.
The Commodity Research Bureau (CRB) Index has also turned up sharply to reach an 18 month high at 212
yesterday. This tells us that this broad measure of commodity prices is rising for yet another clear sign that
inflation has re-emerged. While this is heavily weighted with the energy futures, it shows a generally rising trend.
We see plenty of other signs of higher inflation too, & surely, so does the Fed.
After breaking it during the day, the Dow managed to bounce back to close above support at 11,330. Support
beneath it is at 11,210 and then at key support at 10,938. A close below this would confirm an intermediate trend
reversal and top. Resistance is near 11,550, 11,650 and then at the 11,750 high. In the event that prices move
above this, next resistance would be found near 11,850 and then at 12,000.
Treasury yields tried to bounce yesterday, but sellers were waiting to sell on the most minuscule of upticks. The
yield reached a high at 6.75% two days ago, a level that many were waiting for as the potential high. We see it as
a potential psychological support level at the very least. The Fedûs 2/2 FOMC meeting seems well anticipated as
does at least the next 50 basis points of Fed Funds rate hikes. This should allow for a better rally to begin at just
about any time as the meeting approaches. The Fed certainly remains convicted to slowing the red hot economy,
consumer and market speculation down before they are through tightening. No one knows for sure when enough
will have been done for this, but so far, more is clearly needed. Support is at 6.75% with the next level at 7.00%.
Resistance is agt 6.62% and then at 6.537%. A push below this level would confirm that a short term yield high is
in place, with better confirmation of an overall trend reversal upon a push below the next level of resistance, at
6.42%. NOTE: On Tuesday, we mistakenly stated that the past week Treasury yields had a major "Selling
Climax". This DID NOT occur and we apologize for the error.
Gold & the XAU continue to suffer from investor apathy following the liquidation of the Millennium hedge trade.
This may have already been discounted as the market looks for the next event to key off of. Very little has changed
since Tuesday, with the exception that we are just a weekend from the Bank of Englandûs (BOE) 4th quarterly
auction to squander their nationûs gold reserve. Perhaps the market has been basing while waiting to put this
behind us, but we wonût even begin to guess what the demand outcome will be, or how the market will react once
it is concluded.
XAU support and resistance remain unchallenged with support at the 12/14, 62.68 low, and then between 57.80 -
56.63. Initial resistance is at Wednesdayûs 66.75 and then near 69, but to confirm a more significant uptrend,
prices still need to push sustainably above 72-3. We hope this range isnût broken on the downside. With this
sector perhaps the most hated, we remain optimistic that this will have its day, especially with these issues good
January Effect candidates.
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