Eliades-
Stockmarket Cycles update for Friday, September 15th.
Who knows? Perhaps today will turn out to be an historic day in its own
modest fashion. Today, for the first time since July 28th, the advance
decline ratio on the New York Exchange was below 0.65. That in itself is
somewhat remarkable, but
something potentially much more important than that, of course , occurred
today. Today's official advance decline ratio of 0.595 has now fulfilled
the second requirement for a Sign of the Bear signal. There are only one
or two steps remaining to complete the signal. If the advance decline
ratio on Monday is below 0.906, then the two day average of today's ratio
and Monday's ratio will be below 0.75 and we will have an official Sign of
the Bear. If Monday's ratio is above 0.906, then the possibility of a
signal would rest on Tuesday's advance decline ratio. If the three day
average of today, Monday, and Tuesday is then below 0.75, that would also
complete a Sign of the Bear signal. In other words, if either the two day
average through Monday or the three day average through Tuesday is below
0.75, a Sign of the Bear will have officially been given for only the
second time in the past 28 years and only the seventh time in the past 73
years. In the newsletter going out this weekend, we make an observation
that we believe you will find interesting. The front page chart of the
newsletter depicts each of the six Sign of the Bear signals that have been
given going back to 1929. One of the characteristics of "The Sign of the
Bear" appears to be a warning that stock investing over the next decade or
longer could be in for some rough sledding. When "The Sign of the Bear"
was given in July 1929, who could have conceived at the time that it would
take a full quarter century before prices would convincingly move above the
July 1929 levels? And who would have believed in the 1960s or early 1970s
when "The Sign of the Bear" was appearing with regularity that the Dow
Jones Industrial Average would struggle until the early 1980s before
convincingly breaking above the 1000 level? In March of last year, we wrote
an article in Barron's magazine speculating that the 10,000 level could
prove to be an important roadblock for the Dow Industrials for many years
to come, perhaps as long as a decade or longer. When the Dow Jones
Industrial Average closed, just weeks later, around 11,032, there must have
been many who were ridiculing our caution. Even now, 71 weeks later, after
the Dow has made no progress over that 71 week period of time, the great
majority of investors believe that the trip to Dow 15,000 or 20,000 will
progress in the same fashion as the last 5000 points. They might, of
course, be right, but we will stick to our guns. We believe the next five
to 10 years will be as difficult a market atmosphere for stock investing as
has been seen in the history of our country. The first Sign of the Bear in
over a quarter of a century appeared in April 1998. We do not yet know if
another one will appear over the next few days, but we do know that even a
single Sign of the Bear was sufficient warning in the past that stock
investing was headed for difficult times. Only history will be the judge
of the latest signal(s).
The market's slow internal deterioration was also obvious today from the
expanding number of 52 week lows. Today there were 73 52 week lows, the
highest number registered since the 98 lows of July 28th. Today's McClellan
oscillator closed
convincingly into negative territory with a reading of minus 47.4. The
McClellan oscillator over the past month now has a potentially bearish
formation with a high below a high and, as of today, a low beneath a low.
Next week could prove very interesting. But we should emphasize again that
a Sign of the Bear signal does not necessarily mean that a major top has
already been seen. In several cases over the past 73 years, the final top
did not occur until four to six weeks after "The Sign of the Bear" was
given. In one case, in December 1961, the top had already been seen by the
time the signal was given. For that reason, even if a Sign of the Bear
signal is given next week, we must remain flexible and open to the
possibility that another rally to new highs on at least some of the major
averages is possible. If such a move occurs after a Sign of the Bear
signal, we will assume, in Pirates language, that the market is walking the
plank.
Mutual funds switchers- Rydex switchers are in the Ursa Fund, Fidelity
Select switchers are in cash. All mutual funds switchers should call the
telephone update each market day after 3:20 p.m. Eastern time and call each
market evening .
Stock-index futures traders-at today's low on the S&P cash in the final
half-hour of trading, the index came down exactly to the lower bounds of a
descending parallel channel. The decline could, of course, accelerate and
break below this channel on Monday, but if that does not occur, the short
term downside potential would be limited. On Monday, place your initial
stops at 1,499.10. On any move below 1476, lower those stops to 1,491.90.
Bonds today satisfied the nominal 10 week projection we gave you yesterday
calling for 98 10/32 ± 10/32 with today's low of 98 3/32. No lower
projections were given. There are no new projections for the XAU. That's
it for now. Have a great weekend. We'll talk to you on Monday. |
