Stockmarket Cycles
Wednesday, May 16th.
First, a special message. I will be the leaving for Chicago at midday tomorrow to attend the Market Technicians Association annual seminar, both to deliver the keynote speech on Saturday evening and to receive the Charles Dow award as this year's co-winner of that honor. For that reason, this evening's update will be the last update until I return on Sunday. The Sunday update will probably not go on line until sometime between the hours of 10-11:30 p.m. Eastern time.
It appears as if today was a decisive day in the stock market, giving significantly higher projections almost across the board. Let's start out by giving you some of those nominal 20 week projections.
> New York Composite Index - 707.90-724. 00
> Dow Jones Industrials- 12,200-12,516
> S&P 500 - 1,407.80-1,442.56
As you can see, these projections call for significantly higher prices and they have been given and confirmed. Some of these projections could lead to even higher projections depending on if and when they are met.
What in blazes is going on here? Is this a new bull market? Short term, it is difficult to deny, but we must be extra cautious from this point on because many long-term bears, ourselves included, have turned at least short-term bullish. That is a potentially dangerous configuration. Add to that the fact that sentiment readings are already quite bearish on a contrary opinion basis. There are many reasons not to be bullish here, but there are too many bullish technical factors to ignore. Perhaps those contradictions will be resolved by a short-term decline beginning any time over the next week or two. It appears unlikely, however, that the upside projections we have just giving you will be invalidated, at least anytime soon, and that means we must give the benefit of the doubt to the upside, perhaps for the next several months or longer.
The short-term picture is slightly different. Our proprietary filter that we use for system trading has once again reached or very closely approached benchmark overbought levels. The last time that occurred was back on April 30th and we called it to your attention at that time. On our update dated May 1st, we said "Our expectations based on prior occurrences of this pattern is that the futures could move 8-10 points higher than the highs registered while the benchmark overbought readings were being seen." Because the filter has yet to turn down, we do not have a measuring point to determine the level which would prove to be 8-10 points higher, but our sense of the prior history of the indicator leads us to believe we are close to such levels. Remember, this is a short-term indicator and it tells us little if anything about the intermediate to longer turn. It is usually good, however, as an indicator precursing a decline of at least 40-50 S&P points once it turns around from overbought territory. We emphasize again, however, that such a turndown has not yet occurred.
Mutual fund switchers-Rydex switchers-it appears as if we would be best served by exiting our position in the Rydex Ursa Fund because of the significantly higher projections given above. Based on the market's short-term overbought condition, however, we believe we will see a better exit point sometime over the next 5-10 market days. Fidelity Select switchers-our position in Fidelity select American Gold is up almost 20 percent, and the fund is approaching the projections given quite some time ago. On our update of April 24th, we gave a projection for Fidelity select American Gold up to at least 14.08. At the time, the fund was priced at 12.56. Today, the fund closed at 14.03. It is possible it will give even higher nominal 4 year projections, but for the first time since it began its stellar rally, we are looking for a possibility of taking profits.
Because we will not be doing an update after Thursday's market close, we will issue these instructions for mutual funds switchers for Thursday and Friday. Fidelity Select switchers-if select American Gold closes above 14.07 on Thursday, then is below Thursday's close at the 3:00 p.m. Eastern time reading on Friday, sell at the close on Friday. The 3 p. m. Eastern time reading is usually available within 40 minutes. If for some reason the quote is not available, retain your positions. Rydex switchers-if the S&P cash index is below 1276 at 3:30 p m Thursday or Friday, exit the Rydex Ursa Fund into money-market. Otherwise, hold and we will look for a better exit next week.
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Stock-index futures traders-there was a half hourly reading above 1,265.70 at 1:30 p.m. Eastern time. The high average price of the June futures over the next three minutes was 1,270.30. we would use that price as our exit from the short sale for a loss of 9.90 on the trade. We would be interested in a short-term trade over the next 2 market days only if Thursday produces a higher high than today (above 1291.00), then Friday's high moves above the Thursday high by more than 3 points. If that should occur, sell short at three points above Thursday's high, market if touched, with a stop 12.60 above Thursday's high. Otherwise, stand aside.
Remember there will be no update again until Sunday evening. There are no new projections for the XAU or for bonds. Have a great weekend. We'll talk to you on Sunday.
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