Judy, you HAVE to read this! Favors!
Jerry Favors Analysis - Sunday, October 18, 1998 7 p.m.
Last week we expected the Dow to rally but we frankly
expected that rally to peak near 8200. The Dow reached a
print high of 8108 Thursday prior to the Fed's surprise move
to lower the Fed Funds Rate and the Discount Rate by another
1/4%. The Dow then skyrocketed after the Fed news,closing up
over 300 points. The Dow closed up another 116 points on
Friday,closing above 8400. There are several reasons to
believe we are near some sort of short term high. The 5-Day
RSI on the Dow Friday closed at 85.58. Keep in mind the RSI
reaches overbought above 70 and readings above 80 mean the
Dow is extremely overbought. On October 7,1997 the 5-Day RSI
reached 84.05 ,with the Dow at 8178. This was followed by a
decline of over 1017 points to the October 27 closing low. On
Dec. 5,1997 the 5-Day RSI reached 88.32,with the Dow at 8149.
The Dow then fell 489 points to a closing low of 7660 on Dec.
24. On Feb. 18,1998 the 5-Day RSI reached 91.86. This was
during the extremely strong Bull Market surge from January to
July 1998,so the declines were only mild. In this case the
Dow fell only 76 points on a closing basis the next day. On
March 20,1998 the 5-Day RSI reached 87.24,again during the
supersurge from January to July 1998. In this case the Dow
then fell only 90 points in 1 day on a closing basis.Finally
on 7/17/98 the 5-Day RSI reached 82.93. This was the exact
day of the Bull Market closing high and the Dow then fell
1,798 points to the August 31 closing low of 7539.07. Last
Friday's reading of 85.58 places the Dow again in the danger
zone short term.
The 10-Day Trading Index closed at 0.80 on Thursday,one
of the most overbought readings of the entire year. The Trin-
5 again fell below 4.00 on 10/15,suggesting we are near some
sort of at least short term high.The McClellan Oscillator
closed at +189,an extremely overbought reading.
While we believe the Dow could see a short term high and
decline Monday we do not believe this rally has seen any
final top yet.The NYSE cash index should exceed 527 at a
minimum before any short term high,and it closed at 522.24.
Our work suggests that if we did not see a short term high
Friday we should see one by Monday and then a brief decline.
>From there the Cycles still suggest a more important top is
likely near October 22 plus or minus 1 day and then a sharp
decline into late October. The Bradley calls for a low near
October 28 plus or minus 2 days. The Cycles also call for a
low near October 28 but they call for another low near
November 6. That low may be higher or lower that the low near
October 28. Now if the low in that time frame is above 7400
we will take all subscribers back to the long side. Short
term traders may benefit from a rally this week but even it
it approaches the 8700 area it will be a short lived
affair,lasting perhaps 3 to 4 days,and at least 1 and maybe 2
affair,lasting perhaps 3 to 4 days,and at least 1 and maybe 2
below 8341 on a print basis in the Dow Monday morning will
signal lower prices short term. Any decline below 1055.50 in
the Dec. S&P futures will signal a probable decline below
8300 on a print basis and 8244 intraday in the Dow.
Short term traders if the Dow sells off strongly Monday
we will want you to take a long position by Tuesday,but wait
for specific instructions. Stock traders and mutual fund
switchers,if the Dow holds above 7400 by late October we will
want you to go long.But again we want you to wait for
specific instructions. |
