here are his (Arthur Hill) current comments-
Sunday
25-Feb-01
10:00am ET
***General Comments***
For those of you with access to Reuters TV, I will be appearing
on Equities Briefing at 11:30am GMT to talk about the Nasdaq
Composite and Dow Industrials.
Even with two hammers at the end of the week in most indices,
I would still categorize the market in the falling knife category.
While the reward/risk ratio for a long position is good and many
intraday indicators have flashed buy signals, another lower low
was recorded to confirm the bearish trend for the intermediate
and long term. Those nimble enough to take quick losses and
gutsy enough to trade an oversold condition may wish to watch
closely. Should these hammers be followed with a gap up and
strong close, the market could be due for a sharp reaction rally.
Even though the trend is down, it has shown the propensity to
zigzag within a price channel. Bear market rallies are often swift
and strong, which explains why so many traders (even those
who are short) find it difficult to make money in a bear market.
The primary bear trend takes its toll on the longs, while the
speed and magnitude of bear market rallies scalps the shorts.
Bear market rallies are fueled by a combination of factors
including: short covering, fear of missing the exact bottom and
bargain hunters. See the sharp advances on 17-Apr, 30-May,
13-Oct, 5-Dec and 3-Jan for examples of bear market rallies.
After retracing 50% of its prior decline, the US Dollar Index
($USD) formed a long black candlestick and may have hit
resistance. If you will recall, the index formed a double top
around 119 last year, broke below its previous reaction low and
long-term trendline. The long-term trend is bearish and the
current reaction rally could be coming to an end. With weakness
in US equity markets, the propensity to hold dollar denominated
investments is diminished. The correlation between the
greenback and gold should also be interesting. Other than the
US Dollar, where are the world's investors to store their money?
The Euro? The Yen? Gold?
US Treasuries benefited from weakness in stocks and rumors of
another rate cut. The 10-year note yield remains between
support at 5% and resistance at 5.2%. The long-term trend is
down for rates and this may be the best investment going
forward over the next 6-9 months. Lower interest rates will
definitely benefits bonds, but it is unclear if or when they will
benefit stocks.
***S&P 500***
Over the last 17 days, the S&P 500 declined from 1383 to 1215
(high to low) and from 1373 to 1245 on a closing basis ($SPX
Rate-of-Change chart). The 17-day rate-of-change reached
-9.3%, its lowest reading since April-00. Over the last 3 1/2
years, the 17-day Rate-of-change dipped below -8% on eight
separate occasions. If you had bought each time the
rate-of-change dipped below 8%, you would have caught the
bottom only 2 of 8 times, Apr-00 and Oct-97. Even after these
two lows, the S&P 500 rallied and retreated to offer another
chance to enter. For the other 6 occasions below -8%, the index
went on to lower lows. This is all in the past and may not work
in the future. However, investors and traders work with
probabilities. While the market may be oversold and due for a
bounce (possibly Fed induced), I believe the probability of
subsequent pullback or at least a consolidation is quite high.
After such a sharp decline, many will look to sell on strength,
which leads me to believe that resistance will be encountered
around 1310. For those not wishing to bottom fish, I would wait
to access what happens should a sharp reaction rally occur. If a
trading range (flag) forms, then we will have a technical setup
upon which to trade. Other than a pair of hammers (which have
yet to be confirmed), I see little upon which to make a bullish
trade. With the trend still down, I am prepared to wait for a
more bullish evidence before venturing on the long side.
S&P 500 daily chart: I would like to focus on movement of the
Price Action Index (PAI). There is an explanation of my key
indicators below the charts and through the indicator link on the
left. Because oscillators fluctuate above and below a centerline
and/or within set boundaries, they are more apt to form
divergences. More divergences mean more signals, which also
means more false signals (and of course good signals). This is
why I developed a pair of cumulative indicators (the PAI and VFI)
to assess the intermediate term trend. When these indicators
form divergences, it indicates that intermediate trend could be
about to change. The PAI for the S&P 500 remains significantly
above its prior low and could be on the verge of a positive
divergence. Should the indicator move above its 20-day EMA, I
would consider this divergence confirmed. Of note, the PAI for
the Nasdaq 100 and QQQ form a lower low.
S&P 500 30min chart: The index broke above the trendline
extending down from 1330, but remains below its reaction high
at 1260. Large positive divergences formed in the Trading
Momentum Oscillator (TMO) and DMI Net, both of which were
followed up with a moving average crossover and higher high. I
would consider this a short-term buy signal for the nimble
traders. Those not so nimble, might wait for a break above 1260
and then a pullback to around 1250 for entry. This type of price
action could also give the daily indicators time to catch up.
Remember, a bullish trade goes against the daily and weekly
trends - make sure and have an exit strategy, such as a move
below 1230.
Key Support: 1240 (green circle)
Key Resistance: 1330 (red circle)
***Nasdaq 100***
Today, I would like to call your attention to the performance of
the Nasdaq Composite relative to the Nasdaq 100. I prefer to
analyze the Nasdaq 100 because is carries the top 100 Nasdaq
stocks, which in turn drive the Nasdaq Composite. In addition,
the Nasdaq 100 relates directly to QQQ, a tradable instrument.
From Dec-97 to Dec-00, the Nasdaq Composite underperformed
the Nasdaq 100 ($COMPQ-$NDX Ratio chart link). This was also
a period of excellent returns on Nasdaq and the $NDX/$COMPQ
ratio declined from above 1.55 to around 1. Over the last two
months, the tables have started to turn, with the Nasdaq
Composite actually outperforming the Nasdaq 100. This tells us
one thing: the selling pressure has started affected the large
Nasdaq stocks more than the smaller Nasdaq stocks. Without
participation of the large cap stocks, the Nasdaq Composite and
the Nasdaq 100 are likely to continue lower or face downward
pressure.
Nasdaq 100 daily chart: I am starting to see signs of a short
term base (support) in the index. Over the last three days, an
inverted hammer, a candlestick with a long lower shadow and a
sharp reversal formed. This reversal remains unconfirmed and
key indicators are still below their trigger lines. Should a reaction
rally occur, I would look for resistance around 2300.
Nasdaq 100 30min chart: The intraday indicators have flashed
buy signals with the Trading Momentum Oscillator (TMO) and
DMI Net both forming positive divergences, moving average
crossovers and recording higher highs. The Price Action Index
(PAI) is a bit lagging, but is a cumulative indicator and has a
tendency to due so. I would place short-term resistance at
2170, a break above this level would be bullish and might turn
the daily indicators around.
QQQ: The daily and intraday charts confirm that seen on the
Nasdaq 100 charts. Support might be found around 49 and key
resistance looks to be around 54 on the intraday chart and 62
on the daily chart. In addition, there is the gap down around 58
to contend with.
Key Support: 1940 (green circle)
Key Resistance: 2550 (red circle)
***Dow Industrials***
The Dow remains between a rock and a hard place. After
breaking below short-term resistance at 10500, long-term
support held at 10300. Until this trading range is resolved, the
index remains bound and without any real direction.
Key Support: 10500 (green circle)
Key Resistance: 11000 (red circle)
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