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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Gersh Avery who wrote (1608)	12/13/1998 8:07:00 PM
From: Jon K.	Respond to of 99985

Gersh, BWDIK (But What Do I Know) I always wondered what that meant...thanks for the kind explanation

To: Gersh Avery who wrote (1608)	12/13/1998 9:56:00 PM
From: dennis michael patterson	Respond to of 99985

Jerry Favors Analysis - Sunday, December 13, 1998 7 p.m. The Dow on Friday was down as much as 110 points at the lows, then bounced back to close down 20.85. The Dow has so far declined 650 points from the November 24 all time print high of 9380.20. Technically the Dow can be considered oversold short term. The 5-Day RSI closed at 25.28. The RSI reaches oversold territory when it falls below 30 ,and suggests you are near at least a short term low. Now while a reading of 25.28 is oversold it does not mean the Dow could not fall even lower early this week. Certainly the RSI could go lower before bottom. At the October 1 closing low it reached 24.36. At the August 31 closing low it reached 9.40. At the June 15 closing low it reached 14.43,and at the June 3 low it reached 19.79. So the fact that the RSI Friday reached 25.28 does not necessarily mean the Dow cannot fall even lower early next week before the bottom comes in. However we are already in oversold territory so a low could be seen at anytime. The McClellan Oscillator closed at -120,also now into oversold territory,which occurs below -100. Once again while the McClellan Oscillator is oversold it does not in and of it preclude an even stronger decline early next week before the next short term bottom. However the Cycles call for a low near December 11 plus or minus 1 or 2 day and then a rally into December 22 or 23. The Bradley called for a high near December 11 plus or minus 2 days but as we stated last week we believe the Bradley is inverting in this time frame,suggesting a low near December 11 plus or minus 2 days instead of a high. If we are correct about an inversion in the Bradley in this time frame the next Bradley turning points are December 18,December 22 and January 4,plus or minus a day or so in each case. We must look for short term highs or lows near those dates. The most likely scenario would call for a low early this week if a low was not seen on Friday,and then a rally into December 22 or 23. From there the Cycles turn down again into the end of December. For Monday any rally above 8846 could mean a low has already been seen,as long as the Dow holds above 8730.10 on a print basis. If the Dow rises above 8846 then later falls back below 8730 a signal of still lower prices before bottom will be given. The most serious problem for the Dow from a technical standpoint lies in the sentiment readings. The 3-Day Put/Call Ratio on the CBOE closed at 39.47 on Thursday. The Put/Call Ratio is also a sentiment indicator, like the Investors Intelligence Bullish Advisors report . Most option traders lose money and when those traders buying calls are most bullish the Dow is normally near some sort of top,or about to begin a strong decline. The lower the Put/Call Ratio the more excessive the optimism among option traders. In the past readings even near last week's 39.47 reading have occurred near at least short term highs. What concerns us here is that even after a 650 point decline from the November 24 print highs the 3-Day Put/Call Ratio is still near its lowest levels in several years. This shows optimism among option traders is still excessive, despite the most recent decline. This is a real problem,at least short term,and will limit the rally potential for the market for the next few weeks. The wave structure suggests another decline below 8730 is a real possibility, even if the Dow exceeds 8846 first early this week. Short term traders if the Dow did not see a short term low Friday it should see a low by Monday or Tuesday. We will therefore put on an interim update at 3:15 Monday with new instructions for short term traders.