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

To: Debra Orlow who wrote (2499)	12/21/1998 7:44:00 PM
From: dennis michael patterson	Respond to of 99985

This sounds like a guy who is unsure of himself: Jerry Favors Analysis - Monday, December 21, 1998 8 p.m. At the highs this morning the Dow was up as much as 175 points. We closed up 89.60. While the Dow managed to close up the breadth today was once again a problem. At the close we show an unofficial 1693 advances to 1360 declines. That is not strong breadth given a closing gain of almost 90 points. The breadth has been a problem throughout this rally off last Monday's lows. This is not a minor concern for us. Unless that breadth can improve significantly this rally will not last long. We have discussed the Trin-5 many times on prior updates. The Trin-5, for our newer subscribers,is a 5 day moving sum of the daily Trading Index readings. When the Trin-5 falls below 4.00 it normally indicates you are near at least a short term high. For instance on 11/23 the Trin-5 closed at 3.81. This was the exact day of the 9374 all time closing high and was followed by a decline of 679 points on a closing basis. On 10/12 the Trin-5 closed at 3.84. In this case only a minor decline of 63 points on a closing basis followed. On 9/16 the Trin-5 closed at 3.84. The Dow then closed down 216 points the next day. On July 14 the Trin-5 closed at 3.93. This was 3 days before the July 17 closing high which was followed by a closing decline of 1,798 points. Today the Trin-5 closed at 3.95,once again below 4.00. This does not necessarily mean we have seen a closing high today,but it is a reason to suspect we are near some sort of at least short term high. We forecast last week's low and stated at that time that the Dow should rally into a short term high near December 22 plus or minus 1 or 2 days. We are into that time frame now. We are not convinced that we have seen the high quite yet [ans what would that high be?] but we must become much more cautious this week [why MUCH more?]. With the exception of the Trin-5 the Dow is not really overbought [this does not suggest extreme caution]. For instance the 5-Day RSI closed at 64.64. The RSI does not reach overbought territory until it exceeds 70. Most of our other momentum indicators do not reveal a dangerously overbought condition as of today's close. Nevertheless the cycles have been quite accurate and they do call for some sort of short term high this week. If the cycles are correct about a high this week as long as the decline which follows holds above last week's lows no real change in trend will be signaled. But if last week's lows are broken it would concern us,and could lead to a much sharper decline. Last week's low was 8676 on a print basis. Stock traders and mutual fund switchers we are not going to sell long positions but we will suggest you take some action to hedge long positions. This can be done through such techniques as married puts on specific stocks , through the outright purchase of puts on the OEX with at least 2 months to go before expiration or through various other means. We recommend discussing your specific situation with your broker and then decide on the right strategy for you. Think of this as insurance just in case we are wrong and the market begins a far more serious decline from this week's highs. Technically the cycles suggest the high due this week should be followed by a decline into January 4 plus or minus 2 trading days. From there the cycles turn back up again.