THE WEEKLY RE-LAY Beginning 12/30/00 Weekly Re-Lay...
Stock indices reversed 2 of 3 daily trends to up, adding credibility to the idea that they could rebound into mid-January. Bonds are pulling back from their strongest resistance and objective for this rally. The Euro and dollar added to gains. Traders should have exited dollar shorts with gains of about $5,300 per contract and have exited Euro longs with about $8,000 per contract gains. The yen could signal an important low in this time frame. Gold and silver still need confirmation to signal a low. Traders should be short soybeans with gains of about $300-$400 per contract. Crude is bouncing but still focused on cycles in early January.
STOCK INDICES: Intermediate (2-4 Week) Outlook--There are several reasons why the stock indices are likely to edge higher into January 15th-17th before another top takes hold. The 12/28 Alert discussed the daily trends that reversed to up in the DJIA and SPH. This came after all 3 indices bottomed precisely when the 69-71 day cycle (that has connected every intermediate low in the NASDAQ 100 since August 1999) troughed on 12/20-22.
Another signal was generated on 12/29 when the DJIA completed a weekly 2 close reversal buy signal, stemming from the 12/22 weekly key reversal higher. The SPH can still accomplish the same thing with a 1/05 close above 1357.50. (The SPH and NDH are also in a position where they could easily spike below this past week's lows of 1319.60/SPH and 2357/NDH and then close the week above 1335.00/SPH and 2469/NDH to trigger a separate weekly 2CR buy signal.)
Two other reasons have to do solely with cycles. The DJIA is tracing out a perfect example of Hadik's Cycle Progression. It declined for 42 calendar/30 trading days from 9/06-10/18/00. It then rallied and pulled back, setting a second low 43 calendar/30 trading days later on 11/30/00. An additional 42-43 calendar/30 trading days from the 11/30 low projects a turning point on 1/12-15/01.
An intervening low also occurred on 12/21--at the cycle mid-point of 21 calendar/15 trading days also projecting a turning point on 1/11-15. If the DJIA pulls back into 1/02-04, sets a low, and can exceed 10,917 before taking out its new intra-month/intra-year low, it will also project a turning point (most likely a high) on 1/14-16. 1/16/01 is also 90 days from the 10/18/00 low, which is not only a geometric cycle but would also represent an exact .618 comparison to the previous 145 day rally from 4/14-9/06/00. So, the DJIA is giving plenty of reasons why January 11-16, most likely the 15th/16th, should see an important turning point that is more likely to be a high.
Another reason for considering this alteration has to do with other facets of the ND 69-71 day cycle. Since the last occurrence (10/12/00) did not generate the normal 800-1,000 point bounce, it showed that a stronger down trending move was again in force. This is typically the time when a cycle like this will also start appearing between successive highs. (The silver weekly charts are an example of this.)
If so, January 17-21st is 138-142 days (2 x 69-71) from the 9/01 high and therefore a possible time for a peak. It is also 90 days from the 10/20 high. January 15 is 1.618 times the difference (49 days) between the 9/01 and 10/20 highs.
In addition, each of the last three rallies has been identifying a 27-29 day cycle. In May-July, we saw a 27-day rally followed by a 27-day high to high (54-day overall advance). In August, it was a 29-day rally. If the NDH were to continue this pattern, a 27-29 day rally from the 12/21 low would top on 1/17-19. A 27-day bounce in the SPH--into 1/17--would also be .618 of its preceding 43-day decline.
Don't get me wrong. I am not trying to force analysis to fit into a predetermined scenario. In fact, it is just the opposite. I am trying to detail why I am willing to move away from a scenario that has been so effective over the past few months. Until mid-December, the prevailing analysis remained that we should see a final decline into mid-January. It was only after several of these cycles began to take form, and the indices neared key support areas, that I was forced to acknowledge the reality of this alternate scenario. The primary thing needed to confirm it now is to see the NDH close above 2519 before it closes below 2213.
Mar S&P (SPH) DJIA Mar ND-100 (NDH) Monthly Resistance 1406.00-1412.00 11,096-11,162 2792.0-2860.0 Monthly Support 1264.00-1270.00 10,414-10,478 1957.0-2040.0 Weekly Trend Down Down/Neutral (2) Down Weekly Resistance 1353.50//1404.70 10,918-10,947 2469.0-2867.0 Weekly Support 1310.00-1319.60 10,635-10,410 2213.0-2282.0 Daily Trend Up/Neutral (1) Up Down Short-Term (1-5 Day) Outlook--The DJIA remains in a daily uptrend while the SPH has given 1 neutral signal to its new daily uptrend. The NDH is back in a daily downtrend after giving 2 neutral signals to it. All 3 indices gave--or completed--daily 2 close reversal sell signals on 12/29. Though the liquidity of Friday was not ideal, these signals could still pressure the indices for the next 1-3 days. However, the SPH hit and held its daily HLS on Friday, while the NDH closed slightly below its.
The combination of these signals identifies 1/02-04 as a likely time for a minor low. (Remember, this would also fit with the cycle scenario playing out in the DJIA as well.) If the indices decline into mid-week, I will be looking for any sign of a developing low.
Trading Strategies--Short and intermediate traders can buy SPF 1350 call options at 1320.10 and average in down to 1308.00/SPH and risk a daily close below 1295.80/SPH. Initiate this trade only if the SPH does not gap below 1323.50 on 1/02 and only until 1/04. If not activated by the 1/04 close, abort.
INTEREST RATES: Intermediate (2-4 Week) Outlook--Probably the most dangerous period in a cycle is where bonds find themselves now. The final 10%-20% of a cycle that is expected to flip (from low-low-low to low-high) is always a precarious time. The primary reason is that the expected cycle inversion might not occur (until next time) and the current period could still create a low-low cycle instead of a low-high. This probability is increased when a market--as bonds have done--tests the likely objective for the move.
If this is the case, it means the final 10%-20% of a cycle could see a quick, sharp correction. With that said, let me recap where this market stands. Bonds are still targeting an important turning point for mid-to-late January 2001. Resistance remains at 105-27 up to 106-19. They have just completed a weekly 2 close reversal sell signal, adding to the chances for an additional 3-4 week drop.
Another reason for suspecting this is based on the daily charts. Bonds set a high of 105-23/USH on a strong alignment of several minor/intermediate cycles between both their highs and lows. They completed an 8 week high-high-high cycle as well as a 7 week low-low-high...both of which converged the week of 12/26-29/00. The daily charts identified 12/26 (48 days low-low/48 days low-high between the 9/21, 11/08 and 12/26 turning points) as likely for a top.
In addition, the 5/08/00-9/01/00 rally lasted 116 days. Another 116 days projected from the 9/01/00 peak projected 12/26 as a top (low-high/high-high progression). So, 12/26/00 was an important alignment of cycles that could have ushered in an intermediate peak. The fact that two successive daily 2 close reversal sell signals occurred during the same week that a weekly 2CR sell signal took hold is also bearish for the coming week(s).
If the 12/26 high holds, bonds could see a decline into 1/19-1/25 in line with this cycle. This would possess Elliott/cycle significance since it would demonstrate a "4" wave equal--in at least duration--to the drop of the preceding "2" wave. Bonds first intermediate decline, of this 11-month advance, lasted 27/38 days in April/May 2000 (5/08 and 5/19 were a double bottom so either one could be valid). A similar 27/38 day drop from the 12/26 peak would bottom 1/22 or 2/02/01 or anywhere in between.
As discussed last week, price action of the "4" wave is also likely to correlate to the magnitude of the preceding "2" wave (potentially related by the 2nd degree golden ratio). If so, and if 105-23/USH remains the high, the targets for a subsequent low will be at 100-04, 98-19 and finally (though not nearly as likely) at 96-21.
I still need to see the daily trend turn down to confirm this scenario. If bonds cannot do this in the next week, there will remain a strong probability that a spike up to 106-19/USH will precede a substantial decline. This scenario found some support from the new monthly raw SPR, which appears at 106-20/USH.
If the daily trend can turn down, the first place to look for support will be at 102-19 to 21/USH where both the monthly raw SPS and the monthly 2nd close support coincide.
Mar Bonds (USH) Mar Euros (EDH) Mar 10-Yr Note (TYH) Monthly Resistance 106-10 to 106-28 94.26-94.42 106.10 to 106.22 Monthly Support 102-19//100-24 93.86-93.64 103-01 to 103-12 Weekly Trend Up Up Up Weekly Resistance 105-08 to 105-24 94.15-94.17 105-12 to 105-17 Weekly Support 104-00//103-08 94.04-94.07 104-10//103-14 Daily Trend Up/Neutral (2) Up Up/Neutral (2) Short-Term (1-5 Day) Outlook--Bonds pulled back to short-term support at 104-20 to 25/USH as discussed last week. They need a daily close below 104-15/USH to reverse their daily uptrend to down and move this short-term decline into an intermediate-term one.
Considering the 12/26 and 12/29 2CR sell signals, this market should follow through and at least test 103-30 to 104-02/USH in the coming days.
CURRENCIES: Intermediate (2-4 Week) Outlook--The dollar and Euro extended their moves stemming from the weekly 2 close reversal combo signals of mid-December. This is expected to pressure the dollar until January 22nd-26th, though an intervening bounce is still a probability. Considering the following cycles/retracements, this bounce is expected to begin in the next couple days. This is one group of reasons why traders were advised to exit dollar shorts and Euro longs on the 12/29 close:
1. A low on 12/29 or 1/02 would represent a 50% retracement in time from the 129-day rally of 6/19-10/26/00.
2. 1/02-03 is 60 days/2 months from the 11/03 low.
3. 1/02 represents the point at which this dollar decline is twice as long as its preceding rally (68 and 34 days, respectively).
4. 1/02-03 will complete a high-high/high-low cycle progression stemming from 11/24 and 12/13.
5. The dollar just reached the point at which its decline is .786 (2nd degree golden ratio) of the 1998 decline (the largest drop in the last 5 years).
6. The dollar just reached the point at which the current decline is 1.272 (2nd degree golden ratio) times its previous decline (from 5/19 to 6/19).
Adding to this the fact that the Euro hit and held its weekly LHR on 12/22, a reversal is likely in the coming days. This coincides with longer-term yen cycles discussed last week. The yen just completed the 84th week since the last major low of May 1999. If the low of this past week spurs an immediate rebound, these 84 weeks will have divided almost perfectly into 28 weeks low to high, 28 weeks high to high and 28 weeks high to low.
Mar Dollar (DXH) Mar Yen (JYH) Mar Euro (ECH) Monthly Resistance 112.23-112.72 90.47-91.10 97.44-97.72 Monthly Support 106.15-106.45 86.07-86.45 90.84-91.00 Weekly Trend Down Down Up Weekly Resistance 110.00//111.00 89.20-89.86 95.04-95.69 Weekly Support 108.14-108.57 86.80-87.34 93.52//92.68 Daily Trend Down Down Up Short-Term (1-5 Day) Outlook--The daily trends remain down in the dollar and yen and up in the Euro. In addition to completing a weekly sequence of 28's, the yen is also working on a daily sequence of 28's. It dropped for 28 days from 9/07-10/05 and then rebounded for 29 days from 10/05-11/03. The yen then suffered another 28-day decline from 11/03-12/01. 28 days from the 12/01 low--and a likely time for a subsequent low--is/was 12/29. The first thing the yen needs to do to signal that a low is taking hold will be to close above 88.72/JYH.
Trading Strategies--Intermediate traders should have sold the dollar at 114.51-114.68/DXH and taken profits on the remaining 1/2 of this position on the close of trading Friday (12/29). This would have had traders exiting around 109.28/DXH with average gains on this 1/2 of the position of about $5,300/contract and average gains on the overall position of about $4,650/contract.
Intermediate traders should have also bought the Euro at 88.00 down to 87.64/ECH (average price of 87.82/ECH). Profits on the second 1/2 of this position should have been taken on the 12/29 close of trading. This had traders exiting around 94.28/ECH w/average gains of $8,000 per contract and average gains on the overall position of about $7,000 per contract.
INFLATION MARKETS: Gold/Silver--Intermediate (2-4 Week) Outlook--The outlook remains that gold should rally from its projected low in late October into at least February and potentially into the first week of April--when several longer term cycles converge with many intermediate cycles. This particular cycle (late March/early April) is also lining up with those in different markets, one of which is the Japanese Yen.
If you have not yet read the January INSIIDE Track comments on gold, silver and the yen, I would advise that you do so at your earliest convenience. Although the immediate picture in gold and silver looks very bearish--or anemic as best--the bigger picture is showing a sequence of steadily (even though slowly) ascending lows with potentially bullish ramifications. In order to maintain this potential, gold and silver can not drop below these lows and must eventually exceed the 9/99 highs.
As explained for the last couple months, the month of January still looks like the most likely time for gold to accelerate higher (80/20 rule of gold and its cycles). Silver has been holding above key support at 455-461.0 and needs to continue to do so. It just completed the 180th week from its 1997 low.
We are now entering the month when a sharp rebound appears most likely but price action must confirm this expectation in the coming days and weeks.
Short-Term (1-5 Day) Outlook--Gold has remained in a daily uptrend while silver went back to set new lows. Gold did see a high on 12/27 and has seen another retracement in keeping with last week's analysis. However, as long as gold does not close below 273.0/GCG, it will remain in a positive daily trend and should begin a new surge to begin the new year. If it can close above 278.5 before it closes below 270.3/GCG, gold will reinforce analysis calling for a sharp 1Q 2001 rally.
Feb Gold (GCG) Mar Silver (SIH) Monthly Resistance 277.7//292.5 475.5//508.0 Monthly Support 269.5//263.5 445.0-451.5 Weekly Trend Down/Neutral (2) Down Weekly Resistance 276.2//284.0 468.5//479.0 Weekly Support 270.3-271.0 455.0-459.0 Daily Trend Up Down Mar Soybeans (SH) Feb Crude (CLG) Monthly Resistance 519.0-526.0 30.65-31.10 Monthly Support 500.0//478.5 22.96-23.60 Weekly Trend Up Down Weekly Resistance 516.75-523.5 27.49//28.42 Weekly Support 502.5//486.0 25.66-26.11 Daily Trend Up/Neutral (2) Down Trading Strategies--Intermediate traders should be holding GCG 290 and SIH 500 call options and a 1/2-sized position in GCJ 290 calls. If given the opportunity, exit GCG 290 calls before expiration. Purchase a 1/2-sized position in May silver (SIK) 500 call options on 1/02. If/when gold closes above its 1/02 high, add another 1/2 position in GCJ 290 calls.
March Soybeans--Soybeans ended the month with a key reversal lower. As a result, they have the potential to decline to their monthly 2nd close at 478.75/SH in January. March soybeans, which are giving slightly different signals than January beans, just completed a weekly 2 close reversal sell signal that began with a weekly key reversal lower on 12/15.
So, there is a distinct possibility for some additional selling in the weeks to come.
The daily trend still needs a close below 505.0/SH to reverse to down. If it closes above 513.75 before doing this, it would reverse from neutral back to up and project new highs before the next sell off. Short-term traders should be short from an average of 517.0/SH and risking 519.25 OCO a daily close above 513.75/SH.
February Crude--Crude just completed an inside week that settled near its highs--on the back of a daily 2 close reversal buy signal on 12/29--in conjunction with the 12/28 comments regarding a sharp rebound. This sets it up with the potential for a spike above this past week's high (27.00/CLG) and a subsequent reversal lower. If it does this and settles below 26.80/CLG on 1/05, it will give a key reversal lower. A 1/05 close below 26.18/CLG would trigger a weekly 2 close reversal lower.
The reason I point this out is that crude has the potential to evolve in a weekly turn-key reversal that could trigger a low as early as 1/08-1/12/01. For this to take place, it needs to see an intra-week spike above 27.00 and a 1/05 close below 26.80 but not below 26.18. The ensuing week would follow with a spike below the low of 1/02-05 and a 1/12 close above the 1/05 close. The confirmation of this pattern would come if the 1/12 close was also above 26.80/CLG--triggering a weekly 2 close reversal buy signal.
It would also fit with an ongoing geometric cycle in crude that has seen numerous lows (and a few highs) occur at 13 and 25-26 week intervals or 90 and 180 day cycles. Most recently, it rallied for 26 weeks from 4/10-10/12 and will decline for 13 weeks if it bottoms between 1/08-12. To refresh your memory, this is the same cycle that separated the 10/11/99, 1/10/00, 4/10/00 and 7/11/00 lows as well as the 10/12/00 high. It has been very precise, so 1/10-12/01 are the most likely days on which a low could occur...a week before George W. Bush is inaugurated.
...End 12/30/00 Weekly Re-Lay
Beginning 1/03/01 Weekly Re-Lay Alert...
"Rate Cuts Reinforce Cycles"
The start of a new period is a very revealing, but precarious time in the markets. Part of the reason is this is the time when traders have the most choice regarding support and resistance levels. The open of trading on a Monday gives the market the chance to spike to daily or weekly support/resistance. Even though a market might top or bottom exactly when expected, the critical factor becomes where it reverses. This is even more the case now--at the beginning of a new week, month, year and in many people's views--a new century and millennium.
Stock Indices are a perfect case in point. They were forecast to spike lower into mid-week (following 12/29 2 close reversal sell signals in all three) and quickly reverse higher. They have done so and are trading in line with individual trends and patterns. The DJIA remained in a daily uptrend, so this reaction should hold above weekly support (10,635) on a daily closing basis.
The SPH had given (as of 12/29) 1 neutral signal to its daily uptrend and held its daily HLS. This reinforced that a low should take hold by 1/03/01 and gave the chance for it to occur without reversing the daily trend to down. This is still the case and it will take a daily close below 1289.00/SPH to reverse to down. Then there is the NDH that could not reverse its daily trend to up during the recent rally and did reverse it back to down on 12/29. This indicated a drop to new lows into 1/02-04 with the only question being whether or not it would close below the old lows (2213/NDH).
In line with the 12/28/00 Alert, the odds for a 3-4 week rebound have increased to about 60% in the DJIA and remain at about 45% in the SPH until it can give a weekly close above 1357.50/SPH. As stated then, and again on 12/30, "a pullback into 1/03-05 will likely be the best opportunity to buy the indices."
This was the case as traders should have been buying call options yesterday. The important thing to watch now (and after rate-cut euphoria mellows) is whether any of these indices closes below yesterday's lows (10,585/DJIA, 1289.00/SPH and 2130/NDH).
Short- and intermediate-term traders should have purchased SPF 1350 call options on yesterday's selloff (entering around 14-17.00 points) in line with the recommendation in the 12/30/00 Weekly Re-Lay. Move the risk to a daily close below 1299.80/SPH. If today's close is above 1337.10/SPH, move the risk again to a daily close below 1322.40/SPH. If 1443.00/SPH is hit, take profits on these call options.
Bonds have spiked up to monthly resistance, topping exactly at 106-20/USH. There is still a good chance for a low--instead of a high--in late-January, but the next 3-4 days will determine this.
The dollar and Euro are unfolding in line with recent analysis detailing the likelihood for a spike and reversal on 1/02-03, when many cycles align. The yen is looking for a daily close above 88.72/JYH to signal a low. The dollar needs a close above 109.48/DXH and the Euro below 94.20/ECH to signal that reversals are taking hold.
Gold and silver are starting the year off in bearish fashion with both already attacking monthly support. Rate cuts are often bullish for metals, so watch closely.
Soybeans have reversed their daily trend to down. Traders should be short from 516-518.0/SH and now risk 515.25 OCO a daily close above 510.0/SH.
Crude oil has rallied to weekly resistance and could still complete a weekly key reversal lower with a 1/05 close below 26.80/CLG.
...End 1/03/01 Weekly Re-Lay Alert
January 3, 2001 Eric S. Hadik, Editor INSIIDE Track Trading P.O. Box 2252, Naperville, Illinois 630-585-9218
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