wmeubank@ocp.kcmo.com
THE WEEKLY RELAY
STOCK INDEXES: INTEREST RATES: CURRENCIES: PRECIOUS METALS/ENERGY:
OVERVIEW: This past week was volatile--with many markets positioning for the May Employment report. However, the markets revealed enough to allow expectations to be adjusted before they made their moves. So...
Intermediate bond traders should have exited all remaining shorts (from
110-21/USM or 110-08/USU) on Monday morning with about $500 per contract
gains.
Aggressive traders should be long the June yen from 86.31 with $1250
profit. Intermediate traders bought the June mark at 57.90- 58.18 and should
be holding it with $0-$300 loss.
Aggressive silver traders should have sold July silver at 472.0- 474.0
and were then stopped out on Thursday at 481.5/SIN. This amounted to a
loss of $375-$475/contract.
Aggressive traders should have exited long August soybean contracts
when trailing profit-stops were triggered at 819.0. This should have yielded
about $600 per contract (5,000 bushels) gain. A 2 close reversal lower
was triggered at 813.0 on 6/03.
Aggressive crude traders were stopped out of longs with $250-$450 losses.
STOCK INDEXES: Every exposure to the markets is an opportunity to learn. With this in mind, it pays to step back and review certain key principles...and how they apply to the current state of the market. This is of particular interest when the market does not do quite what is expected--as was the case this past Monday.
June S&P (SPM) DJIA Weekly Trend: Up Up Weekly Resistance: 870.70-874.15 7525-7572 Weekly Support: 848.30-850.75 7345-7363Daily Trend: Up Up Daily Resistance: 866.50 7470 Daily Support: 858.50 7401
Last week, I explained that the S&P had just given a daily and
weekly 2 close reversal higher. I stated that the daily signal could follow
through for 1-3 days with one criteria...
The S&P needed to pull back Monday morning to 846.50-847.00/SPM.
As most readers are well aware, the most repeated principle in this publication
is my Axiom of Support and Resistance, of which I will only recount the
second half (dealing with support):
"Support is only support if tested early in the period and before
resistance is tested or substantial downward momentum has developed."
Instead of pulling back on Monday morning, the S&P surged higher.
By the time it tested 847.00, the S&P had put in a substantial intra-day
rally, a sharp reversal near contract highs and daily resistance, a breakdown
below unchanged, and a $3,500 per contract sell-off.
In other words, it "tested resistance and developed substantial
downward momentum" before reaching daily support...indicating that
a test of weekly support was likely. It also invoked another comment from
the 5/31 Re-Lay:
"If the market exhibits any signs of early weakness, traders should
treat the existing long trades with caution...and with discretion."
Testing resistance first, and plunging 7.00 points in 2 hours, instead
of pulling back, confirmed this and fits with current analysis from the
6/02/97 INSIIDE Track (reinforced by Wednesday's intra-week V low at 839.40/SPM):
"The first indication that a top is forming will be a daily close
below 839.00/SPM. Until this occurs, the market has the potential to rally
to 868.10-869.50 before reversing lower."
(A second example of this principle just occurred. I was confident that 861.50-862.50 would be tested this past week. Traders were advised to sell this level if it was tested by mid-week. Instead of rallying to this level before testing weekly support--it did so after...and not until the end of the week, eliminating this trade.)
INTEREST RATES: Most of what can
be said about the outlook in bonds has already been stated:
"...September contract has intra-month resistance at these same
levels, but could see a rally to 111-20 by mid-June. A recent weekly 2
close reversal higher (5/30) reinforces the possibility of a 1-3 week extension
to this rally.
...Resistance appears again at 110-23 (SPR) as well as 111-06 to 20/USU...Traders
who want to fine-tune this strategy should exit June bonds now and sell
the September at 111-05 to 20..." (6/02/97 INSIIDE Track)
"(Bonds) have managed to close twice above the 6/02 high, while
also reversing the daily trend up. For this reason, I must alter the recommendation
to re-enter the short side. Traders should have exited remaining shorts
on Monday's open (yielding about $500 per contract in profits) and should
now stand on the sideline awaiting further clarification.
As I stated, September bonds appear likely to reach 110-21 to 23 and
could easily shoot up to 111-20 by mid-month--so any attempt at shorting
should only come after confirmation of a breakdown." (6/04/97 Alert)
Sept. Bonds (USU) Dec. Euros (EDZ) Weekly Trend: Up Up Weekly Resistance: 112-04 to 112-22 93.93-93.95 Weekly Support: 110-11 to 110-25 93.74-93.77Daily Trend: Up Up Daily Resistance: 111-23 93.90 Daily Support: 110-22 93.82
There is little to add. Bonds gave signs that they were poised to rally
into the week of June 9-13th. I conveyed this over the last week and tried
to give readers the perspective needed to capitalize on this. This is why
it is so important to listen to what the market is telling you.
When projecting a rally from 107-00 to 110-21, I thought that 110- 21
could be an important peak. Longs were exited leading into this top and
shorts were initiated at 110-21 (in mid-May)--coinciding with this analysis.
However, the first signs of strength re- appeared last week and spurred
profit-taking in aggressive shorts. Once the early week action unfolded,
it confirmed that intermediate strength was again taking hold and forced
me to recommend taking profits on these shorts and preparing for a rally
to 111-20/USU. Traders who were able to take advantage of this should realize
how important it is to be disciplined, yet flexible.
CURRENCIES: Two recent quotes set the
tone for Friday's rally in the yen and mark...
"The currencies are attempting to put in a bottom, but need more
confirmation and could spike lower into the end of the week. The Japanese
Yen did give a daily 2 close reversal higher on Tuesday-- without reversing
the daily trend to down in the interim--so tomorrow is crucial." (6/04/97
Alert)
"...intra-month support levels appear at 57.01-57.59/DMM and the
mark could easily provide a monthly 2 close reversal buy signal by spiking
below 57.79/DMM and closing above 58.72 (or spiking below 58.20/DMU and
closing on June 30th above 59.10/DMU).
June D-Mark (DMM) June Yen (JYM) Weekly Trend: Down Dn/Neut. Weekly Resistance: 58.52-58.64 88.19//89.70 Weekly Support: 57.11-57.33 86.22-86.45
Daily Trend: Up/Neut. Up Daily Resistance: 58.31 87.93 Daily Support: 57.59 86.61
The late-April low remains a critical cycle low, so any new lows (or
double bottoms) should not remain below 57.68/DMM for more than a few days.
If a low is confirmed, cycles project a sharp rally into August 4-8th.
The dollar index made another attack at key support for 1997 at 93.45.
The intra-month spike to 92.93 showed how powerful this support remains
(since it quickly spurred a sharp rebound), but also how determined the
market is to erode it.
When the dollar index finally violates this level, I expect a freefall
in the ensuing weeks. (A weekly close below 93.45 would be the first indication
that support is giving way.)" (6/02/97 INSIIDE Track)
I also pointed out last week that the daily trends had not reversed
down in the yen and mark. This is still the case and the yen has re-entered
an uptrend (it will take a mark close above 58.53/DMM to do the same).
The yen followed through on the upside, while the mark did spike lower
into the 4th--but did not get close to stops. One pattern on the weekly
charts is indicating that the yen should shoot back up to the highs...which
could happen as early as next week (by the 13th).
Aggressive traders who bought the yen (86.31/JYM) should raise sell
stops to 86.29 OCO 86.44/SCO and look for another surge to 89.70...and
beyond. Take 1/2 profits at 89.65/JYM.
Intermediate traders should be long the June Deutschemark from 57.90-58.18
and should raise sell stops to 56.97 and look for a daily close above 58.53/DMM
to confirm. Roll into September contracts by the end of the week.
PRECIOUS METALS/ENERGY:
Gold/Silver--Gold continues to act weaker than silver--but has rebounded
from monthly support within the first few days of June (normally a bullish
sign). Silver stopped out aggressive shorts--reinforcing this conclusion.
Aug. Gold (GCQ) Jly. Silver (SIN) Weekly Trend: Down Down W. Resistance: 347.1-347.6 490.5-493.0 W. Support: 340.7-342.5 462.5-466.0Daily Trend: Down Up D. Resistance: 346.7 485.0 D. Support: 344.7 473.0
Jly. Crude (CLN) Weekly Trend: Down W. Resistance: 19.59-20.02 W. Support: 17.57-17.92
Daily Trend: Down D. Resistance: 19.34 D. Support: 18.24
Last week traders were advised to look for new lows in gold and
attempt to sell it for a test of 341.0-342.0. This level was achieved on
Thursday and coincided with advice to intermediate traders (6/02 INSIIDE
Track) to buy August gold at 340.5-342.0. 341.5 is the current low and
gold has bounced as much as 6.00 since setting this bottom.
Silver has twice tested and held the daily LHR and gold is struggling
to close back above the 6/02 high (347.2) so I would wait until further
signs of strength before discounting the idea of a final drop. Intermediate
traders should hold long gold positions with a sell stop at 333.9/SCO.
August soybeans reversed lower without confirming a daily trend reversal--and
hit profit stops at 819.0 (on longs from 806.0). Shortly after, they gave
a daily 2 close reversal lower at 813.0. This trade has accelerated lower
and is testing key support. As stated last week, a reversal lower would
usher in a wide trading range of 780.0-870.0/SQ. We are now near the lower
end of this range...so aggressive shorts should tighten buy stops (to 801
1/2/SQ) and take half your profits at current levels.
July Crude--Again, the intermediate outlook has become the most important
(as is the case in the dollar, bonds, S&P and gold/silver)--which has
been stated the last two months: "The weekly trend remains down, so
the bearish side should be given the benefit of the doubt until proven
otherwise...This market could be setting up for an intra-year V pattern--with
a low in June or July, so traders should also begin factoring this into
the equation." (5/01/97, 6/01/97 INSIIDE Track)
Crude stopped out aggressive longs and reversed the daily trend down
on Tuesday (6/03). Once the daily trend agreed with the weekly trend, there
was little to stop this market from entering one final free fall into critical
intra-year cycles. 17.08-17.60 is major support.
End 6/07/97 Weekly Re-Lay
Beginning 6/11/97 Alert...
"New Highs..."
The Japanese Yen was again the stellar performer as it rallied to new highs--fulfilling
last week's comments that a new high was
imminent (see 6/07/97 Weekly Re-Lay.
The pattern to which I referred is a very reliable one, and has been
reinforced by the past three days' action (and the yen rallying almost
3.00 points in these three days). Traders should have taken half their
profits at 89.65/JYM or better (considering this morning's gap above this
level) and now raise remaining sell stops to 89.39/JYM.
Deutschemark traders now need a daily close above 58.64/DMM as confirmation
of existing longs. Raise sell stops on intermediate longs to 57.39 or a
daily close below 57.77. Roll into September contracts in both the mark
and yen by Friday (and use similar stops).
Crude traders saw a 2 close reversal lower on Tuesday at 19.00/CLQ- -confirming the idea that a final drop may be in store.
Due to the fact this market is likely within a couple days of a low,
I would be very careful with any new shorts and place buy stops at 19.31/CLQ.
Intermediate bond traders should be holding slightly profitable shorts
and look for a reversal lower tomorrow. The ideal scenario involves a bounce
to 111-02 to 04 and a close below 110-17/USU. If something of this nature
occurs, it will reinforce existing shorts, trigger aggressive traders to
sell, and potentially usher in an S&P top.
The S&P has reached its intra-month objective (868.10-869.50/SPM)
and is in the process of testing the weekly SPR (874.15/ SPM, 882.80/SPU).
If the S&P can spike above today's high (preferably above Tuesday's
high--but not essential) and close back below 868.70/SPM, 877.60/SPU--it
will signal aggressive traders to sell this market.
End 6/11/97 Alert
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