wmeubank@ocp.kcmo.com
THE WEEKLY RE- LAY
OVERVIEW: Aggressive traders who followed last week's advice should have sold the S&P at 901.50-902.00/SPU. This trade quickly reached the weekly HLS and traders were advised on Monday to lower buy stops to 887.65...which was hit before Tuesday's Chicago session had even begun.
Traders should have exited between 887.65 and about 890.00-leaving a 24 hour profit of about $6,000-$7,000 per contract.
Intermediate bond traders remain short September bonds from 111-06 to 20, while aggressive traders are still short from 112-21/USU.
D-mark traders were stopped out of shorts incurring a loss of about $500- $600/contract.
Japanese Yen shorts were covered with $300-$700 profits, when trailing stops were hit.
Intermediate traders remain long gold from 340.5-342.0/GCQ...and should keep stops at 333.9/SCO.
Aggressive soybean traders should have sold 659½- 662½/SX and be holding these shorts with $600-$750 per contract profit. See specific sections for updated analysis and trading recommendations...
STOCK INDEXES: Volatility continues to increase-reinforcing the thought that we are within 2-3 weeks of a very significant peak.
Sep. S&P(SPU) DJIA Weekly Trend: Up Up Weekly Resistance: 912.40//927.15 7796-7834 Weekly Support: 881.75//870.00 7579-7594 Daily Trend: Up/Neut. Up/Neut. Daily Resistance: 902.50 7760 Daily Support: 890.55 7604
Despite the intermediate outlook for an S&P rally to 941-947.00, Monday provided an opportunity for aggressive traders to get short for a contra-trend trade. This trade reached the weekly HLS on Monday-indicating that this decline may have reached fruition.
In addition, the daily trend (which has remained up for the last several weeks) gave two successive neutral signals, but could not reverse to down-also signifying that a rebound to test the highs was likely. This, too, was fulfilled in a matter of hours as the S&P shot back up to within 1.20 of the highs-peaking at the mid-week point.
Several factors continue to point to the likelihood that a significant high will be set in July. They are as follows:
#1-The weekly LHR was hit-and held-two weeks ago (6/09-13 LHR = 903.55/SPU, 6/13 close = 903.45/SPU). A high ensued and the weekly HLS was struck last week.
This is often the type of volatility seen around highs, so I would not be surprised to see another rally to the weekly LHR very soon. If it happens next week (927.15/SPU = weekly LHR), and holds, it would be indicating a high within the following 1-3 weeks (likely around 941-947.00/SPU).
#2-The plethora of cycles-many related to the 360 cycle first described last November-which align over the next 3-4 weeks.
This is not as precise and could be indicating that this final rally will extend a few more weeks (i.e., a blowoff-as is so common at the peak of major cycles) or that the high is already intact. Trading signals are needed to clarify this indicator.
#3-The fact that this market is within a few percent of MAJOR objectives at 941.00-947.00. The S&P could turn lower from here-and still be considered as having tested these levels with only a small margin of error. The market is not perfect, so I try to resist the temptation to expect precision with targets of this magnitude.
The next several weeks are likely to be full of opportunities on both sides of the market. But...traders should avoid holding on to trades to tightly as follow-through will likely be sporadic. In many cases, the use of 60 minute charts should take precedence over daily ones-using 10 minute charts as a filter.
Trading Strategies-Aggressive traders should have sold 901.50-902.00/SPU on Monday (6/23) morning and taken 1/2 profits at 896.55 and half at 887.65-890.00/SPU. Aggressive traders may have another trading opportunity this Monday (though pre-holiday trading could have an adverse impact)...
If the SPU tests 890.00-890.70 in the first 90 minutes, buy an hourly close above the first hour's high. Use an hourly close below the low of the day as the risk point. The first objective is 903.45- 904.85/SPU and the second objective is the highs (912.20 = weekly SPR, 912.40 = high).
Take 1/2 profits at 912.20 if the market waits until mid-week to test this point. If tested before then, trail sell-stops 8.50 points below the high and take 1/2 profits at 926.90 instead.
INTEREST RATES: September bonds acted much the same way as the S&P-testing and holding the weekly HLS level (although it took bonds until Thursday to come close enough to be considered a viable test).
Sep. Bonds (USU) Dec. Euros (EDZ) Weekly Trend: Up Up Weekly Resistance: 112-08 to 112-17 93.98-93.99 Weekly Support: 110-19 to 110-29 93.89-93.91 Daily Trend: Up/Neut. Up Daily Resistance: 111-31 93.97 Daily Support: 111-09 93.93
Today's (Friday-6/27) reversal from this support also provided a key reversal higher-needing a daily close above 111-23 for a 2 close reversal. If this occurs, it will signal another rally towards the high (1-3 day minimum) and would be reason enough for aggressive and intermediate traders to exit all short positions.
Bonds accurately fulfilled trading signals/ projections from recent weeks, including the weekly 2 close reversal higher on May 30th (at 109-20/USU)...which spurred me to project a 1-3 week extension to the developing rally.
They also fulfilled last week's statement that "This means that a reversal lower could/should occur at any time...bonds have just fulfilled last week's analysis and are poised to reverse lower." (6/21/97 Weekly Re-Lay)
The analysis to which this quote referred was from the preceding week-and was fulfilled when bonds hit 112-24/USU. It stated:
"Weekly resistance appears at 112-22 to 27/USU, so this market may still attempt to rally a little further...Aggressive traders can attempt to pick a top and sell 112-21, placing buy stops at 113-09/USU...
Traders who tried to take advantage of the rally into mid-month (or who followed the weekly 2 close reversal) should be thinking about taking profits at any point from here (111-27) up to 112-22." (6/14/97 Weekly Re-Lay)
Since the market reversed with this precision, I have to give this peak some credibility. However, there is mounting evidence (including last week's test of-and reversal higher from-the weekly HLS) that this rally is not over and will continue into July 15-18th. The only thing that could prohibit this is if bonds reverse lower immediately and close below 111-03 by mid-week.
Trading Strategy-Intermediate traders are short from 111-06 to 20/USU and should lower buy stops to 112- 09 or a daily close above 111-23. Aggressive traders who sold 112- 21/USU should lower buy stops to 112-03, or an hourly close above Monday's first hour high, or a daily close above 111- 23-whichever occurs first.
CURRENCIES: The yen stopped out aggressive shorts when trailing profit-stops were triggered at 88.91/JYU. This simply goes to show that the yen is in a consolidation below recent highs and is killing time waiting for the next rally to commence.
Sep. D-Mark (DMU) Sep. Yen (JYU) Weekly Trend: Down Dn/Neut. Weekly Resistance: 58.24-58.64 89.27//90.91 Weekly Support: 57.12-57.40 86.93-87.27 Daily Trend: Down Up/Neut. Daily Resistance: 58.15 88.60 Daily Support: 57.50 87.94
At the same time, the mark provided an outside week lower-as anticipated in last week's update. There was a little confusion regarding buy stops (on short positions from 58.12-58.21/DMU). Last week, I stated:
"Aggressive traders could still be short the mark from 58.12-.21 and holding with buy stops at 58.63. (This stop should be used on an hourly-closing basis on Monday, and as an open stop thereafter.)"
The confusion was in regard to what I meant by "Monday." Whenever I am referring to hourly data, I am always referring to the intra-day, Chicago session.
Also, open stops (unless otherwise noted) are recommended for all trading sessions-including overseas, Globex, etc. This, unfortunately, means that shorts were stopped out at the high on Monday evening's trading. This concurs with Monday's Alert, which stated:
"The mark is battling between signals and remains confusing for the near term. Today's rally brought the mark to weekly resistance, so an overnight spike higher and reversal lower is not unlikely. Traders who remained in shorts are likely see buy stops hit overnight.
...Until a daily close above 59.00/DMU appears, this market still has a downward bias and I would be more careful with longs, and more anxious to take aggressive short signals in the interim. Once a daily close above 59.00 materializes, all this will change." (6/23/97 Alert)
As if the near-term outlook was not confusing enough, the dollar gave another weekly 2 close reversal higher, while the mark gave another one lower and the yen gave a weekly 2 close reversal higher.
Since the mark and dollar were still under the influence of the June 6 reversals (same as just described), the current ones could actually be indicating a top sooner-rather than later. July 7th is the next minor cycle low in the mark.
The fact that weekly LHR (dollar index) and HLS (mark) levels are near weekly SPR/SPS's indicates that these markets could quickly attain extreme resistance (dollar) or support (mark) and set up for a reversal the following week. This coincides with the July 7th cycle.
Trading Strategies-If the mark bounces to 58.24/DMU on Monday (before spiking much lower), traders can sell it (58.14-58.28 is the range at which shorts should be attempted) with buy stops at 58.51. Look for a quick reversal lower and a test of 57.12 by week's end. Take 1/2 profits at 56.85/DMU.
Yen traders should look for a spike below 87.51/JYU (preferably to 86.93-87.30) from which to buy this market for another rally. The safest strategy is to look for a daily 2 close reversal higher, or an intra-week V pattern before initiating longs...and use an hourly close below the lows as risk.
If the yen tests this level too soon, it could spike down to extreme support at 85.28/JYU.
PRECIOUS METALS/ENERGY: Gold/Silver-Analysis from the last two weeks remains the most applicable and should be re-evaluated:
Aug. Gold (GCQ) Sep. Silver (SIU) Weekly Trend: Down Down Weekly Resistance: 337.8-339.4 479.0-482.5 Weekly Support: 331.3-332.8 458.5-461.5 Daily Trend: DownUp/Neut. Daily Resistance: 338.1 476.0 Daily Support: 333.7 469.0 Aug. Crude (CLQ) Weekly Trend: Down Weekly Resistance: 19.88//20.85 Weekly Support: 18.89-19.05 Daily Trend: Dn/Neut. Daily Resistance: 19.75 Daily Support: 19.24
"Both metals remain weak and mired in a trading range near the lows. Silver is still likely to test 452.0 and could still easily see 438.0-440.0 on an exhaustion spike down...a test of 452.0/SIN may be imminent." (6/14/97 Weekly Re-Lay)
"Silver is still poised to test 452.0/SIN, while gold is likely to reach 336.5/GCQ before a bottom is possible." (6/21/97 Weekly Re-Lay)
Again, the pattern is everything. If gold had tested 336.5 early in the week, it would have had the potential to be an intermediate low. However, by waiting until Friday to reach this support-it shows that 336.5 was primarily an intra-week target...and not much more.
This means that a test of next week's support levels is possible and could coincide with silver spiking down to support (458.5 in the September contract) as early as Monday.
Trading Strategies--Intermediate traders should have bought additional long gold positions at 336.6/GCQ and place sell stops at 331.0/SCO on new longs and maintain sell stops at 333.9/SCO on previous longs.
Intermediate silver traders should buy 459.5/SIN and place sell stops at 437.0...if tested by Wednesday. The best approach is to buy half the position outright and wait for a daily 2 close reversal higher to initiate the second half. Once the second half is entered, use a daily close below the lows as risk on entire position.
November soybeans fulfilled last week's comments and traders should be short from 659½-662½ and should now lower buy stops to 664¾ or a daily close above 658.0/SX. Take profits at 638½ and look for a daily 2 close reversal higher to establish intermediate long positions. 636-637¼ = weekly support.
As stated two weeks ago (6/14 W.R.), "November beans held the weekly HLS (while August beans held the weekly LLS), indicating that a low should occur in the near-future." ...and last week (6/21 W.R.)-"This low is expected to be intact by July 3rd..."
August Crude--Crude bounced before hitting key support (18.40-18.55/CLQ) and is attacking near-term resistance. A daily close above 19.75/CLQ is needed to reverse the daily trend to up. If this occurs, it will project a quick rally to 20.85-21.01.
Trading Strategies--Crude gave a daily 2 close reversal higher on Wednesday and aggressive traders should be long. As readers should recognize, when a 2 close signal comes after an explosive move higher, I will not buy the close, but try to buy a pullback to the 2nd close support (or at least the following day's SPS) in order to reduce the risk.
Both took place on 6/26-when August crude retraced exactly to 19.03-the 2nd close support (19.07/CLQ = 6/26 SPS). So, traders could be long anywhere from 19.03-19.52/ CLQ and should now risk 19.02 on all longs.
...End 6/28/97 Weekly Re-Lay
June 28, 1997Eric S. Hadik, Editor
Jeneric Trading Corporation
P.O. Box 2252, Naperville, Illinois
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