Consensus National Futures and Financial On Line Index
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THE WEEKLY RE- LAY
DJIA Update
The stock indices have been about as cooperative and predictable as markets come. In May/June 1997, our forecast was for a surge to 8256-8362/DJIA and a major top by August (see Futures magazine). The Dow peaked at 8259 on August 6th.
After pinpointing this first downturn, we then went on record as calling for a rebound into early-October and a projected secondary top at 8100-8177/DJIA. The market topped at 8178 on October 7th, and traders were advised to buy put options. The ensuing decline was projected to reach 6900-7100 within the following 4-5 weeks, a drop which seemed unlikely to most readers.
On 10/18, the Weekly Re-Lay explained why the market could bounce to 8023-8045 in the next couple days and why this would actually be very bearish and accelerate the decline so that the low would be seen by October 28-30th. The Dow bounced to 8061 then plummeted to a 6971 intra-day low, precisely on October 28th.
This spurred a flood of calls from readers and the media, and even spurred one CNBC national correspondent to state on October 29th, “you called with great accuracy the events of the past few days.”
More recently, our analysis was for a post-November 22nd drop to 947-950.00/SPZ followed by another rebound into December 1-5th, with an outside chance of a spike high on December 8th, and two projected levels of resistance in each the S&P and DJIA. The first level was 8088/DJIA and 989.15/SPZ and the second level was 1006.00/SPZ and 8185-8200/DJIA. See December INSIIDE Track for complete details.
The market hit 945.00 on November 25th, then shot up to 989.70/SPZ, setting a top precisely on December 8th! The DJIA rallied to a high of 8166 on an intra-day basis and 8209 on a theoretical basis...and then turned lower.
It now appears as though a decline into December 29th is unfolding, which could take us sharply lower if weekly resistance at 987.40/SPH and 8018/DJIA can hold. This will be updated after December 19th, when the week of trading is complete. This is a critical time so all traders should stay as up to date and informed as is possible. As for recent short-term trading signals...
Intra-year trends overrode some short-term signals, making it a difficult week to trade. The DJIA reached its second resistance level, while the S&P topped precisely at intra-month resistance in the December 8/9th cycle, before dropping over 40.00 pts.
This caused bonds to surge, stopping out the remaining put options w/losses. Eurodollar traders saw trailing profit-stops hit, leaving minimal profits in shorts from 94.18-.19/EDH.
Gold call options closed a couple ticks lower than last week ($20-$40 additional loss) while crude options also dropped a few more ticks before triggering stops. Crude traders bought 19.09/CLG and were stopped out at 18.59.
A 2 close reversal buy signal triggered some of the more aggressive silver traders long at 544.8 (based on calls and faxes from readers asking for profit-stop levels) and was followed by another signal on Friday.
STOCK INDEXES: The two least effective, most difficult and most volatile times to trade any market are at #1–the end of a given period and #2–the end of a particular trend. Usually the two do not coincide as dramatically as they do this year in the S&P and gold on a major basis, and in the dollar, crude oil, Japanese Yen and bonds on an intermediate basis.
In other words, for the last 4-6 weeks and possibly for the next 2-3 weeks, trading has been about as difficult as it will get. Luckily, it has still been rewarding–just not quite as good as most previous periods.
Mar. S&P (SPH) DJIA Weekly Trend: Down Dn/Neut. Weekly Resistance: 987.40//997.70 8018-8064 Weekly Support: 944.20//915.00 7658-7695 Daily Trend: Up/Neut. Up/Neut. Daily Resistance: 974.15 7899 Daily Support: 958.65 7778
Just like entering trades at the end of a trading day, or on a Friday, initiating trades at the tail-end of a year is a more risky prospect when several factors are at war with each other.
Since money management is always the overriding principle in my trading, it is during these times that I take less risk and scale back trading until the transition is complete. No matter what, the analysis remains just as crucial, whether or not short-term trades are triggered.
As conveyed in several recent updates, I expected the 12/05 weekly close to be the highest weekly close and a top to occur on December 8/9th. This was projected to take place at either 989.15 or 1007.0/SPZ and at 8088- 8100/DJIA or 8180-8200. As it turned out, the December 5/8th highs came at 989.70/SPZ, 8166 intra-day on the DJIA and 8206 on a theoretical basis.
The indices have since given daily neutral signals, but still need closes below 957.50/SPH and 7815/DJIA to confirm a complete reversal back down. Since the weekly trend has not reversed up during this rally, the benefit of the doubt remains with the downside.
The intra-year trend still has a bullish influence of which to be cognizant. If any short-term buy signals materialize, they could have a stronger impact on the next 1-2 weeks than the intermediate trend will have. The two signs of strength to watch for will be a daily close above 970.80/SPH, which would signal congestion, and a close above 981.20/SPH, which would signal new highs.
Bears should watch for the daily trend confirmations, cited two paragraphs ago, to confirm a top.
INTEREST RATES: Last week I discussed the dilemma in bonds, where they had given a weekly 2 close reversal sell signal, but simultaneously hit and held the weekly HLS at 117-17/USH and tested/held the monthly SPS, both signs of support. I also explained that intermediate cycles were equally ambivalent.
Mar. Bonds (USH) Mar. Euros (EDH) Weekly Trend: Up Up Weekly Resistance: 121-02 to 121-12 94.23-94.27 Weekly Support: 119-02//115-25 94.09-94.11 Daily Trend: Up Up Daily Resistance: 120-27 94.21 Daily Support: 119-29 94.17
Bonds had fulfilled a sequence of 9-week cycles between recent highs, while also completing the second occurrence of a 7-week cycle between the lows. Based on this analysis, I concluded that bonds could sell off for 1-2 more weeks before the next rally (since intra-year analysis continued to point to a near-term test of 121-00 and longer-term analysis opens up the potential for 128-129-00 by April/May 1998).
I was wrong on the short-term conclusion and bonds, spurred by another Asian scare, jumped to new highs first. This does not invalidate recent comments that “the downside risk is much greater than the upside potential.” In fact, it reinforces it since bonds are choosing to test resistance before support.
At this point, the intermediate analysis takes on more importance and traders should carefully monitor the action leading into the period between January 5-16th. If this period sets another low for bonds, following a correction between now and then, it will be very bullish into late-May. If bonds continue to push higher into this time frame, it is more likely to usher in a volatile period of consolidation, with wild swings in both directions.
One point that triangle traders might have noticed. The daily bond chart shown in the December INSIIDE Track shows a wedge whose apex converges on December 15th or 16th. This is the same on a calendar day chart as well. One of the rules of triangle trading is that the apex will often time a significant reversal after a breakout. This coincides with intra-month inverted V possibilities and intermediate cycles for the 15/16th, so traders should be aware.
CURRENCIES: The Deutschemark made its first surge, and placed the minor uptrend in the dollar on hold, but quickly found resistance at the weekly LHR from which a sharp reversal down ensued. Friday's close occurred within the 12/01 trading range, so the outlook remains unclear. A daily close below 56.50/DMH will turn the intra-month trend back down and eliminate most positive influence on this market.
Mar. D-Mark (DMH) Mar. Yen (JYH) Weekly Trend: Up/Neut. Down Weekly Resistance: 57.18-57.39 78.32-78.44 Weekly Support: 55.68-56.00 77.04-77.36 Daily Trend: Down Down Daily Resistance: 56.89 78.02 Daily Support: 56.29 77.46
This would also open the door to the intra-year trend which could re-exert a very negative bias into year-end. If the mark manages to close back below 56.28/DMH, it will signal another short-term leg down into at least December 22nd. The minimum objective on this decline would be 55.05- 55.11/DMH.
The one bullish sign would be a daily close above 56.71, followed by a close above 57.17/DMH.
As stated last week, “the currencies are almost as ambivalent as bonds, with the weekly trend in the dollar index now reversed to up, the same trend in the mark having given only one neutral signal from an uptrend, and the weekly trend in the yen being down.
...The closer that a market gets to the end of a given period, the more likely it is to take the proverbial path of least resistance (or support) and head in the direction it has spent most of that period going.
...In other words, since the dollar index has headed higher for most of 1997, it is more likely to squeeze out a rally as 1997 ends...barring any overriding technical factors...Meanwhile, the mark has headed progressively lower in 1997 and could see one final exhaustive decline. The yen put in an intra-year inverted V and is now heading lower.
...Either the mark reverses higher within the next 1-3 days, coinciding with the dollar snapping back down against its newly reversed trend, or the intra-year and intra-month trends will take hold.”
The mark did give this reversal off of key support, price objectives and cycle lows, so traders should remain at bay and wait for a clear signal in either direction. The yen is back to its lows and likely to head lower.
PRECIOUS METALS/ENERGY: Gold/Silver–Silver fulfilled expectations for a blow-off higher, while adding additional confirmation that it is in a 3 wave advance. Thursday's surge to 622 came close to reaching the 2nd objective of 630-640.0 and could lead to a period of sideways action before the next big advance. This wave will likely catapult silver higher into early-February.
Feb. Gold (GCG) Mar. Silver (SIH) Weekly Trend: Down Up Weekly Resistance: 288.9-290.6 632.5-640.0 Weekly Support: 278.4-280.7 542.5-545.5 Daily Trend: Down Up Daily Resistance: 286.0 598.0 Daily Support: 283.5 578.0 Feb. Crude (CLG) Weekly Trend: Down Weekly Resistance: 18.96-19.18 Weekly Support: 17.85-17.92 Daily Trend: Down Daily Resistance: 18.56 Daily Support: 18.32
At the same time, gold is now testing the lows last seen in 1985 (282.6) which aligns with major downside objectives and support levels between 280-285.0. If gold manages to close below this level, it could see one final exhaustion spike down into major cycle lows between now and mid-January 1998. In any case, we are closing in on the time when I have long thought the weight would be lifted off the shoulders of gold, and when major bottoming cycles align.
March soybeans held support and rebounded higher, but could only give two neutral signals to an existing downtrend.
As stated in Wednesday's Alert, beans needed a daily close above 714.0/SF (716.0/SH) to reverse the daily trend up and confirm a low. Instead, soybeans turned back lower and have since hit new lows coinciding with intra-month cycles on December 11-15th.
The weekly trend gave its first neutral signal, from an uptrend, so this market still has underlying strength and could see a reversal higher in the next 1-2 weeks. Until the trends work out this conflict, there are no new trades.
Crude–January crude closed right on the 12/01 high, but could not close above it, and quickly gave way to a new round of selling. Traders were stopped out of calls and intermediate longs and should step aside for now. The weekly trend just reversed lower, so the most likely time for a 2-3 week rally is close at hand, but no signals have materialized.
End 12/13/97 Weekly Re-Lay
Beginning 12/17/97 Alert
“Noise...”
The markets seem to heading nowhere fast. As a result, a lot of activity is taking place but little progress is being made in either direction. No new trades are recommended at this time, although the next 1-2 days could set up several opportunities.
So, each of the following markets and scenarios should be monitored closely...
The mark and yen, reacting to the Japanese announcement of a 2-trillion yen tax cut, shot up but could not exceed key extreme levels today. The mark went right to the daily LHR, signifying a minor rebound, and held. The yen surged to within a few ticks of the weekly LHR, a sign of an intermediate rally, and did not yet break through.
So, tomorrow should show whether this is a legitimate bottom forming, or just another dead- cat bounce.
Bonds retraced right to the 12/01 high of 119-12 and began to bounce. If this rebound can get back above 120-10/USH, it will confirm the onset of another 1-3 week rally. A daily close below 119-12 is needed to confirm a top and project an additional 2-4 points of downside.
The S&P/DJIA gave convincing (minor) reversals down today, but need further confirmation. This followed an S&P close above 970.80/SPH–which signaled congestion, as described in this past weekend's update.
A daily close above 981.20 or below 970.80 will signal the next 3-5 day trend. If a negative signal materializes, traders can look for a sharp drop into December 29th. More on this later.
Gold shot up to its daily trend point, where it is now decision time as to whether to muster additional strength or to head back to the lows into the key January cycles.
Silver is consolidating near the highs and just gave another 2 close reversal buy signal yesterday (12/16). Traders who took last week's signal at 544.8 should now only risk a daily close below 590.5/SIH or an intra-day spike below 581.0.
Crude and soybeans are hovering near recent lows and have given no new signals.
End 12/17/97 Alert
December 17, 1997 Eric S. Hadik, Editor
INSIIDE Track Trading
P.O. Box 2252, Naperville, Illinois
Consensus National Futures and Financial On Line Index
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com
