wmeubank@ocp.kcmo.com
THE WEEKLY RE-LAY
OVERVIEW: This week was very active and provided some dramatic returns. S&P put options are ahead by about 3.00-4.00 points or up 30-50%. Aggressive traders were triggered short at 956.25/SPU, a trade which is already ahead by almost $10,000 per contract.
Bond put options are up 400-600% in less than two weeks. Aggressive traders were triggered short at 114-07, a trade which is ahead by $1,500 per contract. Bonds have reached the first objective and are within striking distance of the second, coming into the August 11th cycle.
Yen traders were stopped out of aggressive longs with losses of $650-$850 per contract.
Gold traders were stopped out of short positions with $300-$350 per contract profits.
Silver traders liquidated the second half of long positions for a gain of $700-$750/contract (and took $700-$800/contract from the first 1/2).
Aggressive soybean traders received a sell signal at 646½ on August 4th–which is ahead by $450 per contract. Intermediate traders (long from 588-591.0/SX) either liquidated on this reversal signal or when trailing stops were hit at 629½...for a profit of $2,000-$2,700 per contract.
STOCK INDEXES: The S&P continues to be fairly precise and very predictable. As a result, little has changed from last week–and much of this analysis should be reiterated for emphasis:
“...Last week (7/26) provided a weekly 2 close reversal higher–which could be short-term bullish. Since we are entering the second week of a 1-3 week signal, a high could be imminent.
In addition, the daily trend remains up, the S&P just held a daily HLS, and the weekly LLR and SPR project 964.35-966.05 as a likely level for a slightly new high.
Not wanting to give too bullish of an outlook, I should reiterate that major timing and price objectives have been met, and the S&P and DJIA are struggling to break through them. Cycles continue to project a July/August peak and a breakdown into October/November.
...So, until proven otherwise, I will maintain that we are at a momentous juncture in the market and need to prepare for a sharp correction in the very near future.” 8/02/97 Weekly Re-Lay
Sep. S&P (SPU) DJIA Weekly Trend: Up/Neut. Up/Neut. Weekly Resistance: 953.00- 957.60 8157-8194 Weekly Support: 915.20//889.60 7839- 7876 Daily Trend: Up/Neut. Up/Neut. Daily Resistance: 946.20 8103 Daily Support: 926.75 7960
What did the S&P do? It rebounded to weekly resistance, set a new high and turned abruptly lower...precisely fulfilling this analysis. This was confirmed with a 2 close reversal sell signal at 956.25 (8/07). Incidentally, the DJIA finally closed in my major 8256-8362 objective range (8/06 record high close = 8259).
The coming week could see a drop to 889.30-889.60 (both the July low and the weekly HLS) with secondary support at 866.20/SPU (the monthly HLS). However, the S&P will have to break through the weekly SPS and LLS (915.20-.70) to do this. This market does have some characteristics of a minor meltdown (see bond comments), so Monday's action is critical.
Trading Strategies–Traders should be holding put options (September 890-900 puts) from 8.00-10.00 points. Aggressive traders were signaled short on Thursday's 2 close reversal lower and should be short from 956.25/SPU.
Both trades should take partial (about 1/4-1/3) profits if 912.40-915.70/SPU is tested by mid- week.
INTEREST RATES: Bonds, also, could not be more cooperative. While advising traders (on 7/30) to buy 115 and 116 September puts on a spike up to 116-24 (high = 8/01 at 106-31), I made the following observations which have mostly been fulfilled:
“..In Wednesday's (7/30) Alert, traders were advised to buy September bond 115 and 116 put options when September bonds reached 116-24...
This trade was triggered on July 31st and could spur a sharp 1-2 week drop into August 11th. These options should have been purchased around 23/64 (115 puts) and 42/64 (116 puts)...The first level of support is 112-20 to 112- 31, with more important support at 110-23 to 111-02/USU...” 8/01/97 INSIIDE Track
Sep. Bonds (USU) Dec. Euros (EDZ) Weekly Trend: Up/Neut. Up/Neut. Weekly Resistance: 114-05 to 114-23 94.05-94.07 Weekly Support: 110-30 to 111-07 93.89-93.90 Daily Trend: Down Down Daily Resistance: 113- 18 94.02 Daily Support: 111-28 93.94
Wednesday's Alert updated this analysis and provided the ideal scenario in which bonds should bounce and then decline (this also offered the opportunity for traders to add to shorts, sell the futures or buy additional puts). To repeat:
“The daily trend is up-neutral, needing a daily close below 114-12 to turn down. When this takes place, it should spur another 1-2 point decline...the ideal scenario would be a bounce to 114-29 to 115-03 and a 2 close reversal lower (below 114-19).” 8/06/97 Alert
Bonds bounced to 115-06/USU and reversed lower–giving a 2 close reversal lower–as projected. This action all but insured the anticipated decline into August 11th. On the same day, September bonds closed below 114-12, projecting another 2-point drop–which was fulfilled the next day (8/08) at 112- 12/USU.
The nature of this decline, combined with the cycles bottoming on the 11/12th, tell me that a low could come on the heels of an S&P mini-collapse. If bonds drop to 110-23 to 111-02 (or 111-07, which is next week's SPS)–it could spur liquidation in stocks and a subsequent rebound in bonds.
...The only other level to watch (prior to this support) is 111-28 to 112- 00/USU...which is daily support on 8/11 as well as another interim calculation which I will explain if it holds.
Trading Strategy–Put options should be up 400-600% and traders should begin to tighten stops. Lower buy stops on put options to a daily close above 113-24/USU...until a lower daily close occurs. At that point, lower stops to a daily close above 112-22/USU.
CURRENCIES: So much of recent analysis remains intact (in every market)–that I have to reiterate these observations and show how this past week's action fulfilled and reinforced it.
Sep. D-Mark (DMU) Sep. Yen (JYU) Weekly Trend: Down Up Weekly Resistance: 55.02- 55.41 89.68//91.77 Weekly Support: 53.03-53.50 85.64- 86.14 Daily Trend: Dn/Neut. Dn/Neut. Daily Resistance: 54.82 88.48 Daily Support: 53.67 86.95
This not only shows how accurate these expectations have been, but more importantly provides the confidence to take the next step(s). As stated last week, “The Dollar Index exceeded its objective, but the mark has not broken below its corresponding support. The yen drifted lower–but is still within the confines of an unfolding correction...As we enter a new month, the chance for a reversal increases–but certain factors should come into play.” 8/02/97 Weekly Re-Lay
The factors to which I was referring had been cited in previous updates and all focused on two primary conclusions:
#1–A dollar high was likely by August 4th-8th...and...
#2–The mark should bottom within .20-.30 of 53.00/DMU.
The specific quotes were as follows...
“...the yen is in more of an intermediate consolidation...which is likely to continue through the end of the month. In addition, the mark is having trouble bouncing...and could give way to a spike down to the 53.00/DMU level in future weeks...” (7/19/97 Weekly Re-Lay)
“The mark...is on its way to one of two support levels. The first is the 1997 HLS at 53.86/DM and the second is 52.81 (the most recent intermediate HHL calculation).” (7/26/97 Weekly Re-Lay)
“If the yen is to avoid reversing its weekly trend lower, it cannot close (on a weekly basis) below the 7/28-8/01/97 weekly low. If it is able to reverse higher on 8/08/97, it will signal the start of a new rally–which could be substantial...The German Mark is approaching two decisive support points which will determine the fate of this currency...
The lower of these two levels–52.81/DMU–coincides with the monthly SPS around 52.70. Considering that minor and intermediate cycles converge on August 4-6th, I would not be surprised to see a test of this level and a subsequent rebound for the beleaguered mark.” 8/01/97 INSIIDE Track
I concluded last week by stating that “the yen should immediately reverse higher.”
The mark dropped to 53.03 and quickly rallied over 1.50 basis points. However, it stopped at weekly resistance and did not signal a weekly 2 close reversal higher...both of which are indicative of a normal correction. More action is needed to confirm a low.
The yen–with uncanny precision–reversed higher on 8/06 and immediately rallied over 4.00 basis points in the ensuing two days...giving a weekly 2 close reversal higher on Friday's close...but is testing monthly resistance. More clarification is needed before entering any new trades.
PRECIOUS METALS/ENERGY: Gold/Silver: Both gold shorts and silver longs were exited profitably after gold held strong support at 316.1-316.4/GCQ and silver reached upside objectives before reversing lower.
Dec. Gold (GCZ) Sep. Silver (SIU) Weekly Trend: Down Down Weekly Resistance: 336.1- 337.7 450.5-456.0 Weekly Support: 321.0-324.7 419.5- 424.0 Daily Trend: DownUp/Neut. Up/Neut. Daily Resistance: 334.1 446.0 Daily Support: 327.0 429.0 Sep. Crude (CLU) Weekly Trend: Up/Neut. Weekly Resistance: 20.28-20.32 Weekly Support: 18.60-18.82 Daily Trend: Up/Neut. Daily Resistance: 19.88 Daily Support: 19.25
Gold remains in daily and weekly down-trends, while silver's outlook is mixed. Both metals hit–and held–daily LHR levels on Friday, so a high is likely in the next 1-3 days (if not already intact).
Since the minor and intermediate outlook is somewhat muddied, traders should remain focused on the bigger picture and review the charts, cycles and comments revealed in the August 1st INSIIDE Track. The conclusions regarding a late-September/early October turning point remain valid and next week will act as a filter.
November soybeans stopped out profitable long (intermediate) positions with a minimum of $1,900 per contract gains.
During this reversal (lower), aggressive traders were signaled to sell Beans on August 4th at 646 1/4/SX. This trade is ahead by about 9.0 points and needs to break to new lows in the next couple days. Two levels of support will be important in the coming week. One is 613- 616½/SX and the other is 601½.
Traders should lower buy stops to 648¾ and look for new lows by Tuesday. Once new lows (below 626.0/SX) are set, lower buy stops to 640¼ or a daily close above 637½.
Crude: After rallying to weekly resistance, and within .17 of monthly resistance, September crude reversed lower and could be headed for new lows (below 18.60/CLU).
As stated in the 8/06/97 Alert, “If September crude closes below 20.32, another round of selling will likely emerge.” Thursday's close at 20.09/CLU triggered this signal and the market quickly followed-through.
...End 8/09/97 Weekly Re-Lay
Beginning 8/13/97 Alert...
“The Trend Change”
For the first time since March 18, 1997, the daily trend in the S&P has reversed to down! The up-trend had been in effect since mid-April and had guided the market through most of a 230.00-point advance. This reversal is an ominous sign considering the prevailing cycles.
One thing to keep in mind is that the reversing of a trend often marks the end of an initial wave in that direction. The fact that the S&P tested weekly support and held–where option traders could have been taking partial profits–lends credence to this possibility.
Tomorrow's action will tell. If a daily close below 915.00/SPU occurs, a meltdown should ensue. Otherwise, a rebound is likely. There is one trading strategy adjustment. Instead of lowering stops on remaining put options to a daily close above 926.75, traders should use a daily close above 928.75/SPU.
...Bonds dipped right to the key 111-28 to 112-00/USU level and gave a daily 2 close reversal higher today...stopping out all put option positions with over 300-500% gains.
Aggressive traders who took today's buy signal should place sell stops at 112- 07/USU or a daily close below 112-15. Look for a rebound to 113-27 and if broken–a rally to 114-23 to 26.
November soybeans also gave an interesting reversal–which was both a double key and 2 close reversal higher. (Both bonds and beans also have the potential for an intra-week V pattern.) This trade came after soybeans reached their downside objective and triggered traders to exit aggressive shorts from 646¼ and to enter aggressive longs...both at approximately 615½.
...September crude could not trigger a sell signal on Monday and has since bounced to its daily LHR (on 8/12) and could reverse lower tomorrow. However, the daily trend could only give 2 neutral signals and has since reversed back to an uptrend–so tomorrow's action is critical. This pattern often indicates that a new high is imminent. I will address this in the next update.
...End 8/13/97 Alert
August 13, 1997 Eric S. Hadik
Jeneric Trading Corporation
P.O. Box 2252, Naperville, Illinois
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