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THE WEEKLY RE-LAY
OVERVIEW: Bonds and the S&P continue their projected rally and gold remains headed for one final low.
Bond traders who bought 112-30 should again raise sell stops, this time to 115-04/USZ and take 1/2-3/4 profits at 117-00 or higher. This trade is ahead by $2,700 per contract and has the potential for an additional $1,500 gain.
2CR traders in the December D-mark were long from 55.87 and should have reversed to short on Thursday's 2CR sell signal...at 56.52/DMZ.
Considering that a weekly key reversal lower occurred, this market could spike lower in the coming week. Traders should have gained about $800 per contract on longs and be holding shorts with minor losses.
Silver traders were stopped out of long SIZ positions at break-even. 2CR traders were triggered long the November soybeans which was quickly reversed with a 2CR sell on Thursday's close. The original trade lost $450-$600 per contract while the new one is behind by $200 per contract.
STOCK INDEXES: Several clues led to the conclusion that another rally could carry the S&P back to the highs by early-October. On 9/09, I warned that bonds and the S&P were likely to see a new intra-week low before surging. Many additional clues were addressed last week and will be quickly reiterated to lay the foundation for this week's comments...
The S&P...fell to retest the 9/02 low. This...spurred a rebound which is still unfolding. The DJIA remains in a weekly down-trend while the S&P has still been unable to confirm this reversal. Given that the DJIA could still attempt to reach its rebound objective of 7970-8023, and the fact that the S&P can not confirm a weekly reversal lower, we could be in store for another bounce.
Dec. S&P (SPZ) DJIA Weekly Trend: Up Down Weekly Resistance: 981.20-990.00 8067-8092 Weekly Support: 940.00-944.00 7743-7767 Daily Trend: Up Down/Neut. Daily Resistance: 965.40 7954 Daily Support: 955.85 7880
This is corroborated by bonds, which rallied from critical support and are poised to surge to new highs...Stock indexes could be mustering a final rally into the key early-October time frame...and then a sharp decline.
...The transports and utilities are making new highs while the industrials and S&P 500 languish...there are a lot of conflicting signals which could allow the previous bull market to exert its influence one last time...and spur a spike higher into early-October.
After testing support, the S&P rallied 60 basis points and the DJIA"440 points. The magnitude of this bounce hints that this is not an impulse wave, as many of the sharpest moves are against an emerging trend.
Another bearish factor is the divergence between the indices. The DJIA could not even give a weekly neutral signal (from a down-trend) and gave two daily neutral signals without reversing the daily trend to up...while fulfilling projections for a rally to 7970-8023.
INTEREST RATES: Bonds continue to confirm projections for a rally to 117-08 by late-September/early-October.
Though I stated last week that this rally could extend beyond September 26th (the original target date for an intermediate high), December bonds could reach their objective by 9/26/97...and set an important peak.
Dec. Bonds (USZ) Dec. Euros (EDZ) Weekly Trend: Up Up Weekly Resistance: 117-00 to 117-12 94.22-94.24 Weekly Support: 114-06//113-07 94.11-94.13 Daily Trend: Up Down/Neut. Daily Resistance: 115-30 94.20 Daily Support: 115-12 94.16
The coming week's SPR is at 117-05, reinforcing this possibility. (An early week low around 115-04 to 07/USZ would strengthen the probability for an intra-week rally to 117-04 to 12.) Another bullish factor for this next week, and potentially the one to follow, is the 2 close reversal signal given last week. To repeat: ...aggressive and intermediate traders can attempt to buy a quick pullback on Monday morning. Friday's close gave a weekly 2 close reversal higher–3 weeks after the preceding 2 close reversal lower had occurred. This meant not only that the negative signal had run its course, but that a 1-3 week buy signal was triggered.
This, too, confirms my expectations for one final rally–which is now expected to extend beyond the week of September 26th...and into early October (unless bonds manage to reach 117-00 to 08 in the next two weeks).
Bond traders avoided sells stops on longs and saw a daily 2 close reversal higher on Friday's close. Coming at the end of the week, and with fewer corresponding signals, this trade is not as high of a probability–but could still spur a quick spike up to 117-05/USZ.
CURRENCIES: After reversing the weekly trend higher, the mark gave a weekly key reversal lower and could/should test 2nd close support at 55.85. This just happens to also be the weekly HLS (55.84/DMZ) and very near the 9/02 high (55.74/DMZ)–making for a magnetic support zone.
Dec. D-Mark (DMZ) Dec. Yen (JYZ) Weekly Trend: Up Down Weekly Resistance: 57.07-57.32 83.72-84.30 Weekly Support: 55.84-56.13 81.84-81.95 Daily Trend: Up Down Daily Resistance: 56.85 83.25 Daily Support: 56.35 82.31
The mark also gave a daily 2 close reversal lower on Thursday (9/18)–signaling a 1-3 day sell-off–which could test the 55.85 level. The August monthly close is 55.65, so this represents the lower end of support–which should not be violated on a closing basis.
The bottom line is I expect a pull-back to 55.65-55.85/DMZ followed by another surge to new highs. Of additional interest is the fact that the yen is also setting up for a low and could begin to move in synch with the mark. In other words, the dollar could be in serious trouble if the mark and yen can test support and reverse higher in the coming week!
This follows last week's comments which highlighted the new (down) trend in the Dollar Index, and the expectations for a quick bounce before the next decline...
One other noteworthy point involves the Dollar Index–which also confirmed a complete reversal like the mark. Of course in the dollar–it was to the down-side. I would not be surprised to see a quick spike down in the dollar/up in the mark, followed by a reaction back into the recent range.
Once this reaction is complete, the anticipated D-mark surge to 60.00 by November should take hold and also spell trouble for bonds and the S&P. More and more, it looks like the next two weeks could hold the fate of the entire financial markets in their hands.
2CR traders should have reversed to short in the December mark and should place buy stops at 57.09/DMZ. Take 1/2 profits at 55.74-55.87 and lower remaining buy stops to 56.21/DMZ...intermediate traders can buy the December D-mark at 55.65-55.87, if tested by mid-week, and place sell stops at 54.74/DMZ. Traders can also buy December 5700 call options when this support level is tested. Use the same stops.
PRECIOUS METALS/ENERGY: Gold/Silver–Crude and gold are very near critical lows. It is only a matter of time before events explode in the Middle East.
This comment from last week reiterated my feelings that we are entering a critical time period when war is possible and major reversals are poised to take place in several markets.
Dec. Gold (GCZ) Dec. Silver (SIZ) Weekly Trend: Down Down/Neut. Weekly Resistance: 325.6-326.24 81.0-486.0 Weekly Support: 319.0-320.44 57.0-460.0 Daily Trend:DownUp Daily Resistance: 324.24 74.0 Daily Support: 321.64 67.5 Nov. Crude (CLX) Weekly Trend: Up/Neut. Weekly Resistance: 19.82-20.07 Weekly Support: 19.32//18.89 Daily Trend: Down Daily Resistance: 19.68 Daily Support: 19.38
Confirming my technical outlook, the silver market has conformed to the outlook with uncanny precision and is presently bouncing from the weekly HLS. This was tested during a double-neutral signal on my trend indicator (the most likely time for a low and reversal higher). The trend could not turn down and extreme support held–both confirming the underlying strength of silver.
Silver traders (aggressive and intermediate) can buy 464.0-466.5/SIZ and risk 454.5–looking for a reversal higher almost immediately (and preferably a 2 close reversal buy signal).
November soybeans are in no-man's land–having reversed higher on a weekly basis, but lower on a daily basis. One possibility for the coming week is to see a drop to 624-626.0 and a subsequent double-key reversal higher (weekly close above 639.0/SX).
This would appease both signals and indicate a significant rally, thereafter. 2CR traders who sold 635.0 should place buy stops at 644¾ and trail a 9.00 stop once 632.0 is violated. Traders holding call options should now risk a daily close below 624.0/SX.
Crude–Crude is edging its way lower and will find initial support at 19.24-19.34/CLX, with more important support at 18.76-18.89/CLX. This is the equivalent level, where intermediate and long-term traders should be buying December call options (2000 strike price) and risking the entire value for now.
End 9/20/97 Weekly Re-Lay
Beginning 9/24/97 Alert...
Bonds Away!
Two weeks ago, I explained why bonds should see a low at 111-23 to 29 and then (after the low was set at 111-30) warned that a rally above 112-29 would spur acceleration higher and a test of 117-00 to 08 by late-September. I updated this by stating...
Bonds continue to confirm projections for a rally to 117-08 by late-September/early-October...a daily 2 close reversal...could still spur a quick spike up to 117-05/USZ.
This signal followed through and bonds are approaching 117-00...and gave another daily 2 close reversal higher. Today's high also tested the daily LHR, so a minor high is probable within the current 1-3 day period. Since a test of 117-00 did not materialize by mid-week, this rally could spike a little higher–depending on the next 2 days' action. Traders who are long from 112-30 should raise sell stops to 115-22 and take profits at 117-00 to 10.
The S&P gave a daily 2 close reversal lower today after testing the daily HLS in both of the preceding days. This gives conflicting signals, but fits within the scenario of a dip to 943-944.00 before a final surge. As in several recent cases, this reversal signal came 16 points from the high of the day (18 points from the high of the week) and 14 points from weekly support (the initial objective).
In other markets, silver and D-mark traders should have both been buying these markets at the lows of the week (465.0-466.5/ SIZ and 55.80-55.87/DMZ...reversing from 56.52 shorts). Stay long and raise sell stops to 456.5/SIZ OCO 466.0 SCO, and 55.92/DMZ OCO 56.07 SCO (stop close only).
The yen tested daily support on Monday (but did not quite reach weekly support) and reversed higher. It has since set an outside week, so Friday's close is crucial. A weekly close above 83.78/JYZ will confirm a low and project a minimum 1-3 week rally into October.
Soybeans dipped to 629.0/SX, then rallied and triggered trailing stops on 2CR shorts at 638.0. Traders should focus on the intermediate outlook and look for a weekly close above 640½ to confirm a new uptrend.
...End 9/24/97 Alert
September 24, 1997 Eric S. Hadik
Jeneric Trading Corporation
P.O. Box 2252, Naperville, Illinois
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