wmeubank@ocp.kcmo.com
THE WEEKLY RE-LAY
OVERVIEW:
The past week is one that gave preliminary confirmation to several critical expectations...which will have far-reaching ramifications.
For traders, the most important was the second confirmed daily downtrend
in the S&P"which is usually indicative of the start of a dynamic
or dramatic wave down. As I have repeated since last autumn, I believe
a bear market will take hold with a vengeance between April and July 1997.
The second event"which will likely have an even more dramatic impact
on markets around the world...but which will take time to reach fruition...occurred
in Israel. Ground was broken on a 6,500 unit building project in east Jerusalem
and already the terrorism has begun (in Tel Aviv). This event confirms
my scenario leading into 1998 and could eventually begin a domino effect
in the Middle East"which will first be seen in crude prices.
The third event was the re-awakening of the earth in southern California.
A moderate 5.4 quake struck about 100 miles northeast of Los Angeles"30
days before the critical mid-April cycle. We will see if this leads to
anything. As far as the rest of the markets are concerned...
STOCK INDEXES:
The indexes continue to fulfill the scenario which called for the S&P to hold its February 18/19th peak and the DJIA to set one more new high. This received the strongest confirmation with the daily trend reversals in all three primary indices (SPM, DJIA and SPC). The importance of this was relayed in Tuesday's Alert, which stated"
...the daily trend reversed to down for the second time since the highs.
Just as the second decline in Elliott theory is the most dynamic, so too
is the second reversal in my trend pattern. The question is whether the
market enters this dynamic period immediately... (3/18/97 Alert)
June S&P (SPM) DJIAWeekly Trend: Up Up/Neut. Weekly Resistance: 803.00-806.00 6894-6918 Weekly Support: 778.00-780.30 6697-6715
Daily Trend: Down Up/Neut. Daily Resistance: 795.35 6828 Daily Support: 788.40 6780
Monday gave a classic intra-week X-X pattern by rallying sharply in the face of an expected decline. The big problem came when this action spurred a daily 2 close reversal higher. As it turned out, the S&P cash and DJIA both gave a 2 close reversal sell signal on Tuesday (confirming the notorious X-X pattern), but the June S&P failed to provide this signal.
This made for a somewhat frustrating week for traders who took 7.00-8.00
point profits on the 811.40/SPM short, and gave back part of this on Monday's
false reversal signal. However, traders should begin to set their focus
on the intermediate trend and prepare for the expected sell-off in April
and May.
The ideal scenario would see the June S&P dipping once more on Monday
and early Tuesday"but holding support around 780.00/SPM. A bounce
into April 1st would then set the stage for an accelerated move lower.
If the first part of this scenario transpires, I will update expectations
and trading strategies, thereafter. ...One other level to watch next week
is 803.00-803.70/SPM. This is another example of a potential magnet"which
could draw the market higher later in the week (or immediately, if 795.00
is exceeded on Monday). This level is generated from at least 5 calculations
I use for resistance, three of which are the 3/03 high, the weekly 2nd
close resistance and the weekly SPR. (The other two indicators are yet
to be disclosed.)
Trading Strategies"If 803.00/SPM is tested by Wednesday, intermediate
traders should buy June S&P 750 puts and risk 5.00 points/SCO.
INTEREST RATES:
From time to time, I reveal what would be the optimum scenario for the
coming days or weeks. This is not based on preference or hope, but rather
on an assimilation of all available data (imminent cycles, intra-week and
intra-month patterns, magnet resistance or support "which often draws
a market to it, and trading signals...or potential ones).
June Bonds (USM) Sept. Euros (EDU)
Weekly Trend: Down Down
Weekly Resistance: 109-11 to 109-24 93.88-93.91
Weekly Support: 108-05//107-16 93.72-93.74
Daily Trend: Down Down
Daily Resistance: 109-05 93.83
Daily Support: 108-09 93.79
These scenarios are not meant to imply that any other pattern would violate the analysis or trading signals, nor are they meant to be traded without corresponding signals and risk management. More than anything, they are given as a learning tool"and to perceive underlying strength or weakness in that market. One such example was last week, when I wrote:
If I were to write the script for the coming week, it would look something
like this:
June bonds open and bounce to 109-04 to 08, but soon turn lower. They spend
the next day dropping into weekly support around 107-28"spurring a
sharp sell-off in the S&P. This decline spurs a rebound in bonds (flight
to quality) and the S&P finds support around 775.00/SPM"after
which, both bonds and the S&P rebound into April 1/2. (3/22/97 Weekly
Re-Lay)
Most of this scenario came about"just a couple days later than I anticipated.
Bonds rallied to 109-05 on Wednesday and had dropped to 107-31 by Thursday.
While this was taking place, the S&P dropped to 782.50/SPM"maintaining
some resiliency for the immediate future. The 1-2 day delay could also
delay the subsequent turning points, though a high is still likely by April
4th"at the latest. If bonds do rally into April 1-4th, and subsequently
turn lower, it will usher in an extremely dangerous 4-6 week period which
could witness the sharpest decline yet in bonds...and the S&P.
June bonds gave a daily 2 close reversal buy signal on Friday (a continuation
of the reversal from Thursday) and could be poised for a rally to 109-24...The
market's reaction to Tuesday's Fed meeting could be sharp (up or down),
so traders need to place risk management above all else.
CURRENCIES:
The yen did reverse the daily trend to down on Monday and eventually fulfilled last week's comments...Thursday's decline stopped out both yen and mark long positions with about a 1.25 point loss in the yen and break-even in the mark. Though this trade did not take off as I thought it could, my comment regarding the daily trend is still important in the mark and dollar. To reiterate this point"
The most noteworthy event of last week was that the dollar and Deutschemark
both reversed their daily trends. The dollar is now in a daily downtrend
while the mark is in a daily uptrend. This is the first time this has occurred
in 1997 and coincides with analysis explained in the 3/03/97 INSIIDE Track
which called for an impending low in the mark following one final spike
down. (3/15/97 Weekly Re-Lay)
June D-Mark (DMM) June Yen (JYM)
Weekly Trend: Down Down
Weekly Resistance: 60.13-60.51 82.90//84.25
Weekly Support: 59.00-59.19 81.75//80.44
Daily Trend: Up/Neut. Down
Daily Resistance: 59.91 82.86
Daily Support: 59.44 81.80
However, the daily trend has since turned neutral (twice in the mark/once in the dollar) and will reverse back to down in the June mark on a daily close below 59.34. This would not be unusual and could simply be a sign of a market in transition"battling between bulls and bears while it develops a base.
This is also of interest to me since a falling stock market could be the
trigger for a declining dollar. I have stated for over 6 months that I
thought the first real decline in stock indexes would wait until the April-July
period. If this turns out to be true"as the early signs in the S&P
are indicating"it would coincide with the apparent accumulation going
on in the mark (while distribution takes hold in the dollar).
The bottom line is that the yen and mark are apt to test weekly support
levels next week. This could have the effect of turning the daily trend
down in the mark (joining the already reversed trend in the yen). If this
occurs, I will be closely watching for the second daily trend reversal
up"which usually spurs the dynamic 3 or C wave.
PRECIOUS METALS/ENERGY:
Gold/Silver"Both gold and silver fulfilled last week's comments
regarding the likelihood of another round of selling. Gold held precisely
where projected (346.0/GCJ) while silver is dropping below near-term support.
Apr. Gold (GCJ) May Silver (SIK)
Weekly Trend: Dn/Neut. Up/Neut.
Weekly Resistance: 357.8-358.8 524.5//540.0
Weekly Support: 349.0-349.9 507.0-508.5
Daily Trend: Dn/Neut. Down
Daily Resistance: 355.2 520.5
Daily Support: 351.8 511.5
May Crude (CLK)
Weekly Trend: Dn/Neut.
Weekly Resistance: 22.23//22.91
Weekly Support: 20.72-20.78
Daily Trend: Up
Daily Resistance: 21.91
Daily Support: 21.11
Monthly support remains at 508.5, and weekly support now coincides, so a spike down to this level is possible in the next few days. Gold, on the other hand, is building strong resistance around 358.0"which could pull the market higher next week. With this in mind, it will be important to see whether gold and silver test resistance or support first.
Trading Strategies"Aggressive and intermediate traders who
bought May silver at 520.5 should maintain sell stops at 504.5/SIK (but
not use the contingent SCO for now). Option traders who bought May 525
calls should use the same stops.
Futures traders should still be long 1/4 of their May soybean positions
from 738<$E1/2> and 1/4 of their option positions"currently
at 94 and 81 (purchased at 14-15 and 18-19). Use a daily close below 824.0/SK
as the sell stop on all remaining futures and call options positions.
May Crude"Crude gave traders another quick and profitable trade,
as partial profits should have been taken at 21.80/CLK"after entering
at 20.68.
Friday's action gave a daily 2 close reversal lower"which should have
been enough to signal remaining longs to liquidate their positions and
reverse to short for a 1-3 day trade...with an initial objective of 20.70-20.78/CLK.
...Place buy stops at 21.91 and take partial profits at 20.78/CLK. End
3/22/97 Weekly Re-Lay
3/26/97
Comments Bonds rallied to 109-24 as expected and are now testing
weekly
support around 108-05. If this level holds, a second bounce into 4/04 is
probable. The S&P triggered traders to begin building a short position
and I am addressing this and the expected subsequent action in a special
report written yesterday entitled 7's Mark Completion.
My viewpoint has not changed for over 6 months that April-July 1997 would
reveal the first signs of a burgeoning bear market...and would provide
some excellent trading opportunities. The fact that this time frame coincides
with such uncanny earth-related cycles (spurring major earthquakes and
volcanoes...see 1997"The Fateful Turn) is more reason to believe that
a surprise could/should hit the markets in the next 1-3 months.
As soon as the developing sell signal in the S&P is confirmed, I will
immediately alert subscribers"since there will be very little time
to act...or react. As described in 7's Mark Completion, the periods leading
into April 22nd and into May 16-20th will be very precarious. Stay tuned.
March 22, 1997 Eric S. Hakik
Jeneric Trading Corporation
P.O. Box 2252, Naperville, Illinois
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