wmeubank@ocp.kcmo.com
THE WEEKLY RE-LAY
OVERVIEW: 6900...here we come! The violent moves continue in the S&P and today's drop brought the DJIA within reach of the intermediate objective for this time frame. The month of October began with a forecast for a rally to 8100-8177 into early October where intermediate- and long-term traders were advised to buy put options. The Dow peaked at 8178 on October 7th! The ensuing drop was forecast to reach 6900-7100 by November 10th.
On October 18th, I updated the timing and stated that if a rally to 8023-8045 occurred early in the following week, it would accelerate the decline and forecast the low for October 28-30th (though I still expect this to be only the first of many progressively lower lows to come). The market rallied and peaked at 8060 two trading days later.
Today--October 27th, the market reached 7160--nearly fulfilling these minimum projections. The volatility on this latest move has been prohibitive for short-term trading (requiring 15-20 point risk levels) and is now even becoming risk intensive for intermediate traders who are holding put options.
The question now is whether the market will indeed rebound from the projected 15% decline, or whether it will enter a meltdown. My work is divided on the possibilities, but I would still lean towards seeing a low in the next 1-3 days--though it could still be substantially lower.
One level to watch in the S&P is 840.90/SPZ--the monthly HLS for October. This number equates with 6860/DJIA, which coincides with the January 1997 high of 6907/DJIA (799.70 is the January '97 high in the S&P) and my other wave projections. In other words, 6850- 6900 is critical for the Dow!
If this level is broken on a closing basis, it will spell serious trouble for the near term. Intermediate- and long-term traders should take profits on 1/2 of these put options in the next 1-3 days (6900/DJIA is the ideal level) and lower the risk on remaining put options to a daily close above 912.80/SPZ. I will also update the INSIIDE Track hotline to reflect this change.
Bonds tested resistance (and spiked above it in after-hours trading) and traders can be buying put options risking a daily close above 118-18. If the S&P shows any signs of recovering, bonds will likely drop quickly.
Aggressive traders were quickly stopped out of D-mark shorts, but this market is still poised to see another decline before wave 3 of a bull market takes hold. If the mark reverses lower tomorrow, it is still likely to see another wave down in the weeks to come.
Traders should see the 10/25/97 Weekly Re-Lay for analysis and trade recommendations. The main purpose for this Alert is to update the stock index analysis and how to handle this near-fulfillment of recent analysis.
End 10/27/97
Alert Beginning 10/25/97 Weekly Re-Lay...
6900/DJIA...Part III
STOCK INDEXES: The S&P and DJIA continue
to cooperate though trading is becoming more violent. As warned last week,
the predictable nature of this market should not seduce traders into becoming
complacent since this is the time frame (shortly after a potential intermediate/
major top) when trading is the most volatile and market swings are the
most violent.
December S&P (SPZ) DJIA Weekly Trend: Up/Neut. Down Weekly Resistance: 963.15-966.50 7895-7945 Weekly Support: 924.75//902.00 7535-7580 Daily Trend: Down Down Daily Resistance: 955.50 7785 Daily Support: 930.50 7645
Traders were also warned that the market could surge early in the week--which would actually be a very negative event. Though this goes against conventional wisdom, it once again proves that understanding the market is far more important than just reacting to it. To repeat from last week:
"...962.50 is possible on Monday... Equally important resistance appears in the DJIA at 8023-8045. This would be the more bearish scenario for the rest of October. If this were to occur (a bounce followed by new lows), it could accelerate the decline and project a minor low as soon as October 28-30th." (10/18/97 Weekly Re-Lay)
"The markets surged early in the week, the S&P hit and held 962.50/SPZ on Monday, and the Dow topped near 8045-before Hong Kong put a damper on global equities. As stated last week, this scenario would project a low as soon as October 28-30th. This continues to be the case and fits with projections from INSIIDE Track. If [8177/DJIA] holds, I would not be surprised to see an outside month reversal lower...traders can buy November or December put options if the aforementioned scenario unfolds and risk a daily close above 996.00/SPZ." (10/01/97 INSIIDE Track)
However, one modification is necessary to this intermediate scenario. If a low takes hold in the coming week--it could prolong this decline until late November/early December.
INTEREST RATES: Bonds turned higher a little before it was expected, but this is confirmation of how accurate the trend indicators are. December bonds had not been able to reverse either the daily or weekly trend to down and I went into the week looking for a reversal higher on both levels... since the intermediate outlook is beginning to look a little less bearish.
Dec. Bonds (USZ) Mar. Euros (EDH) Weekly Trend: UpUp Weekly Resistance: 117.24-117.31 94.19-94.21 Weekly Support: 115-19//114-26 94.01--94.05 Daily Trend: Up Dn/Neut. Daily Resistance: 117-12 94.17 Daily Support: 116-10 94.08
To reiterate from last week:
"December bonds dropped to 114-16 on Friday--reinforcing this analysis and projecting a low which could come sooner, rather than later. In fact, Thursday's low had projected a third consecutive HLS of 114-13, so this level became such a magnet, it was almost impossible to resist.
...One important factor in the coming week is the daily trend--which has not yet turned down. It will take a daily close below 114-24 to accomplish this...the weekly trend is in a similar situation with a weekly close below 114-16 needed to reverse the trend to down. A weekly spike down to 113-25--30 and Friday close back above 114-16 (and particularly above 114-27) will give a similar bullish signal--but on an intermediate basis." (10/18/97 Weekly Re-Lay)
Tuesday's Alert warned that bonds could see another spike higher before the next decline--which turned out to be more of a rally than anticipated. This does, however, introduce one additional possibility for the coming weeks.
Bonds could be in the midst of an a-b-c flat correction in which this rally (the b' wave) would not take out the 118-18/USZ high, but rather give way to another decline to just below the 114-16/USZ low. This would fit with the longer-term scenario discussed in the October INSIIDE Track--which projected a rally into early- October followed by a decline into early-November (and then a rally into January).
CURRENCIES: Having reversed the daily trend to down, then rallied to test and hold a daily LHR, the mark has shown that it is extending its correction and is likely to trade down into at least October 29/30th--when minor cycles converge.
Dec. D-Mark (DMZ) Dec. Yen (JYZ) Weekly Trend: Up/Neut. Down Weekly Resistance: 56.86-57.24 83.18-83.54 Weekly Support: 55.38-55.93 81.78-81.86 Daily Trend: Down Up Daily Resistance: 56.73 83.07 Daily Support: 56.09 82.23
55.38-55.44/DMZ is now a possibility so an aggressive short trade is possible on Monday.
The intermediate outlook, on the other hand, is anticipating a low within the next two weeks followed by the start of a 3-wave rally. Since recognizing the bearish formation and calling for a correction to at least 55.70-.80, the expected rally to 60.00 has been delayed...but not destroyed.
In fact, the scenario I just described would have much longer bullish implications than a mere rally to 60.00 into November--so keep in mind: Good things come to those who wait.
Meanwhile, the yen held the daily HLS on Thursday and is now attempting to put in a low. A spike down to 81.78-81.86/JYZ is very possible in the coming week so the question will be whether this is hit first, or whether a rally to 83.18-83.54/JYZ intervenes.
If the rally precedes the decline, it will be bearish and project selling into mid-November. If the decline comes first, it could be the first sign of a developing bottom.
PRECIOUS METALS/ENERGY: Gold/Silver--Gold and silver left no doubt that the bear market remains in force and that recent projections for another leg down were accurate. As stated last week, silver is confirming projections for a decline to 482- 484.0/SIZ, and could drop as low as 462-466.0 if this past week's low is taken out...
Dec. Gold (GCZ) Dec. Silver (SIZ) Weekly Trend: Down Up Weekly Resistance: 317.5-318.5 494.0-496.0 Weekly Support: 299.5-302.0 463.0-467.5 Daily Trend: Down Up/Neut. Daily Resistance: 312.1 487.5 Daily Support: 305.1 469.5 Dec. Crude (CLZ) Weekly Trend: Up Weekly Resistance: 21.44-21.57 Weekly Support: 20.05-20.50 Daily Trend: Up Daily Resistance: 21.28 Daily Support: 20.70
Since the trends in gold have been unable to turn up, it could still attempt to set a new low before a major bottom is intact. This could be enough to weigh on silver prices for the next couple weeks. This would be especially likely if metals bounced early in the week and reversed lower at weekly resistance levels. (10/18/97 Weekly Re-Lay)
So, how did the week unfold? Silver shot up to within 2.0 cents of weekly resistance, while gold was having trouble keeping its head above water. Silver set a mid-week high (intra-week inverted V) and began to turn lower as gold also turned down after re-testing the intra-week highs on Thursday...then the bottom fell out as it became known that it was the Swiss's turn to try to discredit gold.
Since silver still has some downside potential, gold could spike lower in the coming days, but I see little follow-through now that gold has reached the long-term downside target of 308.0. Keep in mind as well the plethora of long-term cycles aligning all through October in gold. The past two weeks represented 240 weeks from the major low in 1993 and 90 weeks from the high in 1996. A low is imminent!
Also, when it is considered that Friday's announcement did not say gold was going to be sold, but rather mobilized, and that this move is not likely until 1999--it begins to shed some perspective on the intention of this announcement. It was solely intended to further discredit gold at a time when long-term investors should be preparing for the biggest bull move in the last decade.
Trading Strategies--Intermediate traders should begin buying silver at 463.0-467.5/SIZ and risk 447.0 or a daily close below 454.0/SIZ. 463.0-63.5/SIZ is a strong, synergistic level of support in the coming week and should hold if tested by mid-week. Intermediate traders should also buy February gold 315 or 320 calls at current levels with the intention of scaling into a position over the coming weeks (so, only buy about 1/4 of a position at this time).
January soybeans remain in a daily uptrend, but still need a weekly close above 707 1/2/SF to turn the weekly trend higher. A weekly 2 close reversal higher was generated this past week, so this market should follow-through higher in the coming weeks.
Aggressive and intermediate traders should buy 693-697/SF and risk 681.0/SF. Traders can also buy January 725 or 750 calls on a pullback and risk a daily close below 680.0/SF. Crude--December crude is struggling on a near-term basis, but still looks very positive on an intermediate basis and should put in a low by November 7th at the latest (though it could come at any time). For this reason, I would alter stops slightly to avoid a whipsaw.
Trading Strategies--Aggressive and intermediate traders who are long February 2200-2300 calls should move sell stops to a daily close below 20.47/CLZ as the risk. Look for a weekly reversal higher as confirmation. Traders looking to add to, or reenter, this trade should buy these calls on a spike below 20.62/CLZ.
End 10/25/97 Weekly Re-Lay
October 27, 1997
Eric S. Hadik
Jeneric Trading Corporation
P.O. box 2252, Naperville, Illinois
Technical Corner Index
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