wmeubank@ocp.kcmo.com
THE WEEKLY RE-LAY
OVERVIEW: The year 5757 began with earthquakes near Rome, rising tension in the Middle East and stock indexes precisely fulfilling their upside objectives.
S&P traders should have taken 1/2 profits on their 953.20-.60/SPZ longs at 980- 985.50 for gains of $13,200-$16,150 per contract. The remaining 1/2 have profits of $11,000/contract.
Bond traders should have entered put options on the projected rally and spike high.
D-mark traders who are long from 55.80-.87 are ahead by $1,500-$1,600 per contract while option traders should be long December 5700 calls with $500 per option gains.
Silver traders remain in 1/2 longs from 465-466.5/SIZ (with gains of $3,200/contract) and took 1/2 profits of $1,200-$1,500/contract. 2CR traders are long gold from 323.1/GCZ–a trade which is ahead by over $1,300/contract.
2CR traders also remain long November crude from 19.94–with profits of $2,800/contract. Soybeans stopped traders out of two option trades with $200-$350 & $300/option losses.
STOCK INDEXES: The S&P fulfilled nearly every criteria for a final rally and subsequent top. In the past week, traders were told to look for a Monday close above 953.60, a Tuesday pullback to 953.20-.60 for buying longs, and an ensuing rally to 980-985.50/SPZ by October 6th for a potential top.
Dec. S&P (SPZ) DJIA Weekly Trend: Up Dn/Neut. Weekly Resistance: 993.05-998.80 8158-8177 Weekly Support: 955.00-957.85 7917-7938 Daily Trend: Up Up Daily Resistance: 987.25 8118 Daily Support: 963.70 7945
The S&P rallied to close above 953.60 on Monday (9/29), pulled back to 952.75 on Tuesday (9/30)–allowing traders to buy for a final rally, then shot up precisely to 985.50/SPZ on October 3rd–which led to a quick drop of almost 24 basis points in a few hours time.
While this was happening, the DJIA could only muster a rally briefly above 8100 (also fulfilling its objective with uncanny precision)–reinforcing the divergence cited over the last several weeks.
I have explained why I think that this period–the beginning of the Jewish year 5757 would usher in sudden and dramatic changes in the Middle East–affecting financial markets around the globe. I have also taught why the beginning of a period (day, week, month, year) is the most likely time for a high.
So, is it any surprise that the beginning of this momentous year would see the stock indexes fulfilling upside projections and setting the stage for an important top? Certainly not.
But, that is not enough to go on. In fact, Friday's action gave no definitive daily reversal signals, so more action is necessary to indicate a top. One potential is that Monday sees a rebound and is followed by a spike high and 2 close reversal lower on Tuesday. I will be watching for this. Friday's test of–and reversal from–the daily LHR, however, is significant.
I will be watching for a break below 954.75/SPZ to confirm a peak. If this happens before the end of next week, my projections for 7100/DJIA will take on added credibility.
Trading Strategies–Traders should have taken 1/2 profits on 953.20-.60/SPZ longs at 980-985.50 and should now raise sell stops on remaining longs to an hourly close below 966.50/SPZ (with a contingent stop at 960.90).
After the first two hours of trading, raise sell stops to an hourly close below the intra-day low. After Monday's trading, use an intra-day stop positioned .55 below Monday's low.
INTEREST RATES: As stated on Wednesday, “Bonds were following forecasts and completing their rally...with a chance of briefly spiking above 118-00” where December 116 put options should be purchased.
Dec. Bonds (USZ) Mar. Euros (EDH) Weekly Trend: Up Up Weekly Resistance: 118-12 to 118--8 94.28-94.31 Weekly Support: 114-30//113-25 94.09- 94.12 Daily Trend: Up Up Daily Resistance: 118-00 94.24 Daily Support: 115-10 94.16
Thursday's action aided greatly in identifying where this rally should peak. The LHR projection for Friday came in at 118-14/USZ, coinciding with the previous analysis and providing an excellent point at which to look for a peak.
On Friday, bonds spiked up to 118-18/USZ, and then proceeded to drop nearly three basis points in the ensuing 6 hours. This test of extreme resistance is significant. However, they too did not provide a daily reversal signal–so a similar scenario (to the S&P) could unfold in bonds in the coming week...
Bonds could rally on Monday, only to spike higher and reverse lower on Tuesday (with a 2 close reversal lower being the ideal action).
The more bearish scenario is that an abrupt drop occurs quickly and takes bonds down to 114-28 to 30 this week, and to 112-30 to 113-01 the following week. If this transpires, I would expect a couple weeks of consolidation to follow...but this will be addressed after we see the next 3-5 days' trading.
One noteworthy point: As high as December bonds were able to rally, they are still yet to give a daily close above the 10/01 high of 116-21. This could be indicating that a decline will begin immediately (with no intervening rally on Monday).
Bonds have also not closed above the monthly SPR, fulfilling last week's observation that “Bonds could still spike a little beyond their major objective (which is not the least bit unusual, since a target of this magnitude is best judged on a weekly-close basis).”
The important juncture at which bonds find themselves demands that more information be available before the near-term trend is clear. As market action warrants, I will provide additional analysis and strategies.
Trading Strategy–Intermediate and aggressive traders should be long December 116 puts from the spike highs on Friday and should hold these options until further notice (definitive stops will be given in the next few days).
CURRENCIES: The mark is struggling with trying to rally further (although it is certainly not falling, yet). This market appears poised for a sharp move in the next 1-2 weeks, but the direction needs further clarification.
Dec. D-Mark (DMZ) Dec. Yen (JYZ) Weekly Trend: Up Down Weekly Resistance: 57.53-58.01 83.39-83.60 Weekly Support: 56.37-56.65 81.90-82.12 Daily Trend: Up Down Daily Resistance: 57.50 83.06 Daily Support: 56.74 82.40
The trends remain up and traders remain long and should be raising sell stops. In addition, the mark completed a daily 2 close reversal higher on Friday. That's the bullish news.
On the other hand, the mark hit the daily LHR, as well as the 10/01 high, on Friday and retreated. That's the bearish news.
I could just as easily see an immediate rally to 58.00, possible 58.50, as I could see a quick drop to 55.40-55.69/DMZ. So, this leaves a dilemma as to which to expect. The bottom line is that long trades barely missed the revised sell stops on Thursday and remain intact with rising stops.
So, if the market is heading higher–there is little to worry about except protecting additional profits. If the market is going to see a sharp correction, these stops are there to protect a good portion of gains and take traders out of the way in the event a sudden drop begins.
The direction of Monday's close should reveal what to expect for the coming week. Also, keep in mind that a pullback first would actually be a bit more bullish for the long term–so this event would not violate the overall outlook.
The yen has weekly and monthly support converging at 81.90-82.13/JYZ, so a spike low and reversal higher is possible (if it occurs before a rally to weekly resistance).
Watch for daily reversal patterns if this support is tested early in the week.
Trading Strategies–Intermediate traders should be long the December D-mark at 55.80-55.87, and should raise sell stops to 56.54/DMZ...or a daily close below 56.66/DMZ. Traders who bought December 5700 call options (at about 65 ticks) should use the same parameters for exiting calls.
Traders can take 1/2 profits on mark longs if 58.40-59.00/DMZ is tested anytime before mid- month.
PRECIOUS METALS/ENERGY: Gold/Silver–Gold and silver gave dramatic rallies this past week, but are testing critical resistance levels during important cycle alignments. As stated on Wednesday, this could be indicating that a minor high will occur during this time frame–rather than a low.
Dec. Gold (GCZ) Dec. Silver (SIZ) Nov. Crude (CLX) Weekly Trend: Down Up Up Weekly Resistance: 342.1-343.8 555.5-561.0 23.64-23.98 Weekly Support: 329.0-330.0 505.0-507.0 21.54-21.89 Daily Trend: Down Up Up Daily Resistance: 339.1 538.0 23.45 Daily Support: 334.7 522.5 22.07 Nov. Crude (CLX) Weekly Trend: Up Weekly Resistance: 23.64-23.98 Weekly Support: 21.54-21.89 Daily Trend: Up Daily Resistance: 23.45 Daily Support: 22.07
Both rallied precisely to their respective daily LHR levels on Friday...and could not break out. So, the next 2 days are important and should reveal what to expect in the coming weeks and months. If new highs are seen, it will indicate that a new bull market is underway. If not, consolidation and retracement are probable.
Trading Strategies–Silver traders should raise sell stops on remaining 465-466.5/SIZ longs to 513.5 OCO 524.5 SCO. 2CR traders in gold should raise sell stops on 323.1/GCZ longs to 333.4 OCO 335.4 SCO.
November soybeans continue in no-man's land and can't follow through in either direction. 652-653.0 is strong resistance in the coming week, but I would recommend waiting until the trend becomes clear before entering additional trades (except for aggressive 2CR signals).
Crude–Last week (ending 9/26) saw daily and weekly 2 close reversal buy signals which were addressed in the 9/27 Re-Lay, that concluded: “A daily close above 20.92/CLX will turn the daily trend higher and confirm that an intermediate low is intact. Just as crude began to rally 3-4 weeks before the invasion of Kuwait, this could be the first sign that upheaval is imminent in the Middle East.”
One trading day later, Iran breached Iraq's borders and set off a sequence of events which is still unfolding. This might not seem that critical until one considers the missiles Iran has been stockpiling in the Gulf in the past few years. The coming week could be interesting.
Trading Strategies–2CR traders should be long from 19.94/CLX and should raise sell stops to 21.84. If new highs are seen, trail a stop .80 below the highest high.
In short, many markets are seeking to determine if intermediate trend reversals are taking hold. Since trades are already initiated in most of these markets, the prudent action is to guard profits while giving sufficient room for normal volatility. When future expectations become clear, they will be conveyed.
End 10/04/97 Weekly Re- Lay
Beginning 10/07/97 Alert
“Synergy at 81.90/JYZ...”
The yen continues to vacillate in a fairly tight range and appears poised for a spike down to 81.90-82.05/JYZ. If this level holds, and spurs a reversal higher, the yen could rocket higher. Leading into this support, 82.13 is the monthly SPS while 82.38 is the intra-month preliminary HHS. Since these are monthly numbers, they are usually not precise for an intra-day low, but should be judged on a close.
The weekly SPS is 81.90 & the weekly preliminary HHS is 81.96. The yen just held the daily HLS and tomorrow's LLS (likely level for an ensuing low) is 81.97/JYZ. If an early high is around 82.46, the daily preliminary HHS will also be 81.96. Intermediate traders can buy 81.90-82.05/JYZ and place sell stops at 81.19 initially...looking for a subsequent close higher.
Conversely, the mark tested the weekly SPR and dropped. It needs to reverse higher tomorrow to avoid a sharp retracement in the days ahead. A spike to 56.95 and close above 57.17 would be bullish. Traders should raise sell stops to 56.59/DMZ OCO 56.91 SCO.
The S&P is testing weekly resistance–allowing the DJIA to reach its upper resistance at 8177. Traders should raise sell stops on 953.20-.60 longs to 981.35 or a daily close below 983.70/SPZ. If a new high is seen, raise sell stops to 985.30 or an hourly close below the first two hours' low (or 989.60–whichever is lower). Aggressive traders can use these stops to enter shorts–risking the highs.
Bonds are retesting monthly resistance, which is below Friday's high. The ideal situation would be a quick spike above today's high, followed by a 2 close reversal lower (intra-week inverted V). Aggressive traders can sell 117-20 to 25 and place buy stops at 118-13/USZ. Look for a daily close below 117-06.
[Keep in mind that bonds and the S&P are in uptrends, and this is an attempt at top-picking due to converging factors. Do not get married to short positions as this market could blow-off to the upside. Bonds have an intra-week preliminary LLR at 118-20, while the S&P/DJIA have intra-month preliminary LLR's at 999.25/SPZ and 8309/DJIA...which could be tested in the event of a blow-off.]
Gold and silver triggered sell stops on Monday's close–completing successful long trades. A drop to 500-505.0/SIZ and 329.0/ GCZ is probable in the coming days. Crude also triggered sell stops and could drop to 20.50-20.87/CLX in the days ahead.
Soybeans have turned bullish near term. I remain bullish long and intermediate term, but the near term has been difficult in recent weeks. Beans are encountering strong resistance levels–where I am watching for additional clues. No trades are recommended for now.
End 10/07/97 Alert
10/08/97 Update...
The yen quickly reversed higher and rallied over 100 points in a few hours, while bonds went directly to resistance (triggering short trades) and plummeted 2 basis points in a few hours. After setting a secondary closing high of 8178/DJIA, the stock indices also dropped sharply triggering traders to reverse to short while taking substantial profits in remaining long S&P trades. The next few days are critical in all the financial markets and could usher in tremendous opportunity.
October 8, 1997 Eric S. Hadik
Jeneric Trading Corporation
P.O. Box 2252, Naperville, Illinois
Copyright 1997, by Consensus Inc. All American and Pan American rights Reserved. editor@consensus-inc.com
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