wmeubank@ocp.kcmo.com
THE WEEKLY RE-LAY
OVERVIEW: This week was dramatic in several respects. It was the first time since March that the daily trend turned down in the S&P and...
Traders remain in a majority of put options–having taken partial profits when the S&P hit 916.00 on 8/13 with about 70-80% gains. The remaining 2/3-3/4 of this positions remain open with gains of 160-180%. Aggressive traders should have netted about 9.00 points ($4,500 per contract) in two liquidated trades.
Bond put options should have been exited with 350-500+% profit on the 8/13 close, while aggressive traders took profits on shorts–and reversed to longs–at 112-27/USU. This left a profit of $1,300+/per contract in the previous short and a long position which closed the week at a gain of over $750 per contract.
Aggressive soybean traders received a signal to reverse shorts (from 646½) to long at 615½–yielding profits of $1,500/per contract. The new long position is down by $200 per contract. Intermediate traders were also advised to buy calls on Thursday's open a trade which is within $100 of break-even.
STOCK INDEXES: To borrow a lyrical phrase from the carpenters: It's only just begun. The sharp correction in the S&P, that is. We have recognized for nearly 10 months that July–October was the time frame when I projected a “bear market to return with a vengeance.”
July/August 1997 is when a plethora of 360-related cycles converged projecting a major top. The top came on August 6/7th.
8256-8362/DJIA was an alignment of major price objectives for the Dow. 8259 was the 8/06 record high close.
Sep. S&P (SPU) DJIA Weekly Trend: Up/Neut. Up/Neut. Weekly Resistance: 923.50- 926.75 7865-7895 Weekly Support: 869.35- 874.10 7495//7253 Daily Trend: DownDown Daily Resistance: 911.20 7812 Daily Support: 889.30 7594
And, the period from August- November is extremely negative, when several 360-related cycles project a sharp correction and, in my opinion, the start of a bear market.
For several weeks, I have concluded:
...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)
INTEREST RATES: Bonds completed their short trade from 116-24–when Wednesday's 2 close reversal higher gave an aggressive buy signal, bounced from the intermediate support level of 111-28 to 112-00, and also triggered the trailing buy stops for all put positions and newer short futures positions (from 114- 07/USU).
Sep. Bonds (USU) Dec. Euros (EDZ) Weekly Trend: Up/Neut. Up/Neut. Weekly Resistance: 114-19 to 114-30 94.21-94.23 Weekly Support: 112-22 to 112-27 94.05-94.06 Daily Trend: Dn/Neut. Dn/Neut. Daily Resistance: 114-05 94.18 Daily Support: 113-05 94.10
I explained why bonds should see a sharp sell-off in the first 11 days of August. I also explained why a close below 114-12 should spur another 2-point decline. Both of these were fulfilled this past week. Finally, I stated:
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.
The coming week is a critical week from a cyclic standpoint and will have a determining impact on the next 6-10 weeks' action...110-23/USU has to hold if bonds have any hope of a rebound back to the highs in the next couple months. (8/09/97 Weekly Re-Lay)
Over the last couple months, I have discussed my objective for bonds (117-11-20) and the possibility of this level waiting until late-September to be attained.
Obviously, if this was to happen, bonds needed a substantial correction in the interim...which we just witnessed. Another event to corroborate this price objective was if bonds set a low around 112-00. Why? Think about it...
If the low of this rally was 106-12 in early April, and the objective is 117-20, it is probable that a significant, and intervening, low would occur at the mid-point. So, with an intermediate low at 106-12 and secondary low at 111-31, the intermediate LLH projection is now 117- 18...precisely where my overall objective lies. This is the type of synergy I expect to align as a specific market approaches a significant turning point.
It would not surprise me to see a turning point at 114-24 to 26, the mid-point between 111-31 and 117-18 to 20. This is not my reasoning for projecting this rally to reach 114-23 to 26, but it would support this scenario.
...112- 22-27 is a key support level–which could be tested in the coming week...the only question is when.
CURRENCIES: The projected early-August reversal in the dollar appears to be valid and the mark is leading the way higher (for the moment) on the heels of higher interest rate fears.
The mark bottomed within .25 of a major downside objective and has just turned the daily trend up, but the weekly trend remains down. At the same time, the yen re-entered a daily down-trend and a weekly up/neutral trend–demonstrating that a new low is probable.
Sep. D-Mark (DMU) Sep. Yen (JYU) Weekly Trend: Down Up/Neut. Weekly Resistance: 55.69-55.83 86.69-87.08 Weekly Support: 54.07-54.26 83.69//82.00 Daily Trend: Up Down Daily Resistance: 55.19 85.90 Daily Support: 54.43 84.48
As I pointed out last week, these markets are certainly giving signs of a developing bottom, but confirmation has not yet been seen. This is still the case, and I would still recommend that traders not take any new trades until more clarification is gained. To reiterate:
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.
The fact that the mark has just reversed the daily trend higher could lead to a quick correction, so even this is not a strong indication for the immediate (next 3-5 day) trend.
The yen has weekly support around 83.70/JYU and longer-term support at 81.98-82.05. Either of these levels could be tested in the coming days.
The mark, on the other hand, has closer support (which may be indicating that the yen will continue to suffer while the mark holds steady) at 54.57 and 54.07- 54.26. It also has resistance at 55.69-55.83/DMU.
The most bearish scenario would be if the mark rallied to resistance early in the week and then reversed lower–closing the week below 54.88/DMU. The yen could also bounce to 86.65-87.00/JYU and then turn lower. If these events take place, it will project an additional 2-4 weeks of selling. Considering the conflicting trends, I would still avoid taking any new trades until more clarification is gained.
PRECIOUS METALS/ENERGY: Gold/Silver–Silver has been showing signs of life recently and could be on its way to test 475-485.0/SIU, near term. The daily trend turned back up while the weekly trend went neutral (from a down-trend).
These–combined with two more closes above the 8/01 high–are each positive signs, which could impact the next few days. I would not be surprised to see a quick spike up to 480- 485.0, since this is where the last three consecutive weekly LHR's align.
Dec. Gold (GCZ) Sep. Silver (SIU) Weekly Trend: Down Dn/Neut. Weekly Resistance: 332.9- 334.3 466.0//485.0 Weekly Support: 326.1- 327.3 446.0//419.0 Daily Trend: Down Up Daily Resistance: 330.9 465.0 Daily Support: 328.0 447.0 Oct. Crude (CLV) Weekly Trend: Up Weekly Resistance: 20.66-20.75 Weekly Support 19.73-19.81 Daily Trend: Up Daily Resistance: 20.43 Daily Support: 20.13
This could also coincide with gold bouncing back to this past week's high, but I do not expect to see gold much higher. In fact, if a bounce to 333.4-334.2 is seen, it would set the stage for a weekly double-key reversal lower, so the next few weeks still have the potential for a final blow-off. As I stated last week:
“...traders should remain focused on the bigger picture and review the charts, cycles and comments revealed in the August 1st INSIDE Track. The conclusions regarding a late- September/early October turning point remain valid and next week will act as a filter.”
Trading Strategies–Intermediate traders can attempt to sell December gold at 333.4-334.2 and place buy stops at 338.1/GCZ. If gold reverses lower next week, it will likely head for new contract lows by early October.
November soybeans gave a daily 2 close reversal buy signal at 615½–reversing shorts from 646¼. However, this signal was just reversed again (back to short) by a 2 close reversal lower.
...Intermediate traders should remain long November 650/675 calls and use a daily close below 605.0 as risk.
Crude Oil–October crude remains in a daily uptrend and could give traders a chance to buy a pullback...
End 8/16/97 Weekly Re-Lay
Beginning 8/20/97 Alert...
The Trend Change Rebound
Monday saw the immediate-bearish case for the S&P disappear (postponed) as the S&P rallied above 904.50-905.00 and eliminated the expected scenario and the case for an imminent break to 875.00/SPU. This quickly ushered in the dramatic reaction which typically follows a significant trend reversal. As stated last week:
“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.” (8/13/97 Alert)
The first wave down followed-through for 3 days after the trend reversal before the market entered a contra-trend rally (usually the quickest and most violent type of rally). If this is to remain a 2nd wave bounce, as opposed to the start of a whole new leg higher, the S&P should not provide a daily close above 945.10/SPU.
947.50-949.25 is critical daily/weekly resistance, while 952.95 represents the level at which many 2nd waves terminate and 957.95 is the monthly close for July. The important factor is that the market reverses lower tomorrow and closes below 936.40/SPU at the end of the week. Otherwise, the likelihood of a major high being intact will diminish greatly.
Aggressive traders saw a daily 2 close reversal higher triggered on Tuesday at 931.00/SPU–which again came after a substantial move. Traders who took this trade should raise sell stops to 937.40 and take 1/2 profits at 948.40/SPU (at which point remaining stops should be raised to 943.90). All option traders should have taken remaining profits on Monday's close with 60+% gains.
September bonds are struggling after falling short of the minimum objective (114-19). If this market is to edge its way up to 117-20 by late September, we are likely to see consolidation and a 1-1½ point drop over the next few days. (113-02 is possible tomorrow.) So, traders should raise sell stops on 112-27 longs to 113-19/USU...and reverse short at this level. If triggered, place buy stops at 114-07.
The mark has unfolded almost exactly as projected–forecasting additional selling pressure. Gold reversed lower as expected and Monday's close gave a daily 2 close reversal lower. If traders took this short (324.7/GCZ), lower buy stops to 327.6 and look for a drop to new contract lows. September silver is likely to see 437.0 in the next two days. Crude barely missed triggering longs while soybeans triggered buy stops on shorts at about break-even (10.0 above the 602.0/SX low) and option traders remain long call options.
...End 8/20/97 Alert
August 20, 1997 Eric S. Hadik
Jeneric Trading Corporation
P.O. Box 2252, Naperville, Illinois
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