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WEEKLY COMMENTARY Q2-2000
INDEX
"End
Of The Week Market Update" for week ending 6-30-00
Last week (see remarks below) we said that the pullback
of the previous week was not going to amount to anything
serious, and in fact it did not. The markets again,
traded in a very narrow range making very little
progress. The big rally traders had expected -after the
FOMC meeting- did not happen, a decline did not happen
either! The past four weeks the markets have refused to
break either on the upside, or, the downside,
frustrating both bears and bulls -our model has been
neutral all this time, and as it turns out, the market
has not gone anywhere! However, we do believe this is
about to change. We do believe, this coming week we will
have a resolution, one way, or another. The market's
action this past week was heavily influenced by window
dressing, thus making the data, unreliable to draw firm
conclusions from. (Consider the following: on Friday,
BRCM opened at 211.5, then it fell to 192 by 2:45pm EST,
and by 4:00pm it closed at 220, that is a 48 point swing
in one day!) Our short-term forecasting model gives a
48.78% probability that the SP500 will reach 1525 within
the next 7-10 days, and 46.01% probability that it will
reach 1375, for Nasdaq the probability is 47.31% to
reach 4250, and 44.38% to reach 3650. Our 5 day
indicator for both Nasdaq and the SP500 are right above
zero(thus neutral, indicating the markets can swing
either way) with an upward bias. The bias is positive
due to the action the past two days. However, the action
the past two days was heavily influenced -as we already
mentioned- by window dressing, so, we do not know if it
will continue. Moreover, this coming Friday, the
unemployment report for June will confirm, or, refute
that the economy is slowing down, with obvious
consequences -negative, or, positive- for the markets.
We are currently almost 80% in cash, and we will wait to
see which way the markets go before we put money to
work. On a different note, we think the XAU is about to
make a 2-3 day move that is worth trading.
"End Of The Week Market Update" for week
ending 6-23-00
Last week (see below) we said that a pull back in the
markets was likely. We pointed out in several occasions,
that the last ten trading days the rally (especially in
Nasdaq) had been concentrated on a few stocks, and at
some point profit taking wouldl kick in (we also pointed
out SDLI as an example, which it kindly obliged to our
remarks and promptly lost 40 points for the week!) There
is no evidence at this point that the pull back will
develop into something really serious. Nasdaq has
support at 3745, and also between 3660 and 3550. We do
believe if it reached those levels it will rebound at
least to the 4100-4150 level. (the rally may end at that
point but we will examine that when we get there)Our
opinion is supported also by the scenarios with the
highest probability of occurence, generated by our
short-term forecasting model. Please note, that both
scenarios predict a rebound, the only difference between
them is the magnitude of the pull back. If Nasdaq fell
to the 3550 level, and the SP500 to the 1380-1400 level,
we would go 80% long, because we believe the markets
will revisit the level they came down from.
"End Of The Week Market Update" for week
ending 6-16-00
This was the second week of digestion of the rally that
was sparked from the tame May unemployment report.
Normally,lateral consolidations do not last more than
2-3 weeks, thus we should expect a resolution shortly.
Our 5 day indicators for both the Nasdaq and the SP500
are right on zero (neutral) with a small negative bias
(they're moving down). Consequently, we feel there is
50/50 chanve that the both markets can move either way,
and not necessarily in tandem with each other. Although
quantitatively, we can not make a clear prediction for
the coming week, qualitatively, we think some weakness
should be expected, but ultimately the resolution should
be on the upside. Notice the advance/decline line for
Nasdaq. Nasdaq has been moving lateraly, but the a/d
line has been moving down. That means that there has
been less participation from the majority of stocks,
while the big cap stocks (responsible for the Nasdaq
advance) are very overbought. In addition, many of the
stocks that led the rally, left "gaps" that
-normally- get filled before the advance resumes. A
300-400 point pull back in Nasdaq is very possible, but
after that we expect the rally to continue.
CHARTS ARE VIEWABLE ONLY DURING THE CURRENT WEEK
"End Of The Week Market Update" for week
ending 6-9-00
Please read this month's newsletter, instead of the
weekly update.CLICK ON NEWSLETTER
"End Of The Week Market Update" for week
ending 6-2-00
Last week (see below) we said that the market was very
oversold and it could turn on a dime, as long as, some
event could act as a catalyst to turn the negative
momentum. Well, this past week, the "event"
came in the form of friendly economic reports. Our
indicators have turned positive, however, given the
magnitude of the advance in just four days, the market
got quite overbought -on a very short-term basis- We
believe that a pull-back will take place this week, and
it should provide not only a safer entry point, but also
the opportunity to determine whether this week's rally
was the begining of a multi-week rally, or just a bear
market rally. If the rally was for real, the SP500
should pull back to the 1420 +/- 20 points level, and
Nasdaq to the 3400 +/- 75 points level. At those levels,
both indexes not only they should hold, but also -if the
rally was for real- they should be able to launch
another leg up. We are holding from issuing a
"buy" signal, untill we see how the markets
behave next week. If the rally was for real, it should
last into July, so, there is plenty of time to get on
board!
CHARTS ARE VIEWABLE ONLY URING THE CURRENT WEEK
"End Of The Week Market Update" for week
ending 5-26-00
Two weeks ago, our model gave us a "buy
signal" based upon the deep oversold condition of
the market, and the positive divergences between price
behavior and momentum(negative momentum had subsided)
Since then, we had an anemic rally, and a resumption of
negative momentum. Our model went neutral on Thursday.
However, in dissecting and examining its components we
find the following: a)the oversold/overbought components
of the model rate the market a "buy" because
of how deeply oversold the market is b)the momentum and
trend continuation components rate the market as a
strong sell, due to high probability of continuation of
the current trend(which is down) and steep acceleration
of negative momentum. Thus, giving an overall
"neutral" rating. You need to keep in mind,
that even the most sophisticated econometric models
-because they depend on historical data- sometimes miss
to predict future events that act as a catalyst for a
sea change. Based upon what we see, we must conclude
that given the market's oversold condition, it could
literally turn on a dime, if some event acted as a
catalyst to reverse the monumental negative momentum
that exists in the market. On the other hand, because of
that negative momentum, the market could go lower. Just
like positive momentum drive overbought markets to even
more overbought levels, negative momentum drive oversold
markets to even more oversold condition. Maybe over the
long weekend market participants will re-evaluate the
market and decide that after all they want to be in
stocks! Unless something happens that breaks the
negative momentum, we think the market will head lower.
By how much we really can't tell, we do believe that
2500-2600 for Nasdaq and 1275 for the SP500 would be
extreme, 2800-2900 for Nasdaq and 1300-1325 for the
SP500 is more likely. We really wish to stress that in
our experience over the years, 80% of the time
momentum wins over oversold/overbought conditions, thus
we advise caution at this point, momentum is against the
market.
"End Of The Week Market Update" for week
ending 5-19-00
This was a rather negative week to say the least!
However, it may not be as bearish as it seems. Last
week, and in several occasions this week(see daily
updates) we mentioned that we expected the market to run
into problems as it got closer to options expiration on
Friday. In addition, it is not unusual after a the
market gives a "buy" signal to re-test its
recent lows. It could be that the rally attempt has
indeed failed and the markets will decline substantially
this coming week. The probability of such event is still
30%. Let's examine some of the facts last week. a)The
decline in Nasdaq the past three days took place on low
volume. b)On Friday the ARMS Index for Nasdaq exceeded
3.00! On Friday 4-14 when the market practically crashed
the ARMS index did not even cross 2.5! c)We've been
unable to find more oversold readings in any of our
indicators for the past 10 years.(we do not ever recall
a 3.00+ reading in the ARMS Index for Nasdaq!) Given the
state of the markets -especially that of Nasdaq- we can
conclude that either the markets are heading for a crash
worse than what we saw in April,or, the markets are just
re-testing the lows before they move higher. Monday will
be a critical day, and that is why we have posted a
chart that usually we do not post. It is one of our
proprietary daily indicators and it measures oversold
levels with regards to volume and price movement. The
indicator is extremely accurate in identifying bottoms
on a daily basis. Please note that in the past 8 times
that the indicator has been under .20, it has stayed at
that level four times only one day, two times for two
days, one time for three days and one time for five
days(during the week Nasdaq lost 25% in April) As of the
close on Friday, the indicator has been under .20 three
days. That means in all likelihood the markets will
rally on Monday, or they will have one or two really
ugly days Monday and Tuesday. If you're long we suggest
you use some tight stops.
"End Of The Week Market Update" for week
ending 5-12-00
This week our model gave us the first buy signal so far
this year. As you can see from the charts below, our 30
day aggregate indicators have been rising while prices
have been falling. In a Bull market that is a very
positive divergence, which ultimately lead to 4-8 week
rallies. The obvious question is if we are still in a
bull market! From the evidence so far one can make an
equally persuasive arguement for and against. According
to our philosophy, we let the market show us. In order
for us to conclude that a transition into a bear market
has been made one of the following two things must
happen. Either the market rallies and the rally after
4-8 weeks fails and the market turns back down, or it
breaks down from the current levels. Neither has
happened yet, thus, we are reluctant to change our
assumptions. We wish to stress that the probability of a
break down below current levels is -acccording to our
work- about 30%. Consequently, we will be on guard over
the next 3-5 days. By bull market assumptions, we are at
a point where strong sustainable advances take place. By
bear market assumptions we are at a point where further
deterioration takes place. At this point we think we
should give the market the benefit of the doubt!
"End Of The Week Market Update" for week
ending 5-5-00
Please read this month's newsletter, instead of the
weekly update.CLICK ON NEWSLETTER
"End Of The Week Market Update" for week
ending 4-28-00
This week was very constructive for Nasdaq. Our model
indicates that we should expect a one or two day pull
back next week and then it should rally to the 4200-4400
level. The picture is not all that rosy for the Dow and
it is ambiguous -at best- for the SP500. The rally in
the Dow appears to have failed, and the rally in the
SP500 shows signs of exhaustion. One thing that we
certain is that the continuous dichotomy between the
SP500/Dow and Nasdaq indicates the lack of liquidity in
the market. Investors have to sell one type of stocks to
raise funds to buy another. In order to have a
sustainable rally liquidity must return to the market.
Our intermediate term model shows that there is going to
be turmoil in the markets for another 10-15 trading
days, however begining mid-May the markets should begin
an advance that will last into early to mid-July
"End Of The Week Market Update" for week
ending 4-21-00
Last week left both bears and bulls with nothing to
celebrate! The market did not crash, and it did not take
off either. We strongly believe that the market has
"unfinished business" on the downside. Our
indicators show liquidity -and confidence- leaving
Nasdaq in big numbers. In our daily updates we said that
" a one or two day pull-back given the sharp gains
the first two days of the week would not be all that
negative" However, after analyzing all the data now
available we believe that the declines of the last two
days more likely will continue into this week. We expect
a short-term bottom to take place this week, and a
intermediate term bottom to take place sometime in May
before the markets resume a new leg on th eupside in
earnest -unless the markets have made the transition
from secular bullish to secular bearish- We would not be
surprised at all to see Nasdaq at 2600-2700 and the
SP500 at 1275-1300 before this is all over.
CHARTS ARE VIEWABLE ONLY DURING THE CURRENT WEEK
"End Of The Week Market Update" for week
ending 4-14-00
If you have been following our commentaries (both daily
and weekly) for the past three weeks, in several
occasions we made very clear that the public's mentality
to buy the dips was not going to work this time. It is
obvious that with regards to Nasdaq we got a bear market
to deal with. Whether it will done and over with in just
4-6 weeks or not is open for debate. We believe that the
market will resume its uptrend sometime in May, unless
the fundamentals of the economy deteriorate rapidly.
(see the probability scenarios for the Dow below for
week ending 3-24)The question in everybody's mind for
now is whether we've seen the bottom or not. We're
inclined to speculate that we haven't. We think there is
a real chance for Nasdaq to reach 2630, and for the
SP500 to reach 1235 before we see a real sustainable
rally. Many "high quality" stocks like
INTC,JDSU,CIEN etc., are still above their 200 mavgs.
Real capitulation will take place when these stocks are
done in for good as well! Friday's decline was orderly
not panicky, thus we think there are still stocks in
weak hands. If the SP500 and Nasdaq fall to the levels
we mentioned earlier we will be going 150% long,
otherwise we will just nimble a bit!
Our model produced only one probability scenario for
Nasdaq and SP500 which calls for further decline and
subsequent recovery
CHARTS ARE VIEWABLE ONLY DURING THE CURRENT WEEK
"End Of The Week Market Update" for week
ending 4-7-00
On Monday before the market opened(see "daily
market updates") we said that we expected the
markets to decline early in the week, but recover later
on. Three out of the last four weeks, the probability
scenario of the lesser probability has come true with
100% accuracy. The program that produces these scenarios
takes in consideration several parameters, one of which
is momentum. Beacause momentum plays such a big role in
the movement of Nasdaq stocks, the model tends to
overweight momentum in its analysis. Given that Nasdaq
has had positive momentum for a year, the model
hypothesizes that the long-term momentum is still in
effect, since it has been positive, it assigns less
probability on the bearish scenario -which occurs when
momentum reverses- If the long-term momentum remains
intact, then sporadically the bearish scenarios take
place. However, when it take places on a persistent
basis (like it has the last three weeks) the implication
is that long-term momentum might have undergone a
reversal. It is still early to assume that, but it needs
to be kept in mind. This week our system produced two
scenarios for Nasdaq and only one for the SP500. The
model also compares current chart formation with past
ones and identifies comparable charts.If you have access
to historical data, check out Nasdaq between Sep.1st
1993 and Dec. 1st 1993. Apparently, when the model takes
everything into consideration, and assuming that the
long-term momentum is positive- it produced scenario#1
for Nasdaq which calls for higher prices thru-out the
week. Keep in mind that all these programs are NOT meant
to replace the judgement and experience of human beings!
Something that we find interesting and troubling, is the
fact that from all the posible scenarios for the SP500,
the model identified only one with high probability, the
implication is, the SP500 is topping out
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AEGEANCAPITAL
GROUP INC.