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Sun Dec 8 06:53:54 UTC 2002

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 View Portfolio     Archives 
December 6th, 2002 

Friday: Dow's Pattern Kisses 9000 Goodbye!

The markets spent all day continuing the declining pattern from late yesterday. We still are using a working wave count as nearing an end of (v) of 1. A gap down at open and reverse for a short covering rally to finish Friday is an interesting prospect. The second opinion is we already have seen the wave 2 and now we are in (i) of 3 down. Weighing on the other side is the fact that saber rattling with regard to Iraq's weapon declaration on Sunday may keep longs nervous. In an attempt by public firms of note to give the  appearance of disclosure, Intel reported the current sales prospect. All this is a sop to the public to make us feel like they are open and not hiding anything. This is the confidence game going on to keep us in stocks. Intel likely finished a C wave after hours, and will proceed on its appointed path down soon. 
We still maintain that a major decline is ahead of us in the DOW and S+P especially, in the range of 30% very soon. 

The McClellan Oscillators: The McClellan Oscillators  We are now entering the oversold area and need to be mindful of a rebound, even if only to the zero line.  The NYSE's falling down more  to under zero at -5.  The SPX  extended under the zero line at -48,  and the NDX down  very deep to -82.   

Momentum: Momentum:  The A/D at the  NYSE  was slightly negative at  3:4, and the Nasdaq at 2:3.  Total volume, light, maybe due to a snow storm approaching   at 1.2 billion shares. The A/D in volume was around 1:2 in the NYSE and 2:5 in the Nasdaq.  Vix pushed still hanging at  34.2.  The P/C ratio for equities is at .76. The 10 day MA for equity P/C is at .64, also showing a 5 wave down in shape. The Investor Intelligence Advisory Sentiment survey lists a 50% bullish reading which we have to read as a bearish high reading. The ARMS  index, 10 dma, is at 1.10.   

The DOW: The DOW:  The low late in the day was 8609 and is still part of the wave off the 8811 high. Some more fall to 8550 looks to be coming. So far the counter trend rallies have been small and the next real test will be to see if a larger corrective wave will reach 8800. This will certainly confirm that it can be labeled wave 2. 8400 is the next major trend line to offer support. We are still early in the new down cycle and don't expect a 'low' until the end of the third week of December. This should coincide with a 10 week cycle.

The SPX: The SPX:  Similar wave count as the Dow also, reaching a low of 907.This is near a 5th wave low , so we should be prepared for a counter trend rally. That retracement will better allow us to pin a larger degree wave label. 2 or (ii) of 3. 925 should be ample resistance.   Reaching 880 offers lower trend line support. 

Nasdaq: Nasdaq: We gapped up and then drifted down to a low of 1052  in the NDX and 1411 in the Comp.  These are just slightly lower than yesterday, and can be called very near a 5th wave down. We can expect a rally for much of Friday if there is any bullish strength and to put in a confident wave 2. The corrective rally can easily make resistance up to 1095 and 1460. For the bears we would love to see the  island maintain the gap of nine days ago.  So if the highs of 1083 in NDX and 1444 in the Comp hold, even the daily chart will maintain this bearish pattern.  We have already broke lower ascending trend line support at 1085 and then 1060 and 1020 in NDX and 1440 and 1370 in Comp should signal a larger decline ahead. In review the highs of Monday reached the A=C equality relationship given weeks ago here, A = C relationship  gave us 1155 in NDX and 1521 in Comp. 
In an observation of this 7 week rally compared to the rally of a year ago I project the next support for the Nasdaq Comp to be 875. It is early to start thinking that far ahead , but if it helps put a prospective on the next decline ahead, use it as a guide. 
Each year the NDX (100) reshuffles it portfolio to reflect the changes in market cap of the individuals in the trust. Tech is becoming less and less of this, and this year the following stocks are at risk of being dropped. ADCT AMCC ITWO RATL SANM CNXT PMCS VTSS IDTI ATML RFMD, also  SEPR ABGX PDLI IMCL CHTR ADRX.  The following stocks could be considered for inclusion as they have grown in market cap. PIXR EXPD GNTX GRMN DRYR XRAY HSIC PETM CECO ROST WFMI. These could experience price moves as they are included as the trust and funds would have to own them. Something to watch in this next month. 

The XAU: The XAU:  The bullish count for a rally to 72 is coming to the forefront. A 5 wave pattern, off the 62 low,  looks prominent now with a high of 69.50 right in line with yesterdays prediction. Now a pullback to 65-66 and holding there will give a strong case for the 72 to 75 target.  Let us play this close and wait to have it show the direction. The triangle count in  the XAU and HUI will break very soon, and establish a new wave pattern.   The primary target, for the longer run, is downward to 55, still remains intact for the XAU. The label at that time very much needs to be given a more bullish tint at that low for an A/B/C bottom at 55 will be a (B) wave or a 4th wave. I am becoming more convinced that the initial drop off the May high can only be labeled as an a-b-c for A. That was followed by another clear a-b-c so far for B ,or (a) of B. This keeps us on alert that we are still in some corrective pattern that is fairly complex. The alternate count, alluded to ab
 ove,  near term bullish longer term bearish is for this rally from 65 to carry higher to 75-80 in a (c) of <B>, then a drop to new lows.   Now I want to draw your attention to the BUGS index,  for Basket of Unhedged Gold Stocks. The stocks in this index do not have their sales hedged so that the market price gets reflected in asset  value. ABX , PDG, and AU are the worst offenders in hedged sales of future production. The chart below shows how a 4th wave pattern is the clearest option for a wave count. The BUGS index includes ASA, GLG, HM, and NEM. AU looks to be a good proxy for the XAU, for those trading off this index. A note on the price of gold the metal, looks by two wave counts, to be in a 4th wave ready to push higher to $350. This surely will get reflected in the mining stocks. 

Our Mutual Fund Allocation: 
Our Mutual Fund Allocation:  As of 11/21, we are now  30% Juno from 7.72 average price (100% short 30-year treasury bonds), 20% Tempest  at  95.78,  and at 10% Tempest at 88.11 for average of 93.22 (200% short S&P 500), and  10% Venture at 84.83, 20% Venture at 69.45, and 10% Venture at 64.75 for an average of 74.60 (200% short NDX). 

This Week's Earnings Reports:
FRI:     NSM 

Many in the money plays have been taken off. Other open plays very old just taken off letter. 
SHORT PLAY: entry             target             stop 
NFI (9-18)  25-26.00                17.00              30.00  close to done 
COLM       40-41.00                  20.00             44.00  44.25 hit maintain short for Tuesday 
FDS (9-20) 26-27.00                19.00              30.00  stopped out, thrust out of triangle 
MDT            40-42.00                32.00             49.00 Raised stop still ok short 
BSX  (10-7) 35-37.00                25.00             39.00  in little 5th 
SYY             29-31.00              20.00              33.00 
SYMC           34-36.00             28.00              37.00 stopped out, making new high 
FNM              67-70.00             55.00              72.00 
SLE    (10-17) 22-23.00              15.00             25.00 stopped before , new entry 
PRX (10-21)  21-23.00              15.00             26.00 stopped out 
WWY            52-54.00               45.00             56.00 
EFX  (10-23) 24-26.00              18.00              27.00 
MRCY           28-30.00              15.00              35.00 
AOL  (10-25) 15-16.00              8.00               17.00 
EXBD              33-35.00           22.00               36.00 
WMAR          14-16.00              8.00                 17.00 
ODP (10-30)  14-15.00             5.00                  17.00 ** raise stop as 18 is where a=c 
COX               28-30.00            17.00                33.00 
CEPH (11-1)  49-51.00            35.00                53.00 stopped out 
LH (11-4)        24-25.00            18.00                26.00 Now active 
ESPD              14-16.00              10.00               17.00 
CSCO (11-5)  12-13.00            8.00                  13.75 stopped out 
CYMI              27-30.00            15.00                32.00  remain short 
AGEN (11-6) 10-11.00                6.00                12.00 
GBL                34-35.00               25.00               36.00 
AIG (11-8)     67-70.00                48.00               71.00 
FIC                 39-40.00               25.00                42.00 stopped out 
QLGC            40-44.00               20.00                46.00 top is E wave of 20 month triangle 
ISSX (11-13) 20-22.00                12.00               23.50  ++stopped out 
VAL               43-44.00               38.00               45.00 
DELL (11-15) 28-30.00              20.00                32.00 
BRKS (11-21) 13.50-14.50        10.00                 15.00 
BMY (11-25)  27-28.00              20.00                 31.00 
ULTE              17-19.00                 5.00                22.00 
SLAB (11-26) 27-30.00                15.00              31.00 
SRE                24-25.00                 15.00               26.00 
NSM (11-27)  20-21.00                10.00               23.00 
BHE  (11-29)  31-33.00                 10.00              35.00 
PETM (12-2)  18-22.00                 12.00               23.00 
IR        (12-3)   45-48.00                 30.00             55.00   (sharp a-b-c up) 
KEX (12-5)      26-28.00                20.00              30.00 
GYMB  (12-6)  18-20.00               12.00              22.00   (in c of B)     

BRCD           5.75-6.00              9.00               5.50   New long  for (C) wave up 
BGO (11-18)  .75- .85                3.00                     .60 
ASA  (11-18)  25-27.50            40.00                23.00 
RESP (11-19) 31-33.00             40.00                29.00 (4th wave triangle) 
NX   (12-2)     29-30.00            45.00                 28.00 (4th wave C wave low) 


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