Market Wrap-Up (2-20-04)

FSO ^ | 2/20/04 | Tim Wood

[Orangedog]

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Today's WrapUp by Tim W. Wood 02.20.2004  Mon   Tue   Wed   Thu   Fri   Archive

THE DOW REPORT
"A Look At The XAU"

Notice on the daily chart of the XAU below, that I have marked each trading cycle low, since the March 2003 rally, with a “t.”  As you can see, this cycle runs approximately one month in duration. Now, look at how each of the trading cycle lows, between March 2003 and December 2003, occurred at a level above the previous trading cycle low. Also, notice that during this same time period the trading cycle tops all occurred above the previous trading cycle top. This is all indicative of a bullish pattern.

However, this bullish pattern was broken in January 2004. The breaking of this pattern has consequently turned the cyclical structure of this index bearish. This occurred with the move below the December 2003 trading cycle low.  Notice that after that break, the next trading cycle low, which occurred in January 2004, occurred well below the December low. Additionally, we have moved into the timeframe for the current trading cycle top and it has thus far fallen short of the previous trading cycle top. If we have in fact seen the current trading cycle top at these levels, it should set the stage for another move down to retest the most recent trading cycle lows. If the most recent trading cycle low is violated on this retest, such violation will serve as further confirmation that the bearish forces are still dominant in the gold sector.

Daily XAU

Now, I want to draw your attention to another observation. Below is a weekly chart of both the XAU and the DJIA. The XAU is the upper chart and the DJIA is the lower chart. I have marked the 20-week cycle lows on both charts with a “p.”  First, let’s look at the DJIA. As you can see, this 20-week cycle is fairly dominant and fairly consistent. This cycle last bottomed in the DJIA back in November 2003. The week ending February 20, 2004 will conclude the 13^th week for the current cycle in the DJIA. At this time there is no evidence that the current 20-week cycle has topped. However, there is evidence that this cycle appears to be running out of steam and when it does, it will correct down into the 20-week cycle low.

Let’s now turn our attention to the weekly chart of the XAU. Notice that the 20-week cycle tops and bottoms in the DJIA do not occur exactly in sync with the tops and bottoms of the XAU. However, you can indeed see the influence that the 20-week cycle in the DJIA has on the XAU. Sometimes one index will lead and sometimes the other one leads. But regardless, the influence of this cycle can be seen in the XAU. 

So, the point that I want to make here is that we have already seen a breakdown of the shorter-term trading cycles in the XAU.  This indicates that the XAU is leading this time around. Also, remember that we have just completed the 13^th week of the current 20-week cycle in the DJIA and that it should be approaching a top in the not too distant future. So, when we combine the fact that the XAU has thus far been the weakest and the fact that the 20-week cycle low still lies ahead for the DJIA, it is hard not to at least consider the possibility that more weakness in the XAU could still lie ahead. Also, the cyclical structure of the XAU will remain bearish until we see either a higher trading cycle top and/or a higher trading cycle low. So, until this happens, we must leave the door open for further downside in the XAU.

Weekly XAU vs. Weekly DJIA

The DJIA vs. The NDX

Since were talking about cycles today, I want to take a look at the cyclical structure of both the DJIA and the NDX (NASDAQ 100). Below is a chart of these two indexes. The DJIA is the top chart. Just as I explained above with the XAU, the DJIA has thus far continued to make higher and higher trading cycles lows since the rally out of the March 2003 low began and this bullish pattern remains in effect today.

If we look at the structure of the trading cycle lows in the NDX, we can see that this bullish pattern was violated with the recent decline. This violation occurred when the decline took the NDX below its January 2004 trading cycle low. This violation is noted with the red line drawn under the January trading cycle low. The violation of this low has thereby changed the cyclical structure of the NDX from bullish to bearish. Also notice as a result of this violation that the NDX has failed to confirm the recent highs in the DJIA. This non-confirmation is noted by the blue lines on the chart below. So, in order to turn this picture bullish, we must see the NDX make a higher trading cycle low and/or trading cycle high. As of today, this means that we must see a move back above the January 2004 trading cycle high. A move by the NDX below the early February 2004 low will serve to reconfirm this bearish trend. A move in the DJIA below the January 2004 low will also confirm the break down in the NDX and will turn the cyclical structure of the DJIA negative as well.

The Daily DJIA vs. The Daily NDX

Tim W. Wood

Copyright © 2004 All rights reserved. Tim W. Wood, CPA Editor, Cycles News & Views www.cyclesman.com Expert Page Editorials Commentary Archive The Dow Report on FS Newshour

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[Orangedog]

Ping!

[Broker]

Technical charts look back with historical clarity. If I had only known all this last week! Look at the quantitative score sheet and punctuate it with charts graphs with a blue sky background. Then shoot an arrow in the sky.....

Book of Romans sez, 'if you humble yourself to the market it will exalt you' and visa versa.

If you buy these charts; try mapquest and search for an Indian reservation or day cruise. Don't forget to tip.

Asset allocation wins every day and year!

[steve86]

If I had only known all this last week!

You clearly didn't even read the article. The beauty of cycle analysis is that you do know in advance!. You don't know with infallibility, for dang sure, but you can predict a chunk of the variance of future turns and price movements.

Why the ridicule and rigid-thinking?

[Broker]

Of course I didn't study Mr. Wood's analysis. Market cycle schools are the darlings of Saturday morning market chat crowd with $30 seminars. "Events" represent the 'chuck of' forces that make all predictions just that. Unfortunately events are all disfunctional causing bull baths and beyond. Allocate the money and avoid fadish theory.

[The_Republican]

Since Jan20th its been a disaster. I mis-timed on couple... Notel (It was just waiting for me to get in before heading south....) lets hope we start getting good news soon....

[Broker]

Pardon my ridicule and self righteousness. Over my lifetime I have watched investors chase tulips, crazed by theory and schemes. The past several years were a devistating to some.
A market wrap means; these are the facts with rational analysis. A market forecast; predicts the future. Your header was a "Market Wrap", content was a forecast. Glad you found your niche. Get rich and shout about it.

[Orangedog]

Don't feel bad. I've timed things poorly in the not so recent past. Really bad at times. It teaches the value of running tight stops.

[AdamSelene235]

Evening gents.

Spent the last 2 weeks in Tokyo. Its a wonderful place to be rich or the next best thing, on expense account.

I spoke with a number of businessmen and there is a profound sense of unease among them. Many businesses have failed, and many more are contracting; a successful business is one that is stable rather than growing.

Exports are one the few sectors that are doing well, and we all know why that is.

Everyone talks about how things were 10 years ago, back in the good days. Young workers can't afford the restaurants and so they hang out at work after hours and drink hard liquor in their cubicles. One business owner I spoke with didn't mind the practice so long as they clocked out before getting smashed. Many business districts were oddly dark.

Even glitzy Ginza, seems a bit subdued despite the snappy clothes and mafia presence.

I took a fabulous bath one morning in a spa that had been built by the Dept. of Labor and then seized and auctioned off. Perched on a mountain side with a full view of a red fireball creeping over the Pacific, you could almost believe you could defeat the American navy.

I wonder if Fannie Mae has any baths like that?

[dalereed]

"I wonder if Fannie Mae has any baths like that?"

With the high percentage of homes in the 2-10 million range that are for sale in Rancho Santa Fe, CA they might in the near future!

[imawit]

I was wondering what happened to you. Missed the instant quips.

Time to get back to the ol grind, eh ?

[AdamSelene235]

Sometimes work gets in the way of my Freeping.

I'll try not to let it happen again.

The trip was extremely productive.Every night I did not spend in the lab, my hosts took me to the swankest restaurants and sake joints. Its pretty easy to spend $200+/per plate in Tokyo. Once I started getting good results, I feared I would die of alcohol poisioning. While putting an instrument in space is a horrible tangle of technical and bureacratic problems my chances are far better now than they were two weeks ago. I've never put anything in space before; I would find it quite gratifying.

[jwh_Denver]

Market cycle schools are the darlings of Saturday morning market chat crowd with $30 seminars.

It seems most of regulars here use FA to buy/sell their stocks but many in the SM do use TA to buy/sell. FA comes first and then TA. But I think it might behoove you to understand some TA because you're up against people who use it.

[junta]

If business is bad why are the prices still so high?

[AdamSelene235]

If business is bad why are the prices still so high?

Because the only people crazier than American Central Bankers are Japanese Central Bankers.

Prices are high by American standards even though they have been falling for years. You will recall at the peak of the Japanese bubble the garderns at Edo were considered to be worth as much as the entire State of California.

I heard quite a few complaints about Japan losing its manufacturing base to China, Korea, etc.

These whiners would fit right in on Free Republic.

[Starwind]

Hey, welcome back!

I wonder if Fannie Mae has any baths like that?

Are they trying to defeat the American Navy too? Or just mortgage it?

Did you get any sense of the Japanese view of the competitive threat from India or China, and are the Japanese making any preparations to shift away from US-centric consumption?

[AdamSelene235]

Did you get any sense of the Japanese view of the competitive threat from India or China, and are the Japanese making any preparations to shift away from US-centric consumption?

I was mostly working with oblivious scientists but I pumped most business people I ran into for info.

Like America, many of them don't believe manufacturing in Japan makes sense anymore. (this sure as hell isn't due to a lack of protectionism)

and are the Japanese making any preparations to shift away from US-centric consumption?

The general vibe I was getting was: Deer in the Headlights.

Everybody knows something is wrong (after all the Japanese are tremendously hard working resourceful people) but nobody can say what.

People blame the government but concede that the government will act foremost in the interest of the government not the people. (it was weird hearing this from mainstream people)

I flat out told several people that their Central Bank was nuts for buying so much of our debt....that we would never repay them. This was met with stares of blank comprehension i.e. they believe me, but had no idea what to do about it.

[Starwind]

Hmmm...so the world's 2nd largest economy may get blindsided by their debtor/customer, the world's largest economy.

If they don't buy our debt they'll have no customer. If they keep buying our debt they'll have no capital.

Don Pardo! Tell'em what's behind door number #3. Don? Whaddya mean we only have two doors?

[Broker]

Denver: FA TA then b/s, makes excellent sense. I understand the charts, they are extremely important. What makes the markets facinating is how the same scenario never repeats itself. Will stay tuned to pick up on the buzz here.

[imawit]

But I think it might behoove you to understand some TA because you're up against people who use it.

TA management of trading is what caused the currency snafu today as spoken about in Sinclair's posts and the attendant gold/silver bullion and equities sell off today.

And as Sinclair cautions, I look for an immediate snap back next week. Or if there is any lingering fear, further drop. A close watch of the Sunday night world wide Monday start up is a MUST.

Fundamentals tells me to only be in bullion and its equities and also other commodities. I use TA to trade them.

Trading in bullion/equities and currencies also puts you playing in the league of the powers that be on the planet. Their calling card is currencies and the wild card in the deck at this time is bullion.

5 card Stud anyone ? The stakes (as always) is literally the future of the whole planet. Know when and what to hold and better start folding on paper. Paper of any kind, dollars or bonds is what is being used to use you.