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Reasons I am CAUTIOUS Near Term (Jim Pilliod) dated 07-21-00
1. NASDAQ "Overbelieved",...ratio of assets in Rydex "bull bet" OTC fund
divided by "bear bet" Arktos fund: as of 07-20 = 40.1, 07-14 = 41.67,
07-13 = 41.16. Again less than $90 mill in Arktos fund,...vs. 3,528.1 Mill
in OTC fund. Previous extremes this year in this ratio,..coinciding with
intermediate term highs were: 01-07 = 23.49, 01-10 = 30.17, 03-09 = 36.82,
03-10 = 34.96, 04-07 = 33.10, 04-10 = 20.40.
2. Remember previous option (triple witch?) expiration,..I think (but am
not sure,
so I hope someone will correct me here) was 06-22,...NASDAQ dropped -127
pts,..a big surprise as expirations was supposed to be positive,..etc.
Until one considered
all the CALL buying that was done in the previous several weeks off the late
May key low. Then the drop on expiration made sense. Well,...again
Put/Call ratios in general have been VERY WEAK past 2-3 weeks,..as a result
of rally off late June lows. Ditto for VIX,...reading around 22 level
suggests "no fear". Why would Fri's 07-21 expiration (double witch?) be
strongly to the upside,..especially considering the
step forward on Thurs 07-20?
3. For Thurs 07-20 close, the premium btwn the Sept S&P500 (1515.80) vs
the cash close (1495.47) was a whopping +20.3 pts,...vs. A "fair value" of
around +14 pts. So the futures "players" are VERY BULLISH on tomorrow's
expiration,..and yes they serve as a contrary indicator at times of extremes
in the premium reading.
4. My short term cycle analysis suggests a turn lower should begin by Mon
07-24,...with lower into Wedn 07-26. Bradley Models call for intermediate
term HIGH on 07-21. And Anniversary Date (07-17-98, 07-19-99) of previous
two year's highs. Seems too perfect. Who would sell on Bradley alone?
I remember thinkning the exact same thing in July of 1998,...the Bradley 5
Model had the HIGH for the year on 07-21,...and it came in on Fri the 17th.
Widely discussed amongst "advisories",...yet very few individuals actually
sold out.
5. S&P500 on Mon. 07-17 at 1510.42 was within 1% of it's previous high
03-24 at 1527.46. Close enough to fit "double top" pattern,...two highs
separated apart by several months, etc. And divergences abound: NASDAQ
well below high of 03-10,...NYSE A/D line lagging, etc. Yet margin interest
has rebounded, IPO's and Garrett's funds are "hot" again. Not to the same
degree at the March high,..but again...per the OTC/Arktos ratio,.."players"
are back.
6. Overseas Tech Indexes (Europe and Asia) are diverging from recent
NASDAQ strength, they are "lagging",...have not matched the degree
of recovery ( approx .618 retracement of decline) in NASDAQ. Smith
Barney's Ron Daino,...a friend who's work is well founded, was on CNBC
this afternoon showing charts on momemtum indicators for overseas tech
indexes. And noted in John Murphy's book on Intermarket Analysis
(everything is linked globally),...EUROPE'S MARKETS TEND TO LEAD
THE U.S. AT LONGER TERM TURNS. Yet no one seems to notice this
divergence at this time. All is well as long as NASDAQ advances.
Again,..these are merely my personal thoughts (likely wrong) and are
being shared in an effort to precipitate some discussion on near term
market direction..etc. As usual, any comments or thoughts very much
appreciated. Regards, JIM P. jpilleafe@xxxxxxx
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