Option Investor
Index Wrap

"Don't Fight The Fed"

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        06-06-2001        High      Low     Volume Advance/Decline
DJIA    11070.24 -105.60 11179.68 11059.64 1.06 bln   1217/1858	
NASDAQ   2217.73 - 15.9.  2249.72  2204.88 1.74 bln   1613/2195
S&P 100   655.07 -  7.02   662.09   654.32   totals   2830/4053
S&P 500  1270.03 - 13.54  1283.85  1269.01           41.1%/58.9%
RUS 2000  512.58 -  3.90   516.48   512.52
DJ TRANS 2898.39 - 19.03  2917.47  2896.79
VIX        22.38 +  1.16    23.13    22.02
Put/Call Ratio      0.58

Trendless In Seattle
Austin Passamonte

...and on Wall Street, the CBOE and everywhere else. Traders still waiting for a trend to emerge & continue may be waiting a bit longer from here as well.

Oh we have trends alright, if a three-day pattern is considered to be one. Absent are the times where markets move steadily in one direction for weeks on end. No one expects every session to continue straight up or down, but pullbacks and consolidations should not equate to "tweezer tops" or "tweezer bottoms" where the previous day's values are totally erased.

It could be said that the Dow posted an inside day of sorts for the fact that we barely remained between Tuesday's extreme highs and lows. I would say it more resembles a bearish reversal candle pattern as we'll soon visit. Heck, why wait? Let's get to the charts right now!

(Daily/Hourly Charts: Dow)

We have enough lines on the weekly chart (left) to give anyone a headache including me, and I drew them. Thankfully we color-coded everything for clarity (of sorts).

First note the big red candle from today matching up to the big white one from yesterday. Doesn't that look like a pair of tweezers to you? It does to the Japanese who dubbed this bearish reversal pattern just that. This pattern depicts the previous day's bullish sentiment totally reversed & erased today. That means tomorrow should be weak as well.

Price action seems to be forming a large neutral wedge (black lines, #1 and #2) that would portend a break in either direction soon. Or it could be a bearish ascending pennant (red line, #3) that predicts further downside ahead. Lastly, we see where the latest bullish wedge (green line, #4) broke to the upside and confirmed, only to be wiped out and offer support one measly session later.

Daily-chart stochastic values are still rising, which makes it very hazardous to play puts against them but that may indeed be in store pretty soon. A look in the hourly chart at right show stochastic values still falling and price action closed below support of its 20-hourly moving average (mid-line Bollinger Band). Further weakness from here could see the old index testing lower band at 10,970 area before long. 10,850 (lavender line) would be the bottom of this range after that.

(Daily/Hourly Charts: QQQ)

The techs are a mystery as well. Daily candles are trading within loose wedges (uppermost green line should be anchored on top of 50-area candle tops) with stochastic values attempting to rise but looking suspect. The hourly chart shares another tale. Its neutral wedge is likely to break further down with stochastic values showing plenty of room to fall.

(Daily/Hourly Charts: OEX)

The OEX? Neutral wedge and bullish daily stochastics. Hourly chart on right shows a bull flag forming with stochastic values nearly oversold. I would be very hesitant to play the downside based on what we see here, but who can rule out the chance for significant selling pressure ahead?

(Daily/Hourly Charts: SPX)

Same story; different S&P. Trying to show us that we are close to oversold on a near-term basis and watch out to the downside. These days that just might mean to go short. Think about it: if market action has been confounding us at every turn, wouldn't doing the exact opposite of every losing play turn to wins?

Sadly enough; no. Constant whipsaws have beaten up traders in both directions at the same time for many weeks now and I have the emails to prove it. Unless one buys right at a key peak or dip and holds from there, extreme turbulence has been whipping out stops left and right for buy & hold traders.

The first time someone gets frustrated with repeated stops and pulls them all together is right when the next big moves roars away in the opposite direction for massive loss. Think that wouldn't happen? I've got the emails to prove it.

Chips Are On Drugs
Correct me if I'm wrong: didn't several analysts state on Monday that INTC's upcoming conference call might not be the greatest but they'd still recommend it as a buy? Chips rallied strong from there. Then we have another analyst come out this morning and say INTC channels are bloated, clogged and dismal. Chips did not rally from there.

In my opinion we either have some brokerage houses trying to pump & dump a truckload of semi's or one side of this analysis equation is on strong and possibly illicit medication. Simple as that. We've been plagued by a weekly upgrade and downgrade to this sector both directions, each week for months now. I'm serious! Can it really be this muddy of a picture for them? One side of the analysts in this equation will end up smelling like roses with the other bunch more like the south end of a north-bound camel when it's over.

Where To, Mr. Expert?
Occasionally I get a letter from someone who states they pay $79 per month for expert advice. Just do my job and tell them with high accuracy what will happen next. If only it were that easy: we could take 95% wins in every trade model, charge $795 monthly and turn excess readers away. Both scenarios are mere fantasy these days.

I'll tell you right now I have no idea where markets will go next and neither does anyone else alive on this Earth. Oh, I have my opinions and observations but that's all, the same as everyone else. But guessing or "knowing" where market action is headed versus converting that to a winning trade can be a whole different experience entirely.

When Jim Brown contracted me for this role he said some pretty prophetic words I failed to believe at the time. Jim said that I'd find trading for a website ten times harder to do than trading on my own. To be honest, I completely blew that off back then but now realize he couldn't have been more right. Very wise man, indeed.

In the next two hours I need to finish this piece and complete two Gameplans for tomorrow's action. Will I choose calls, puts or neither for Thursday? Heck if I know but neither is the choice that sounds good from here. Why don't we just see what happens after Thursday's opening bell and react to that without opinion or care? That's what makes money these days but 90% of our readers demand firm direction in place tonight so they can stage their orders in the morning before work. Ouch! This is not the market for that.

Weeklies, Dailies, Hourly, What?
Common question: "If weekly charts are overbought, daily charts are oversold and hourly charts are overbought, what does that mean?" It means there is no clear trend in place right now and we can expect any given session to move without correlation to the last. Which is exactly what is seen quite often lately.

My best guess? Markets continue to drift and struggle their way up the charts until the next bearish news breaks to sell them off again. Keep in mind another Greenspan inoculation is expected in a few weeks and the effect of our first rate cut has yet to be felt. It would take a tremendous level of fear to press current price action down to levels recently seen below. We may never see them again if third-quarter earnings and forward guidance improves, but if most companies are languishing over high levels of inventory heading into a normal period of growth that may not unfold as market bulls desire.

Basic Education & Instant Replay
Last Sunday night I had lots of fun visiting with fellow traders and hopefully we all learned a few valuable things. This Sunday night is another double-header for me on split topics.

First up will be Basic Technical Analysis covering a number of market-timing tools I use. More specifically we will discuss how to project or predict levels of resistance and support based on the use of these. For those who wonder where we come up with entry, exit and stop loss points on a chart it will be the core focus of this discussion.

Following that will be a repeat of the Day Trading seminar once more. A few people were unable to attend for personal and technical reasons so we're getting together in this forum one more time to include those who missed out before. I've been told a repeat visit for first attendees will be half-price should anyone be interested in hearing me drone on a second time.

One thing is for sure: we'll learn a bunch and have some fun in the process!

Trade Lightly And Carefully
As if we haven't been challenged enough this year, volatile chop continues to be the norm. I strongly suggest traders lighten up on capital at risk while loading up on paper trading and observation in the process. This is fine a time as any to brush up our market savvy and skills for the next round of better times ahead!

Best Trading Wishes,

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