Option Investor
Index Wrap

Strange Year; Part I

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        WE 6-29          WE 6-22         WE 06-15          WE 6-08
DOW    10502.40 -102.19 10604.59 - 19.05 10623.64 -353.36  - 13.41
Nasdaq  2160.54 +125.72  2034.82 +  6.39  2028.43 -186.67  + 65.66
S&P-100  632.02 -  4.13   636.15 +  9.52   626.63 - 25.29  +  2.31
S&P-500 1224.38 -   .97  1225.35 + 10.99  1214.36 - 50.60  +  4.28
W5000  11407.15 + 94.70 11312.45 + 74.45 11238.00 -498.70  + 65.13
RUT      512.64 + 23.99   488.65 -  6.48   495.13 - 16.51  +  9.92
TRAN    2829.96 +153.47  2676.49 - 17.13  2693.62 -188.47  -  4.96
VIX       21.63 -   .87    22.50 -  3.83    26.33 +  4.92  -  2.55
Put/Call    .58              .69              .73              

Strange Year; Part I
Austin Passamonte

This has been one of the most bizarre trading years I've ever witnessed and to think, it's only half finished! We have exactly six full months left with little reason to believe the back half will be much different.

Two surprise rate cuts by the Fed, NYSE trading halted mid- session, NASDAQ's service up and down like fledgling internet providers, an incredible sell off and recovery in the market late March and early April were just a few of the unusual events that come to mind. Friday, the Nasdaq session was extended one hour but only the Dow and S&P 500 moved in price after 4:00pm.

My word!

And what do we have in store for the holiday week ahead? Holiday is certainly the key word. It's a cinch we'll have more than one session of the year's lightest volume out of 3 1/2 days open. IS will not initiate any new positions on Tuesday 7/3 no matter what. Should we by chance open new trades on Monday, only exit instructions will be left. This week will be hands down the worst to attempt directional trading we've seen all year and only the most addicted market players will be slugging it out alone on anemic volume.

Monday is really be the only session that has my attention. There will be lots of jostling to right all of the chaos enacted Friday. Shall we see what the charts have in store? I believe there are some very tradable setups for those who begin vacation on Tuesday instead:

(60/30-Minute Charts: SPX)

In the final hour of trading on Friday all indexes rolled over for good reason. The only thing propping up price action Thursday and Friday were gamers trying to front-run issues getting rebalanced along with a few others thought poised to move. They found out we are a long ways from oversold when huge sell-order imbalances were released around 3:00pm and sent the momentum bulls scurrying like mice from a brush fire.

That broke an ascending bearish pennant and did form another perfect bear flag (not show). If we merely connect the bottom of that red line pennant with Friday's candle close, see what a clear ascending rectangle that is? Doesn't it look just like your national flag hanging from its pole to the right and draping to its left? That, my fellow trader is a classic bear flag.

Stochastic values are also in the beginning stage of a perfectly synchronized bearish roll as well. Looks like lower markets to me on Monday, which actually began between 4:00 and 5:00pm. We'll see how that affects the action on Monday for real.

(60/30-Minute Charts: Dow

Same with the Dow. Broke a neutral wedge and headed lower in a big way when that bearish imbalance of orders hit the NYSE floor. Still looks like it has plenty of room to fall in the short term from there.

(60/30-Minute Charts: QQQ)

The NDX/QQQ is forming a nice little bullish triangle with higher lows and a flat top that is supposed to break above resistance. However, stochastic values suggest otherwise and failed patterns are very good entries. When a majority of technicians expect this one to break higher, they will "anticipate" the break and buy early. If it should indeed fail from there the rush by those early birds to switch directions can be powerful.

(60/30-Minute Charts: OEX)

A different look at the OEX than SPX, which I really like to do. The same basic formations are usually present in both so I think it's good to mix things up. Here we see a widening or expanding pattern which is bearish and usually breaks to the downside. That would be suggested by current stochastic alignment as well.

One Day At A Time
That sums up Monday's most likely action. Who knows from there? I get all kinds of email from readers demanding we find and post directional buy & hold plays that win. Folks, that pipe dream just doesn't exist right now. We have no direction for part-time traders to play and I wouldn't bank on significant movement from this current range any time prior to July 9th or later. I'd like to demand that my beloved Miami Dolphins win a SuperBowl too, but odds of that are about the same as the 1999 bull-run resuming before well into 2002.

Chart signals and prices we see here are not legit when the post- 4:00pm fiasco is factored in. Readers asked me all afternoon how to handle trading during the special extended hour. That answer was easy; we don't! Times like that with uncertainty are best left alone. We are at a huge disadvantage to floor traders and market makers on the best of days let alone unprecedented times such as that. Just because markets are open does not mean we should attempt to trade.

My personal advice? Look for trading opportunities on Monday and take the balance of this week off. It will be far, far easier to lose money than make any from Tuesday forward. Beyond that lie the last two weeks of July's expiration cycle, which is all we really care about anyhow.

Shed all of that worthless time premium, let us trade pure direction and prosper! Until then, enjoy your holiday immensely.

Best Trading Wishes,

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