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Index Wrap

Coiled For Action

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        07-11-2001        High      Low     Volume Advance/Decline
DJIA    10241.02 + 65.38 10274.02 10120.89 1.38 bln   1341/1747	
NASDAQ   1972.04 +  9.25  1975.79  1934.67 1.73 bln   1550/2168
S&P 100   607.01 -  1.78   610.95   601.05   totals   2891/3915
S&P 500  1180.18 -  1.34  1184.93  1168.46           42.5%/57.5%
RUS 2000  475.83 -  2.31   478.14   471.36
DJ TRANS 2819.79 + 44.10  2825.04  2773.84
VIX        26.98 +  0.45    28.21    26367
Put/Call Ratio      0.74

Coiled For Action
Austin Passamonte

Wednesday's price action covered a wide range up and down but in the end it merely served to form yet another series of clear chart patterns we can use to profit from on Thursday. MSFT news and other techs finding after-hour bids project a higher open tomorrow as we sit here tonight and such has been expected any day now.

We've been watching for a relief rally to pop near-term oversold conditions and Thursday's open is looking to do precisely that. Where we go from there remains to be seen, so let's examine some charts to predict action from here:

(60/30 Minute Charts: SPX)

The S&P 500 and 100 traded negative most of the session even after the Dow and NDX turned decidedly positive. That warned of broad-based weakness so we passed on playing any new calls this session.

As you can see, both 60 and 30 minute charts have formed crystal clear neutral wedges and a break in either direction is possible. Using the 30-minute chart, going playing calls above 1185 or puts below 1176 would be ample breathing room to either side.

More aggressive traders might buy the opening bell while conservative players watching all time-frame chart signals could wait a bit. When price action pops in one direction, it should pull back the 10/5 minute chart stochastic values (not shown) and a resumption of those signals in the direction of Thursday's trend should be a very high-odds trade indeed.

(60/30 Minute Charts: Dow)

Likewise the Dow is set for a break as well. Either direction is playable here as stochastic values could easily continue up or roll over in bearish fashion right from where they rest.

(60/30 Minute Charts: )

The QQQs are trading near 42.75 - 43.00 area in after hours which has them far above the upper boundary of their wedge. I really hate to buy opening gap moves against the longer term trend which remains down, but there could be valid reason to test the upside cautiously as we'll see below.

(Daily Charts: OEX / QQQ)

Here's a look at the daily charts of OEX and QQQ action. The OEX is a clear proxy for the Dow and SPX as well. Note how we have seen two recent bear-market rallies right when stochastic values are aligned in much the same fashion they are tonight.

The big key here would be seeing that fast stochastic bar (blue) turn up and touch or rise through the slow bar (red) in a bullish cross. That would be a clear call-play buy signal at that time.

Dead Bear Once & For All?
Not even close. We will make plenty more money playing precious puts for weeks and months to come but market action will never travel straight down without reprieve. We are poised for a decent relief rally and have merely awaited strong enough catalyst to make one stick.

MSFT is soaring and that pulls INTC along in sympathy. From there we will see short-covering and buying spill over into most of the beaten down sectors tomorrow. Post-market futures are soaring and we'll see quite the opening pop should pent up bulls work themselves into a frenzy before the opening bell rings.

Looks like a pretty clear-cut session on Thursday: buy a few calls on the opening bell for the most aggressive traders or wait for the first pullback and clear alignment of short-term chart signals instead. The risk is taken of buying a failed rally right at the open, and those who prefer to wait for any pullback to let them in might be waiting for quite some time as the world passes by.

Which will it be by session's end? Not a living person in the world can give you that answer tonight. Each of us must decide which route we choose to go, and last minute planning before the opening bell will be paramount for making the final decision. Those who feel compelled to make firm decisions tonight have an opening gap to contend with on Thursday, never an easy condition to deal with.

My best GUESS? Price action pops higher at the open and moves considerably higher as markets retrace some of recent losses. It's high time for the pressure cooker to burst and we should have the chance to play another failed rally up for awhile before its ultimate demise once more. A reversal of all weekly chart stochastic values will have me convinced the mid-term trend has turned, but not a moment before.

Best Trading Wishes,

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