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Index Wrap

Is This Our Dip Or Next Decline\?

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        07-16-2001        High      Low     Volume Advance/Decline
DJIA    10472.12 - 66.94 10568.69 10446.60 1.03 bln   1184/1877	
NASDAQ   2029.12 - 55.67  2091.68  2025.41 1.48 bln   1466/2234
S&P 100   620.60 -  6.25   629.69   618.61   totals   2650/4111
S&P 500  1202.45 - 13.23  1219.63  1200.05           
RUS 2000  483.80 -  6.91   491.40   483.77
DJ TRANS 2962.79 + 22.44  2975.35  3937.45
VIX        25.31 +  1.44    25.66    23.70
Put/Call Ratio      0.58

Is This Our Dip Or Next Decline?
Austin Passamonte

Well... here we are. As discussed together in this weekend's Wrap and Trading 101 articles, we looked for a pullback to support and surely saw that happen today. Didn't we?

First we must recheck our overall market outlook for the week. Daily chart signals have begun bullish reversals and we want to take plays in that direction for high-odds success. It is fine for experienced and nimble individual traders to attempt "fading" the daily-chart bias but not suited for the majority. By far the most promising trades occur when these three time- frame charts align in unison and we are almost there.

Meanwhile, many confident bulls from Friday's action lost a bit of bravery when price action slid today. Human nature makes it much easier mentally for us to chase prices higher on a breakout above continued highs. The idea of buying weakness and shorting strength never comes natural although that's exactly what we intend to do this time around.

Let's see what the near-term chart signals suggest is ahead for us:

(60/30-Minute Charts: SPX)

Stochastic values are once again approaching oversold extreme and this time look to align with daily-chart signals (not shown) for the trip back up. The 1208 area is our 20-hourly moving average and a stop at that level or higher would have been much more bullish today than a retest of 1200. So far that held, and we'll see what Tuesday brings.

(60/30-Minute Charts: Dow)

The Dow seems to have more downside possible than the NDX (below) with 60-minute chart (left) stochastic values far from oversold still. We should watch that lower Bollinger Band as an important point of support tomorrow as well.

Price action is coiling into a bearish triangle usually broken to the flat side and that could happen early tomorrow. A break above held for a few candles bars of completion would be a failed bearish pattern that's bullish by contrary nature, and remains possible but not likely.

(60/30-Minute Charts: QQQ)

The NDX/QQQ is most oversold in comparison to the other indexes, but it also remains the weakest one as well. Stochastic values are both buried in oversold and looking to reverse from there soon. A little bull flag pattern is visible and gives us points of reference to enter or abstain as well.

As we can see, the pullback is almost complete. Now we wait for the bounce! Obviously a catalyst to take prices lower was needed and we saw several of those in the Dow and tech sector. Prices would have likely stopped at a higher low and reversed without being surprised by INTC and other breaking news, but that matters not tonight. Where the next catalyst comes from ahead will dictate if price action stays flat, goes lower or rallies on Tuesday.

Price action pulling back further than expected and remains weak in the post-market. I wouldn't rush right into new call plays until a chart-signal reversal is underway, while put plays remain dicey when trying to fade daily/hourly/thirty-minute charts buried in oversold already. Occasionally there are easy sessions to trade, but the last two have not been part of them.

Let's Just Buy!
Readers new (and old) to our website often inquire as to why we just don't simply buy one direction or the other every single day. In hindsight this session we all realize that put plays were profitable today. But when it was actually time to enter those trades, what evidence existed to suggest this was a high- odds decision?

We approached the opening bell with daily-chart signals looking quite bullish and near term charts poised to cycle down from overbought to a more favorable call-play entry in harmony with aforementioned daily chart signals. There is nothing that says any individual trader cannot or shouldn't trade puts in this situation, but the website must strive to filter out most of the riskier trades and attempt to take those that skew odds in our favor.

(10/5-Minute Charts: OEX)

For most of each expiration month, true day-trading action simply happens too fast for any website to follow. There exist on the web numerous live day-trading rooms one can subscribe to for $350 to $1,000+ cost EACH MONTH that try to handle fast action like this in a proper manner. An educational service like IS strives to teach any who are interested how to survive and then prosper in our profession.

Here's a look at the OEX for Tuesday using 10/5 minute charts. We see stochastic values rising and price action coils into a wedge. A viable day trade might easily begin with a break of this coil in either direction and right now stochastic action indicates the upside is more likely. But that can change several times during the session and go from entry to profit to unchanged to net loss within minutes, and there is no way under the sun any website can deftly handle that.

However, those who invest time in themselves following such action for weeks and months on end develop the basic "feel" necessary to survive and win in the trading trenches. Expecting any website to deliver these fast-moving intraday trades on a consistent basis is unrealistic at best.

Summation
I still think we go up this week and close above today's highs, but a break below some near-term support levels could easily thwart that belief. It is natural to get the most jumpy when trading calls near support or puts near resistance and that may be what we're witnessing now. These continue to be very trying times and I would not expect that to change over the next few months if not longer, so let's buckle up and do the most we can!

Best Trading Wishes,

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