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Index Wrap

Lessons From The Recent Past

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        WE 7-20          WE 7-13          WE 7-06          WE 6-29
DOW    10576.65 + 37.59 10539.06 +286.38 10252.68 -249.72  -102.19
Nasdaq  2029.37 - 55.42  2084.79 + 80.63  2004.16 -156.38  +125.72
S&P-100  625.59 -  1.26   626.85 + 13.90   612.95 - 19.07  -  4.13
S&P-500 1210.85 -  4.83  1215.68 + 25.09  1190.59 - 33.79  -   .97
W5000  11212.37 - 59.55 11271.92 +212.36 11059.56 -347.59  + 94.70
RUT      487.93 -  2.78   490.71 +  7.45   483.26 - 29.38  + 23.99
TRAN    2965.66 + 25.31  2940.35 +191.43  2748.92 - 81.04  +153.47
VIX       24.97 +  1.10    23.87 -  1.10    24.97 +  3.34  -   .87
Put/Call    .82              .65              .90              .58

Lessons From The Recent Past
Austin Passamonte

So all the big companies per se have announced and forecast their earnings future for Q3 and beyond. Now what?

We've just heard straight from the sources exactly what you & I have been sharing with each other in this forum for weeks and months. The economic slowdown that began as a capital spending & artifical surplus of inventory has spread to unemployment and is becoming a global event. Tell us something we don't know!

Analysts have been calling a bottom in earnings and production since this time last year. Abbey Joseph-Cohen rehashed her year wildly off-base 2000 projection for 1575 in the SPX for last December to 1650 this year's end if I recall right. A 400 index- point move for the SPX in the next five months is certainly possible, but anyone actually expecting such to happen is a terminal bull in my opinion.

Does that mean broad markets will tank right from here with nary a session in green until the real recovery begins deep, deep, deep into year 2002 or beyond? I sure wouldn't bet that way either.

(Aug 2000 Daily Chart: Dow & QQQ)

In July of 2000 we wrapped up a dismal earnings season and saw interest rates remain at their recent highs. CNBC pundits and many others openly forecast a summertime market decline with no existing catalyst to push prices up. I bought into that concept enough myself to write more bear-call SPX credit spreads than my account could really afford to risk.

As a matter of fact, I sold them open just one session before that long white candle in the QQQ chart (above) that forms the bottom of this depicted run. The first part of that session I felt real good about my investment decision. Then the index rallied six QQQ points from the low and never looked back from there. That was when the NASDAQ was still a leading index before several washouts left it the lagging index it remains today.

So I stuck to my belief fostered by media around me that a rally couldn't possibly persist and held those credit spreads until I choked on them. As they say on the trading floor, I finally "puked them out" for substantial loss when it was far too late. That costly lesson was one of the most recent to teach me that these markets CAN do anything at any time. Period.

I've received plenty of email this week imploring me to be long- term bearish: just buy puts and walk away for the summer. If you don't mind I'll pass on that advice... it's the same thing I heard one year ago as well.

(Weekly/Daily Chart: SPX)

The Big Index remains a mystery. Weekly chart (left) shows one more candle added to the descending channel, which is a bear flag pattern if/when it ever breaks and closes above resistance. We see stochastic action still pointing straight down but nearing oversold extreme, and could easily reverse at any time now.

The daily chart (right) has rising stochastic values that could continue up. Black lines paint a bear flag pattern but the green line above recent resistance near 1215 area forms a bullish triangle. A break and close above the 1235 area could bring buyers out of the closet from there.

(Weekly/Daily Chart: OEX)

Mirror charts in the mirror index. A break & close above 635 area would negate the bear flag after confirming the bullish triangle. We are not the only traders out there eyeing these very patterns, either.

(Weekly/Daily Chart: Dow)

The Dow remained within its weekly chart descending channel but managed to close on top of 20-week moving average for support. Baby steps. The daily chart is forming a bear flag pattern the past six sessions outside its recently broken descending channel. If it breaks down from here, a bounce near 10,477 20- DMA and then the green line of that previous channel near 10,200 would be next.

A break and close above 10,600 level could usher in a new wave of buyers again. Fair warning are the stochastic values extending into overbought extreme warning us of potential downside pressure ahead.

(Weekly/Daily Chart: QQQ)

The NDX/QQQ is posting bullish chart patterns but stochastic values here remain decidedly weak. A close above 44.00 would have some bullish attention, but we haven't seen that in the past twelve sessions and it will likely be more until the string is broken.

I'm The Expert?
Yes, that's what plenty of trial readers say. Why should they pay for a website service that cannot accurately call the markets almost all of the time? Actually, they secretly mean "all of the time" but realize it sounds unrealistic to say so.

No one can call the markets all of the time. If anyone could, it would be the only website in existence and cost $10,000 per month to subscribe as Buzz so aptly noted last night. What we hope to achieve here is teaching you to identify, assess and weigh all of the market variables to predict future market direction yourself. Independence for you is our ultimate goal.

We also realize that most of the time, markets do nothing. They move sideways in varying ranges before the next direction ensues. By that very law of nature it is impossible to predict which way markets will go next on a daily basis. And this is one of those times.

I see plenty of reasons why the indexes should plunge to new lows but they refuse to do so. At the same time I see several key signs of technical evidence that they could launch a rally quite soon. Why? Beats me. Based on what? Good question. But if you haven't realized by now, most rallies begin without logic or reason and emerge from the depths of negative abyss when everyone least expects it. Witness August 2000 as one of many prime examples.

Summation
Which is my long-winded version of "I don't know where we go next". I do know what clues to look for, what key benchmarks to watch and what signs will suggest when we reach the point of next directional move. Watching & waiting I am, because circumstantial evidence remains mixed at this hour. I'll make an educated W.A.G. (wild-something guess) and say we break out of this current range to the upside soon, like in the next two weeks. My market call is for a brief summer rally to kick off in August, if not to the same degree we saw the same time last year.

But I wouldn't bet my 'something' on it and await clarity and confirmation first.

Best Trading Wishes

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