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Index Wrap

The Next Non-Event\?

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        08-20-2001        High      Low     Volume Advance/Decline
DJIA    10320.07 + 79.29 10320.07 10210.48  890 mln   1768/1336	
NASDAQ   1881.30 + 14.30  1881.62  1854.96 1.15 bln   1881/1809
S&P 100   599.00 +  5.13   599.00   593.00   totals   3674/3094
S&P 500  1171.41 +  9.44  1171.41  1160.94           
RUS 2000  478.87 +  3.22   478.88   473.74
DJ TRANS 2840.42 + 15.77  2840.72  2818.37
VIX        25.14 -  1.60    27.78    24.99
Put/Call Ratio      0.45

The Next Non-Event?
Austin Passamonte

Tomorrow's FOMC event is the next emotional excuse traders have to do whatever it is they want to next: buy or sell. Whether the Fed cuts .25, .50 or not all is irrelevant to the overall economic picture. Times are tough and destined to become more so.

Lower rates are not encouraging capital spending because everyone has a glut of inventory and less corporate value than before. The incredible excess over-production of 1999 is still trickling through the intertwined global picture. Irrational analyst bulls who guarantee the worst is behind us, April lows will surely hold, etc obviously didn't line thru 1987 - 1988 or they forgot those painful lessons of dual-crash reality.

Regardless, right now it only matters what the markets decide to do this week and the one after that. Let's look at the big picture and dial down from there...

(Weekly Charts: Dow & NDX)

The Dow and Nasdaq 100 remain weak to bearish with no definite signs of strength. Doesn't mean they cannot reverse from here, just that odds of further weakness are considerably greater than inherent strength.

Of the two, we see the Dow shows much more downside risk than the NDX. Next overhead resistance for each is drawn respectively using Fibonacci values and underlying support is apparent as well. That's the macro picture we are working with, now let's see what internal noise is set to materialize next.

(60/30 Minute Charts: SPX)

SPX 60/30 minute chart stochastic values are extended into overbought extreme and could go higher from here, but it will take a strong catalyst to do so and they will not remain there forever. As a matter of fact, they won't even stick up there without release until Friday's close. Rest assured they shall release from there and cycle back down soon. What happens after that can only be judged then.

The hourly chart is forming a bullish descending pattern while the half-hour chart points out a bearish ascending wedge. What does this mean? Odds are good that price action will reject from current resistance and pull back into the hourly pattern to some degree. I wouldn't be a bold buyer of calls right now looking at this entire picture.

(60/30 Minute Charts: Dow)

The Dow broke its bullish hourly flag on the brief down surge Friday but managed to close back within. Note how this morning's lows went right down to kiss the lower line and gradually rode higher from there. A break below it could have asked for a retest of Friday lows instead.

Charts are mixed here as well.

(60/30 Minute Charts: QQQ)

The NDX looks healthier than the Dow and in my opinion has far less downside risk than the old index. Everyone is all fixated on how weak tech stocks are, but I think the next major downdraft will strip far more value out of the Dow and S&Ps than NDX. Then again, the NDX already shed most of its value while the other broad indexes fared much better. We'll see what happens this fall instead!

(60/30 Minute Charts: OEX)

A different look at the S&Ps using the OEX compared to the SPX. Hourly charts show price action trending down this descending channel and resistance lies just above. A break & close above 599 600 would be near-term bullish and Fibonacci values to the right confirm the 599 level of significance. Stochastic values are within overbought zones and will not hang up there very long.

Keep in mind this is merely near-term, valid for the next few sessions at most. These are points of support and resistance one is able to use when targeting trade entries & exits.

What's The Deal?
My description of the OEX 600-strike put play I gambled on detailed in the weekend Market Wrap drew plenty of email questions. Readers wanted to know where it came from and why it wasn't listed in IS. Excellent question, and here's the easy answers:

1. All IS trades and all my trades are not one & the same or anything even remotely close. Individual traders are able to do many things no website can as I often expound, and I am an individual trader.

2. Not all of my trades would be suitable for any website even if such were possible.

During expiration week in July I noted in Market Pulse on Thursday night that I was trying A FEW OEX strangles on OTM options using pure profits only from that day's action. On Friday I had readers email me saying they read that and loaded their accounts on said plays. Friday was flat, the play was a bust and everyone wanted to know how I was going to fix it. There was no fixing such a mistake, the mistake being mismanagement of trading accounts.

Which is why my decision to gamble on OEX puts after the 4:00pm bell last Thursday went unmentioned. It looked like a decent wager to me, but could have just as easily blown up on Friday's open instead. For sure we would have had readers loading up on that play as well and I cannot in good faith be part of that. Experienced traders know what to gamble on and how much while newbies were better off buying Friday morning and taking a 100% to 200% win instead.

It's O.K. - I Paper-Trade Myself
Why is it that new traders are so very anxious to throw real money at the market and veterans are patient to wait, even though the reverse makes more sense? I suppose veterans have lost enough money to realize patience pays!

I hear plenty of people eschew paper trading and prefer to learn the ropes with real money instead. Expensive lesson, but to each there own. I will readily admit to you that I no longer try things out with real money until fully understood using real time analysis. Case in point: I'm working on a market-neutral trading system that seems good for +100% - +200% annual returns with almost zero chance of capital loss. It looks great on paper and I cannot find a single flaw involved.

So does that mean I should take real money and dry run the thing with wet cash? Nope... I'll dry run for months with paper only. If there is an overlooked kink or two involved I do not want such an adverse fiscal surprise. There remains the rest of my trading career to risk precious capital if/when hypothetical results hold up under real market action. And I suggest everyone else should do the same!

I expect a nothing-market until post FOMC announcement tomorrow. Could be little reaction or dramatic market changes, but plenty of first-hour turbulent gyration are a given. We'll take the morning off and prepare ourselves for the afternoon with big picture and intrasession charts in mind. Until then it is all merely conjecture.

Best Trading Wishes,

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