Option Investor
Index Wrap

What Was That\?

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        WE 8-24          WE 8-17          WE 8-10           WE 8-3
DOW    10423.17 +182.39 10240.78 -175.47 10416.25 - 96.53  + 96.11
Nasdaq  1916.80 + 49.79  1867.01 - 89.24  1956.47 -109.86  + 36.60
S&P-100  606.71 + 12.84   593.87 - 17.54   611.41 - 12.24  +  3.39
S&P-500 1184.93 + 22.96  1161.97 - 28.19  1190.16 - 24.19  +  8.42
W5000  10948.41 +188.32 10760.09 -234.36 10994.45 -248.49  + 76.94
RUT      480.81 +  5.16   475.65 +   .13   475.52 - 11.63  +  2.13
TRAN    2854.39 + 29.74  2824.65 - 36.12  2860.77 - 53.25  +  4.14
VIX       22.29 -  4.45    26.74 +  3.93    22.81 +   .42  -  2.34
VXN       47.70 -  4.32    52.02 +  3.50    48.52
TRIN        .70             2.67             1.03
TICK        351              201
Put/Call    .56             1.07              .72              .76

What Was That?
Austin Passamonte

The eternal question we just knew CNBC pundits would ask. Is today the bottom? Is any day that doesn't paint massive red across our charts the bottom? Exasperated bulls are dying to know.

It sure would make lives within the financial website business easier if that were the case. Turn back the calendars to 1999 and all would be happy once more. The mighty bear since then has wiped out legions of wannabes and those who survived or joined our profession since then wonder what a sustained rally is actually like.

As a matter of fact, I wonder the very same thing. Been in this prevailing downtrend so long I barely recall trading the upside with comfort. But we did so not long ago and will do so once more but not necessarily from right here.

(Weekly/Daily Charts: SPX)

Weekly charts show price action remains firmly entrenched within this bullish descending formation since May, but all we did was bounce from the bottom support once again. Stochastic values still point straight down in bearish trending fashion.

Weekly chart shows price action moving up in solid fashion today and stochastics are still poised to move much higher. We can see that one of many resistance points overhead waits near the 1194 area with upper trendline intact.

(Weekly/Daily Charts: Dow)

Weekly charts for the Dow show a crystal-clear bearish triangle formation with greater than 70% chance of breaking to the downside. An upward break would be mighty bullish indeed and we'll certainly watch for that.

The daily chart shows a smaller measure of resistance broken today and stochastic values indicate there is plenty of room to run.

(Weekly/Daily Charts: QQQ)

Weekly chart for the Qs show the long-term descending pennant is intact but yet to confirm on a break above resistance. Daily chart Fibonacci retracement from most recent highs to lows show this study is either a huge coincidence to today's high sale, or traders actually watch for reversals on these things!

Upside room to run with overhead resistance noted as well.

(Weekly/Daily Charts: CYC)

If deep cyclicals are to lead us out of the big bear into the next baby bull regime, what does the Morgan Stanley Cyclical Index portend our near-term to be?

Well, weekly price action is within an ascending channel, which is bullish until it breaks to the downside, which they always do. This is a large bear flag pattern and cannot rally to the sky. Stochastic values warn that a break lower could arrive soon.

Meanwhile, over in the daily chart we drew a wide wedge (black) and snapped a Fib Retracement from recent highs to lows once more. Lookie where Friday's action went: from 75% retrace of the high to 50% retrace in picture-perfect fashion. That my friends is a classic move without any custom fitting on my part... just pure price action movement.

Next stop around 562 will offer dual resistance from the upper wedge and 38% retrace value as well.

(Weekly/Daily Charts: MKH)

And our last stop on the Big Picture Express tonight is the Market 2000+ HOLDR, a basket of the world's 50 biggest companies. Who better to gauge overall market sentiment than behemoths as measured during inception of this basket in September 2000?

That weekly descending trendline began the first day this symbol began trading and continues intact one year later. Of course, that's precisely how long the prevailing bear has swiped with a vengeance as well. Stochastic values are still pointing down and aren't in bullish reversal mode just yet.

A nice move on the daily chart today was halted dead in its tracks right on the 38% Fib Retracement again. I'm not making this stuff up... those who eschew such market studies are really missing the boat and no special calculations are necessary. Just measure from one previous extreme to the next and watch price action magnetize to the values from there.

Daily chart signals and patterns suggest more upside action is ahead, but weekly charts remain bearish. The best we can decipher from mixed signals such as these is another failed rally in an endless string may have begun. Bias bulls are sick of hearing this and badly want one of these feeble attempts to stick, but long term charts still warn of weakness.

For the record, the only market bias I harbor is being on the right side of a prevailing move. I find that endeavor tough enough to master without picking favorites and letting emotional weakness cloud attempts at fiscal success.

Catching Every Move
Today's short-squeeze rally was not a big surprise at all. We made note of the possibility in pre-market updates and hourly reports before the bell ever rang. That being said, readers question why it is Swing Trade elected to remain idle this session instead.

A review:

(60/30-Minute Chart: OEX)

When I had to make the decision for IS Swing at 9:00am and again at 9:55am whether to risk call-play entries or pass, we saw price action wedging itself into coils but stochastic values were in mid-range between oversold and overbought extreme. Had one or both been aligned in oversold extreme it would have made this a high- odds call play.

However, oscillator signals stuck in the midst of a sideways move as witnessed yesterday do not allow us to predict directional strength with conviction. This is one of those "tweener" setups where I seldom have the luxury to be right. Make the aggressive call to enter and get slammed on a fakeout move and readers aren't happy. Make the conservative call, miss a tradable move and readers aren't happy. Make the call to enter and hit a tradable move = readers are happy.

That gives one in three chances or 33% odds to win on every decision made. Care to switch places with me when making decisions for hundreds of others? I'll gladly accept all comers!

Truth is, I would naturally be more aggressive on dubious entries closer to expiration and more conservative when premiums are bloated, bid/ask spreads are wide and the VIX is falling into a pending rally. That sucks volatility (vega) premium value out of call options even as the underlying rises. Of course, a move like today's will inject plenty of value into call options despite all of this but who knew what would happen when decision time was upon us?

Much easier for an individual to make their own decisions based on experience and training instead. Those who noted Market Pulse remarks that buying the break out of 60/30 wedges was probably a tradable move traded with success. Those who opted to pass lost no money, and those dependent on others for trade entry decisions must live with the limitations they trade with.

Square Pegs & Round Holes
Lately I've been inundated with questions about how part-time or foreign traders without real-time access to live market action can successfully swing trade or day trade. To be totally honest, it is a real challenge to swing trade and flat impossible to day trade under current market conditions without constant access to a fast- execution broker and live chart service. Simple as that.

I realize many aspiring traders are frustrated with their plight of not having total access to today's volatile markets and suffer whipsaw losses because of this. I know how you feel. I would have liked to spent the summer in Alaska fishing, photographing and looking for gold myself. Being married to this website prevented this freedom and that's a lifestyle choice I've made for now. I can watch videos or tv shows that take me there. Magazines will relate how close it really is. I can surf the web and talk to others for hours on end but the bottom line is current conditions prevent me from executing such desires.

See the parallel? Choices we make for one lifestyle hamper or prevent certain things. Full-time employees can't watch live markets all day and I can't take a gold detector and camera gear to Alaska. Those are choices we made that dictate our present and nothing can change that. Traders could take a couple of sick days or week's vacation to trade and I might steal a weekend away but those are not solutions to the perfect scenario. Sadly, I have no answer to how an individual can pre-stage day trades at arm's length and succeed. The rest of us watching monitors all day have our hands full trying to take enough winners at that!

Labor Day Yet?
No, and that's too bad. We have at least one full, agonizing week left of low volume, highly volatile, range bound market action to survive. Days like this one will become common pretty soon, and we can assume many of them shall offer clear signs of successful entry when it matter most: ahead of time.

Until then, don't believe either direction will prevail for now.

Best Trading Wishes,

Index Wrap Archives