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Index Wrap

Nothing But Noise

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      10-15-2001          High     Low     Volume Advance/Decline
DJIA     9347.62 +  3.46  9352.05  9238.78 1.03 bln   1517/1531	
NASDAQ   1696.31 -  7.09  1698.24  1663.78 1.56 bln   1853/1746
S&P 100   560.43 -  0.35   560.78   553.62   Totals   3370/3277
S&P 500  1089.98 -  1.67  1091.65  1078.19             
RUS 2000  430.09 +  1.50   430.09   424.49
DJ TRANS 2263.26 + 28.53  2265.49  2224.13
VIX        37.15 +  0.70    38.54    36.76 
VXN        66.24 +  0.26    69.44    66.12
TRIN        1.25 
Put/Call    0.73

Nothing But Noise
Austin Passamonte

That's all Monday's session really was. Price action sold off at the open like we've seen time after time these past few weeks only to chop its way higher up the charts from there. Price action remains volatile, ugly and susceptible to every news break that crosses our TV. Each time President Bush takes steps up to a microphone we see markets rally higher. Must be they're just thrilled to see he's feeling well because nothing Bush says is actually news or market-moving at that.

But these are emotional times in a purely emotional forum, that being the world of financial markets. Logic & reason have very, very little to do with market behavior which all veterans of this game eventually realize.

The early dip did not last, nor did sustained market strength. Call options bought on Friday at their lows should have been sold before the weekend arrived bacuse those that held over watched all modest gains erased at the bell and never accrued from there. Likewise this was yet another day where call options bought at their low sale of the session barely appreciated in value. That would be fine if holding beyond one session offered high odds of trend continuation, but such is hardly the case right now.

One trial reader asked me if I thought more buy & hold position trades would present themselves in the future. I sure hope so! By far my preferred methof of trading is to pick a direction and hunker down with long calls, puts or debit & credit spreads. The type of highly-volatile, unpredictable market behavior seen thru too much of 2001 has made this effort difficult at best for these methods on a consistent basis. Better days certainly must be ahead.

(60/30 Minute Charts: SPX)

Don't look for directional trends to emerge tomorrow. More trading markets are on the way. Weekly/daily charts remain bullish to mixed but the upward trend must be respected for now. Price action continues to coil into another series of wedges that predict the next directional break will come soon. Whether it lasts beyond one session or a few hours remains to be seen, but here's what we have:

Wedges that are slighty bullish in nature. The steep side of a triangle offers support while the flatter side usually breaks on directional moves. Watch for 1095 (center of former wedge) and 1100 (recent resistance, mental barrier for whole number) on the upside and the lower trendline of this wedge as support. A break outside either should be tradable, but gap opens and whipsaws are just as likely.

Previous consolidations centered from SPX 1060 to 1095 suggest the 1120 area is our next target above. This comes from assuming last week's coil is merely a 50% continuation pattern of the total leg up, but will be negated on failure to break above 1195 soon.

60/30 minute stochastic values are toppy but could find themselves pinned in overbought extreme or continue to bounce their way higher without price action pulling back to support. So long as weekly chart signals are moving straight up and daily chart signals are not decidedly bearish, we should see upside pressure continue.

(60/30 Minute Charts: OEX)

The recent low to high move in OEX last week has retraced above most important Fibonacci values. These measures do give us targets to watch as price action trades within and eventually outside of current wedges forming. 561.50 would be a break of the upper side and 562.00 makes a nice call-play entry that could run another 20 points or so by Friday's close if it does.

(60/30 Minute Charts: Dow)

Same with the Dow, which is forming a neutral wedge if we draw a line from October 11th highs to current price levels (not drawn) while multiple points do connect on this slightly bearish ascending wedge. 9350 would be an aggressive call play target while 9380 corresponds with Fib retracement support as well. I think the Dow will reach 9600 by Friday (or sooner) this week if the trend remains up, which seems as if it will.

(60/30 Minute Charts: QQQ)

The Qs are in a tighter coil and actually look more bullish than the old economy indexes based on respective weekly/daily chart signals. Again we have playable breaks in either direction with near-term stochastic values still looking bullish.

Ideal Scenario
What I'd love to see is a stochastic reversal to oversold extreme while price action consolidates further and then upside break from there. That would be a fantasy setup not likely to occur. Instead I expect prices to vacillate up and down in willey-nilly fashion most of the time. Let's hope that Wednesday or Thursday set up directional moves we can ride short-term for big gains and then deal with what comes beyond this Friday. Once the heart of earnings season is over we should see weekly chart signals buried in oversold along with daily chart values as well, which might just be the next downside test of recent lows as the sideways saga continues.

Based on current chart signals, market action and underlying support of large put option disparity to calls I still believe we reach new recent highs on Thursday or Friday. Playing the upside on careful entries should work until then and we'll deal with what comes next this weekend. Let's do our best to make money and have fun in the short-term during the best few days of option trading each month, and it's upon us right now!

Best Trading Wishes,

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