Option Investor
Index Wrap

No Bounce

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        10-29-2001        High      Low     Volume Advance/Decline
DJIA     9269.50 -275.70  9543.40  9269.50 1.11 bln   1026/2067	
NASDAQ   1699.50 - 69.40  1767.97  1699.40 1.65 bln   1246/2364
S&P 100   553.34 - 14.64   567.98   553.34   totals   2272/4431
S&P 500  1078.30 - 26.31  1104.61  1078.30           
RUS 2000  429.41 -  9.84   438.88   429.38
DJ TRANS 2218.96 - 28.62  2264.28  2218.72
VIX        32.39 +  1.86    32.70    30.95
Put/Call Ratio      0.61

No Bounce

By far one of the most orderly sessions we've traded in a long time. Markets opened relatively flat, sold off at the open and never looked up from there. What a picture perfect day to be a put trader for sure! No wild gap opens or irrational spikes to deal with in the least.

Speaking of which, we saw absolutely zero buyers materialize in the waning hours today as the bottom did not find support until the closing bell rang. Even that didn't offer bulls any solace if my Qcharts data is accurate because SP01Z futures are trading -10 points below cash. Unless we see a huge bullish pop in the pre- market tomorrow the selloff did not end at Monday's bell.

Speaking of Qcharts, mine are not painting in half the data they should be. On the est of days they seem to be seriously bandwidth challenged and tonight I'm working off dial-up so that ain't gonna help. What little we require of charts can be aptly handled by BigCharts service instead.

First let me state the obvious: all 60/30 minute chart stochastic values are buried in oversold extreme while still pointing straight south in bearish fashion. Let's expand our vision just a tad and see what the bigger picture looks like:

(Daily Chart: Dow)

After banging its head near formidable resistance once more, the Dow shed -275 points to close on its session low. We see what could be a bearish reversal "Evening Star" three-session pattern where last Thursday was wildly bullish, Friday was mixed and Monday almost negated Thursday & Friday's combined gains. Stochastic values have once again turned bearish for now as well.

Another interesting study is the DMI(ADX) logged below. Without taking time to explain this one in detail, suffice it to say that we often see a rally when the measures contract (pinch) and selloff once the pinch expands (paunch). Those of you who've been to Larry Williams seminars no details to the pinch/paunch theory while those who haven't been are out of luck for now... it is his proprietary info. Nonetheless, expect a sharp selloff to begin when these three value lines expand and flare out.

(Daily Chart: NDX)

Same for the NDX, which held up longer than the Dow before rolling over in moderate fashion itself. Looks pretty weak and bearish to me.

(Daily Chart: SPX)

Ditto both major S&P indexes with the SPX depicted here. The only thing I can see of bullish fashion in any of these charts is the fact that uptrend lines remain intact since 9/21 lows but further weakness would break below them tomorrow.

Was today just another pullback to support and higher-low formation? Could be, but as we noted this weekend in Market Wrap, most of the leading sectors for big indexes were looking quite weak and ready to roll, even as the major index weekly/daily charts appeared toppy themselves. My guess is the general direction is down with plenty of chop thrown in for bad measure. Today's well-behaved session makes trading effortless but don't get spoiled over that, they will be few & far between like this one!

I'm Hurt
Now that you mention the Weekend Wrap, I took plenty of email flames (expectedly so) for laying out my opinion of future market behavior. I don't think the bubble is dead no matter how many pigs of the Comp and NDX are on bankruptcy's cusp tonight. JNPR ramped from $9 to $27 in a couple week's time proves to all of us seen with our very own eyes that momentum dreamers remain alive, well and ready to chase former high flyers higher. Trouble is the old days of buy high, sell much higher are long gone.

So I get my fingers singed by readers who disagree, which is perfectly fine. Then John Bollinger reportedly appears on CNBC, says he sees a big sideways trading range for the next ten years as quite possible and I get buried in email again by many of the same readers imploring me to say it can't be true! Isn't that what I wrote 2,000 words saying essentially the same thing? No pats on the back for me: I heard John B, Dick Arms, Larry Williams, Warren Buffett and a host of others state this opinion before I ever did.

Which tells me that a bunch of nice folks still believe in their heart of hearts that this little 20-month bear market is almost over as Uncle "Easy Al" Greenspan saves the day (and bull). Folks, we cannot create our own market reality and that includes Greenspan & Co who are powerless, absolutely powerless over guiding long-term economic direction. They most certainly can thwart direction in the near term but remember our elementary science universal laws: every action has an equal reaction. The efforts our blessed Fed have made to prop up an ailing market will not cure the disease, just slow its manifestation. This means we suffer a lesser effect over much longer time than what would have naturally occurred.

Is that better for us or worse? Beats me, but I agree with John. These markets will roll in a large trading range pinned between recent highs and lows for a long time, probably longer than most care to think about. But then again we all know JDSU will never see $125 per share again in its life, now don't we? Don't we?

All of that is neither here nor there to option traders. Our goal is to buy support and sell resistance as it looks like resistance is now upon us. Can't say for sure as there is an unusual amount of dynamics at play here, but I would strongly guess it is soon time for a significant revisit to some lower price levels to shore up that long-term support if it's expected to hold.

Don't fall in love with either direction, but it might pay real well to favor the downside for now!

Best Trading Wishes,

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