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Index Wrap

Crispness In The Air

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      10-31-2001          High     Low     Volume Advance/Decline
DJIA     9075.14 - 46.84  9223.07  9064.41 1.32 bln   1929/1172
NASDAQ   1690.20 + 22.79  1721.69  1677.71 1.87 bln   2220/1367
S&P 100   544.43 -  0.63   552.84   543.55   Totals   4149/2539
S&P 500  1059.48 -  0.01  1074.79  1057.55             
RUS 2000  428.17 +  5.34   429.48   422.83
DJ TRANS 2195.84 +  0.58  2221.20  2194.82
VIX        35.28 +  0.13    35.55    33.67 
VXN        62.42 -  0.99    64.27    60.66
TRIN        1.51 
Put/Call    0.50

Crispness In The Air
Austin Passamonte

For the past few weeks we've seen financial markets enjoy Indian Summer. Since 9/21 lows it's been mostly a warm, fuzzy glow almost reminiscent of the 1999 bull run where every bit of news was shrugged off or twisted in self-serving fashion as the masses ramped equities in historical recklessness. Then came the autumn winds of early 2000 and deep snow swept across many a bullish pasture with icy vengeance in protracted fashion from there.

Feel a bit of chill in the air this week? Hopefully the bulls have plenty of hay stored away right now because green grass ay be a little scarce for the time being.

Signs pointed to a pause of the euphoric run as VIX, put/call ratios and weekly/daily charts pointed to weakness before long. The last few strong rally sessions did come as a surprise and proved that our first attempts at buy & hold downside plays were far too early. Oh well; with two weeks until November expiration and 100% risk capital I like our chances.

Selling rallies has worked well since Monday morning and entries got a bit more precise today but still were very viable to skilled individual traders. Those following IS methodology on their own to identify prime entry points have managed quite well indeed. Another round of puts will be in order Thursday morning if markets don't gap-down open, which post-market futures suggest is likely as of now.

As noted numerous times in recent Wraps I do not expect recent lows to break until next spring, in which case they could be mere speedbumps if the Q1 earnings season doesn't show clear and unbridled economic recovery dead ahead for mid-2002. Kiss those 9/21 lows goodbye if Q4 reports are abysmal and global economy still shows no clear signs of life.

But the future will arrive in its own good time. What about Thursday for now?

(Daily Charts: Dow & NDX)

If you see any reason to buy calls from these charts I need glasses! Looks to me like the Dow can reach 8,900 before it sees an inkling of support below 9,000 and I wouldn't be surprised to see 8,750 are come into play after that.

The NDX looks to test 32.00 area soon, quite possibly tomorrow. A break below there would send it straight to 31 and then 30 with little pause.

(60/30 Minute Charts: QQQ)

The S&P indexes are all wedged up and ready to unwind. Stochastic values indicate that uncoiling will be decidedly down in the short term and daily charts back up the idea that lower levels are high- odds direction right now.

(60/30 Minute Charts: OEX)

Ditto for the NDX and its two major movers these days: SOX and BTK. All look stronger than the old economies, relatively speaking but are poised to give up ground. In the case of SOX, probably would shed the greatest amount as hot money really ramped that sector lately with weaker stocks than the BTK as well.

Conclusion
I don't know about you, but I'm playing the downside for now. Last Friday's Wrap drew an avalanche of emails in dissent with bias bulls chiding me to trade what I see instead of believe. I'll take that advice to heart: believe I see some very weak markets ready to shed more ground and wash out stubborn bulls who refuse to lock in profits accrued over the past several weeks. If that turns out to be a mistake, at least we tried to play that which is observed: bear markets in the strong paws and raking claws for those who believe price action can go nowhere but up from here.

Don't fall in love with either direction, but it's O.K. to like the downside real good for now!

Best Trading Wishes,

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