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Index Wrap

Rejected!

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        11-05-2001        High      Low     Volume Advance/Decline
DJIA     9441.00 +117.50  9476.40  9326.20 1.19 bln   2045/1074	
NASDAQ   1793.60 + 47.90  1801.55  1768.29 1.70 bln   2131/1408
S&P 100   566.68 +  6.69   569.77   559.99   totals   4176/2483
S&P 500  1102.84 + 15.64  1106.72  1087.20           
RUS 2000  437.54 +  4.47   438.24   433.07
DJ TRANS 2284.72 + 38.06  2291.78  2245.49
VIX        32.09 -  0.31    32.94    31.20
Put/Call Ratio      0.42

Rejected!

Pre-market futures indicated another strong market open was slated and indeed it was. Price action gapped up and ran to session highs that held the remainder of today. These highs happened to be horizontal resistance that have spurned several previous attempts to close above. Obviously, selling pressure exists at those lines in the pasture and bulls were soundly rejected.

However, CSCO beat its pro-forma (laugh) estimate handily by 200 pro-forma percent. That gave a nice pop to the big bellweather and ramped a bunch of sympathetic symbols on those coattails. Looks like we'll see another crack at near-term resistance on Tuesday bright & early.

Where exactly do those important lines in the sand lie for action ahead? Let's look and see:

(Daily Charts: Dow & QQQ)

All daily charts have stochastic values in the early stages of bullish reversal which is first & foremost on our minds. Markets have an upside bias right now, therefore so should we. Not until they post bearish reversals will our near-term bias change, keeping in mind that could be soon or quite some time from now.

The Dow will meet resistance at the top of its widening wedge, a bearish formation by nature that depicts instability. Sure got that right... these are unstable markets in both directions! A close above that line of resistance at roughly 9,700 area right now would convert it to support.

The NDX/QQQ is riding its ascending channel quite nicely and the next pivot above is 39 area. Both of these charts would be great call play buys if price action would pull back to lower lines of support but may not happen for now.

The SPX has moved methodically within its Fibonacci zones, but much of that on gap moves that offer no chance for profit. Today is a great example. I was watching the SPX 1100 calls that sold for 22.00 "ask" at the open and reached a session high of 24.50 one hour later, never to return there again. Yes, the underlying index had a nice 19-point move today but most of it was wasted once again on volatile opens. Green tape does not equate to solid profit potential in the option contracts, a very different story indeed.

The OEX chart shows how both S&P indexes have closed below this ascending trendline five straight sessions now. A break of that resistance AND close above it would be bullish indeed, but let's see it happen first.

(60/30 Minute Charts: )

November 1st was the last 60/30 minute chart stochastic pullback to oversold we've seen to date. Since then markets have been chugging up the charts in coiling fashion before the next gap-open move occurs. If the rally is to continue, a break outside this 30- minute chart (right) pennant and next full candle to form on top could be a decent call play for those compelled to chase an overbought market higher. Personally, I'll wait to buy near support or short the oversold move instead but to each their own.

(60/30 Minute Charts: )

The Qs are still oversold since 11/2 but have tacked on 2+ index points since then. Just squiggling its way higher for now and the Tuesday open on CSCO's back should pin in well above near-term overbought from the bell.

Estimation
Regardless what the Fed does tomorrow, we are likely to see a selloff shortly after. Much of this latest rally rode the rumor and will sell off on the news. That is the pattern we've seen the past few FOMC events as well. However, we've also seen strong rallies the following day as momentum players no longer push the pile instantly any longer. A bit of deliberation and digestion exists in a "gentler" market.

So... my guess based on near-term charts grossly overbought and daily charts oversold coupled with recent patterns is this: markets sell off Tuesday afternoon into the close but buyers swoop in Wednesday or Thursday and take price action back up, possibly above resistance overhead. That hypothesis would make put plays from 2:00pm to the bell viable but dump them quick, go flat and wait & see if e can get a D/60/30 chart stochastic alignment in oversold extreme and ride new calls plays longer to the upside.

That is my fondest wish that may blow all to heck. We could rally straight up or tank for days after 2:00pm and I'll read & react as the action unfolds, but that's my best shot at pre-planned scenarios for now.

Summation
Let's focus on Tuesday and remainder of this week. I'll remain bullish while daily chart stochastic values trend up and turn bearish right when they do so again. For now I'd like to see that across the board oversold alignment and think we have a good chance by mid-week for it to happen. Then try some calls plays, possibly into Friday's close if the charts look strong and bank some profits for the weekend.

How's that sound to you?

Best Trading Wishes,

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