Option Investor
Index Wrap

More Of The Same\?

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        12-03-2001        High      Low     Volume Advance/Decline
DJIA     9764.00 - 87.60  9848.90  9703.90 1.20 bln   1272/1870	
NASDAQ   1904.90 - 25.60  1925.35  1898.98 1.48 bln   1324/2282
S&P 100   578.66 -  6.14   584.80   576.77   totals   2596/4152
S&P 500  1129.90 -  9.55  1139.45  1125.78           
RUS 2000  457.03 -  3.75   460.79   455.51
DJ TRANS 2483.06 - 28.72  2512.68  2471.24
VIX        26.00 -  0.14    27.04    25.82
Put/Call Ratio      0.62

More Of The Same?
Austin Passamonte

Every day for too long now it has been the same thing: traders wonder if the markets are poised to bust loose or totally collapse. Will you settle for neither as a possibility?

We all got so used to extreme directional moves, high volatility and more time spent in red screens than green that recent sideways chop is expected to be brief in comparison. Don't count on it. I see nothing to indicate a big move up or down in the predictable future and suspect any such blast or plunge will happen on the heels of as-yet unknown, nonexistent catalysts.

(Weekly/Daily Charts: Dow)

Weekly chart stochastic values for the Dow just turned a bearish cross in overbought extreme, an ominous sign for market bulls. It also broke that near vertical trendline as depicted in the weekend Wrap we knew could not last forever, but the week is still four sessions from complete.

The daily chart shows somewhat of a bullish flag or pennant and oscillators near oversold and struggling to move higher. This is anything but a congruent picture on where the old index moves next.

(Weekly/Daily Charts: QQQ)

The NDX/QQQ is also looking bearish on a weekly basis and might close below the weekly wedge by Friday's end. The daily chart isn't looking too swift here either, and this week's conference calls by the remaining tech bellwethers might push the pile outside these wedges or right back in.

(60/30 Min Charts: OEX)

We have a bearish descending triangle in the hourly S&P charts using the OEX as our depiction. These patterns usually break to the downside, and that may very well be the case. However, the stochastic values in this chart are weak but still rising in bullish fashion. The 30-min chart (right) also shows a clear gap formed on today's open that should get filled soon, with the top of that "window" near 584 the next piece of resistance.

(60/30 Min Charts: QQQ)

The Qs also look weak as they muddle along inside a maturing wedge as well. Now sitting on support with nondescript stochastic values, prices should go up before down.

Jury's Out
If you gave me a pile of mad money and the only way I could keep it is trading one direction in the market right now, my bet would be down. Enough long-term technical signs are in place to suggest further upside is limited for now. However, just let some of the big companies due to report come out with bullish news and shorts will scream in agony. Think that will rocket price action? Try a newsbreak saying Bin Laden's turban is on a platter, and we're due for a monster up-day in the big indexes. Trust me... that news is not priced in right now.

How do we know that? Record short interest levels on NASDAQ stocks as of Friday's close tells us too many people are now pressing the downside. That is probably the main reason why this latest rally has stuck: too many players perched on a fence just waiting for the bull to cease twitching so they can swoop in and feast once more. Each new bit of bullish news is like a shotgun blast into the flock of circling buzzards... it causes them to panic and scatter wildly every time.

I would play the downside with mad money if forced to because that's the predominate odds to wager, but the edge is slight. My best guess is we see sideways markets into January 2002 unless a real market mover hits the fan, and it must be much bigger than the usual scheduled reports due out this week. They might move price action for a day or less: it will take something shocking to kick start the market's heart and keep it moving for some time beyond.

It's In There Common request from new readers: "Austin: You talk a lot about day trading and scalping, would you do a article on that strategy and what you look for, etc."

Why sure, but we've already archived a fair bunch so far as well. http://members.indexskybox.com/swingposition/ should lead to a collection of articles on the art of scalping, which is merely swing trading sped up. Faster short-term charts and quick decision making skills are but a few of the necessary tools to play the game.

I've often gone on record saying that day trading is not my first love. Far from it. I'd much rather trade more deliberate positions that mature over time and require minimal input or decisions to manage, as day trading is tough. It demands total focus and concentration to succeed which I find grueling, especially with a website hobby to repeatedly distract me. Still, it is the best way I know of to prosper while trading options from the long side of premium right now. We'll continue to give the topic coverage as time & schedules permit.

Again, if I were pinned down to pick one prevailing direction from here it would be down, but that may not happen for weeks or longer and could come from higher index levels than tonight. Lay your bets as best seen fit but I'll remain a deft scalper with capital used for speculation, which is a small percentage overall and one I'll only look to reduce.

Hit the entries with care: easy action lies ahead of us somewhere but I don't see it in the charts yet tonight.

Best Trading Wishes,

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