Option Investor
Index Wrap

Fed's Totally Dead: What Lies Ahead\?

HAVING TROUBLE PRINTING?
Printer friendly version
      12-12-2001          High     Low     Volume Advance/Decline
DJIA     9894.81 +  6.44  9919.72  9806.10 1.42 bln   1520/1625	
NASDAQ   2011.38 +  9.45  2022.76  1975.65 1.86 bln   1855/1744
S&P 100   580.37 +  1.05   582.56   574.33   Totals   3375/3369
S&P 500  1137.07 +  0.31  1141.58  1126.01             
RUS 2000  475.31 +  0.54   476.32   470.99
DJ TRANS 2580.28 -  6.31  2591.70  2561.87
VIX        25.45 -  0.24    27.38    25.14 
VXN        48.09 -  2.64    51.36    48.09
TRIN        1.07 
Put/Call    0.64

Fed's Totally Dead: What Lies Ahead?
Austin Passamonte

Immunity! Immunity! Equity markets have finally and very clearly grown immune to reaction of further interest rate cuts. The all time historical 11th interest rate reduction in one year failed to move market at all, other than down. It's plainly obvious no one cares about the January FOMC meeting or any other beyond until the day comes that rates begin to rise once more, an event the Euro- futures are predicting arrives before the second half of 2002.

Be that as it may, who cares? We'll trade next year when it gets here... let's deal with this week first and take it one at a time from there. Our job here to attempt timing the market on a daily basis has been droll and getting worse for some time now. Lest I dared hope there would be reprieve from directionless markets, such is probably asking too much.

(Weekly/Daily Charts: Dow)

The Dow looks weak here and could be in the early stages of a real breakdown, but let's not bet too heavily on that scenario just yet. Media sentiment has been skittish but still very bullish lately and may not give up the dream of dead bear markets just yet.

Meanwhile, weekly stochastic values are beginning their first trip down from overbought extreme since this May, but might take weeks (or more) to reach oversold zone ahead. Meanwhile, we will hold off declaring an end to the recent bull until that weekly slow stochastic line (red) pushes down below 80% line.

Daily charts are building what seems to be a bear flag coupled with clearly bearish stochastic values tonight. I see nothing in either of these charts that offers evidence we should buy calls and if anything put plays are in order with long-term vision in mind. The S&P indexes (not shown) look very much like this as well.

(Weekly/Daily Charts: NDX)

The big NASDAQ is stronger than old economy issues, relatively speaking. Still in a defined, narrow channel in its weekly chart the NDX is targeting 2,400 by April 2002. Should we all buy May 60 calls right now that would be ATM by then and several hundred percent higher in value? I'll pass on that myself!

Daily-chart shows the post 9/21 uptrend still firmly in place but price action is stuck below resistance for now. Oscillators are bearish but could easily short-cycle and turn higher from here.

(60-Minute Chart: OEX)

The S&P indexes (OEX pictured) still seem to be bouncing within an expanding wedge formation, bearish by nature but price action is currently near support. Will it muster the legs to mount another assault on 600 level near resistance soon? Stochastic values are bullish on this intraday chart.

(60-Minute Chart: QQQ)

The Qs broke last week's wedge in profitable call-play fashion and seem to be consolidating in a bullish flag pattern right now. With intraday stochastic values bullish, a break above resistance could spell another pass at recent highs.

Conclusion
Long-term charts are weak to bearish while short-term charts within that broad scope are trying to turn bullish. Which is correct? Probably both. We should expect price action to chop around in its recent range unless/until a serious, lasting catalyst arrives to clearly break the mold. Rest assured it will not be Fed action on interest rates and I doubt the stimulus package will offer more than a one-day pop.

Speaking of which, isn't this gridlock asinine? What happened to all that arm in arm hugging & kissing for the cameras back in late September? Politics as usual once the cameras turn away?

We've been told by every economist and pundit from Greenspan on down that the present economy is propped upon consumer spending. How hard is it to draw up a relief package bill? Just ladle the money right into consumer pockets and bypass any corporate tax cut pork, etc. Trickle-down economics already proved to America that money dumped in corporate coffers trickles down to wealthy pockets only. Will that help our credit-card economy? Send Joe & Jane America direct checks, tax relief and eliminate capital gains tax completely. If the consumer is going to birth the bull market in 2002, pour the fuel directly into the motor!

Lest you think I really care what happens politically here, think again. The pending relief package will have zero effect on my 2002 investment plans or results. Market direction will mean absolutely nothing to me, but for those which it does I really worry sometimes.

Still, we are powerless over what the markets will choose to do directionally. For now I'm prepped and accepting the idea that sideways chop reigns supreme. This very day one year ago marks the end of that Florida ballot fiasco when markets would rally or plunge hundreds of points in minutes each time another political lawyer stepped on a podium. We thought those wild, large range days were tough and they were. Welcome to the opposite end of that spectrum.

Summation
If held at gunpoint I'd trade the downside in buy & hold fashion based on long-term charts depicted above, but it's likely to be a very turbulent ride along the way. I continue to scalp very short term trades only on a personal basis and expect that won't change until well past New Year's champagne.

Best Trading Wishes,

Index Wrap Archives