Option Investor
Index Wrap

A Bull\? A Bear\? Neither... It's A Wildebeest

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        12-17-2001        High      Low     Volume Advance/Decline
DJIA     9892.00 + 80.90  9930.90  9798.80 1.24 bln   1783/1368	
NASDAQ   1987.40 + 34.30  1994.48  1951.45 1.80 bln   2077/1594
S&P 100   578.97 +  6.59   580.69   571.86   totals   3850/3962
S&P 500  1134.36 + 11.29  1137.36  1122.34           
RUS 2000  479.94 +  8.65   479.94   470.73
DJ TRANS 2619.06 + 41.96  2619.88  2576.37
VIX        25.43 -  0.54    26.45    24.83
Put/Call Ratio      0.56

A Bull? A Bear? Neither... It's A Wildebeest
Austin Passamonte

I get questioned throughout each day as to whether some market action or tidbit appears bullish or bearish. Most of the time a case could be made for either, which brings to bear our third market mammal seldom spoken of: the wildebeest.

African wildebeest number in the many millions and span that continent's plains like wild bison once did here in the U.S. If you've ever seen one on television or otherwise, the first thought that comes to mind is a creature assembled of leftover parts. I mean it barely resembles most other ungulates with which it may/may not share genetic heritage. Stare at it all you want... that hapless denizen of the arid plains is neither bull nor bear. And it is less than pretty to all but its momma's eyes.

So describes current market "action".

Bored traders used to volatile markets and those whose tenure dates back to 1998 or after may believe directional action is the norm when in fact that's not historically true. Most financial markets spend 20% of their time moving up or down with the remaining 80% in a sideways range. Don't believe it? Look at any chart dating back past the go-go years of irrational insanity and see for yourself.

Such is not a market truth I like, but it is one I must accept. We all try each & every day to spot the next big market move like idle surfers paddling around in flat water. Surely there must be a big wave coming: if we just stare at the horizon long enough it will appear. So we stare at the horizon and see dozens of little waves bobbing in. We get our hopes up on each one that's a tad bigger than the rest but alas, it rolls under our surf board flat as a pancake too.

That is akin to watching current sectors and indexes. They all seem about to break up or down when in fact it is pure market noise. If you like watching every wiggle paint itself between support and resistance on a chart you will absolutely love near- term market (in)action.

(Daily Charts: Dow and QQQ)

Same chart? Look closely: left is the Dow, right is the NDX/QQQ. Both major indexes are now resting below ascending trend lines of support dating back to September lows as they attempt to convert that current resistance back to support. Stochastic values in oversold extreme tell us they both have a chance, but there is no guarantee signals have to rise straight up to overbought extreme from here. Could go either way.

For the indexes to go either way, they will have to break out of these bearish flags forming the past several weeks. I'd use both measures (green and red) as verification that the wildebeest has then become a bonafide bull or bear.

(Daily Charts: OEX and SPX)

Similar story. Big, expanding wedges with higher highs and lower lows since early November and no sign of cessation ahead. Oversold stochastic values suggest the next trip around should be back towards the top of these patterns.

Market bulls with an upside bias definitely do not want to see this behavior flip over and become a consolidation wedge. That would form clear diamond patterns, a high-odds warning sign of instability and downside direction ahead.

(60/30 Min Charts: QQQ)

The Qs have been in a downtrend since Dec 6th and failed to break above today. Stochastic values across near-term charts are bearish for now.

(60/30 Min Charts: OEX)

Same with the S&P indexes (OEX pictured here). Tiny little intraday bearish wedges expand as the indexes waste precious energy in dissipation rather than consolidation. A coiled wedge near recent highs would suggest price pressure is building strength for an explosive burst, while widening wedges expend energy and usually just drop lower from exhaustion.

Bearish stochastic values told everyone with open call plays to close up shop and sit tight for the next high-odds setup ahead.

A rather droll day for those who were not already long at lower levels, but time decay on options right now saps a ton of value out of them as well. Holding over one session to the next will result in at least one monster trade this week, but the question is which? Several attempts could also result in significant loss as well.

My preference and modus operandi? Hasn't changed one bit: I'm either scalping intraday or holding SMALL capital positions over a close gambling on a big move in my favor when catalyst permits. I see no bull or bear on this week's horizon from here... just another herd of wildebeests galloping along.

Best Trading Wishes,

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