Option Investor
Index Wrap

Final Week Of 2001

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       WE 12-21         WE 12-14         WE 12-07         WE 11-30
DOW    10035.34 +224.19  9811.15 -238.31 10049.46 +197.90  -108.15
Nasdaq  1945.83 -  7.34  1953.17 - 68.09  2021.26 + 90.68  + 27.39
S&P-100  586.41 + 14.03   572.38 - 19.40   591.78 +  6.98  -  8.47
S&P-500 1144.89 + 21.82  1123.07 - 35.24  1158.31 + 18.96  - 10.89
W5000  10644.93 +201.37 10443.56 -301.81 10745.37 +213.92  - 64.95
RUT      484.02 + 12.73   471.29 -  9.92   481.21 + 20.43  +  2.36
TRAN    2605.23 + 28.13  2577.10 - 51.16  2628.26 +116.48  - 23.12
VIX       23.29 -  2.68    25.97 +  1.08    24.89 -  1.25  +  1.36
VXN       50.96 -  1.83    52.79 +  2.61    50.18 +  1.73  -  2.36
TRIN       1.08             1.06             1.18             1.19
TICK      +1184             +388             +828             +852
Put/Call    .69              .72              .78              .63     

Final Week Of 2001
Austin Passamonte

...and good riddance, many might say. How many times did we hear analysts promise the bottom is in, economic turn right around the corner, etc? Glad that's over with and behind us. Can't begin to tell you how tired & bored I am with covering nothing but bearish charts and negative fundamental news. Buzz & I are not bearish (or biased either way) by nature and I probably speak for both of us by saying our New Year's wish for 2002 would be new market highs across all indexes. Sound O.K. to you?

Unfortunately, I wished for many things in my life around this time of year and usually ended up with the proverbial lump of coal instead of golden egg desired. I have a sinking feeling the same might lie ahead in the coming year now upon us but am powerless to change, dictate or influence the market's future. The very best I can do is try to mold myself in harmony with the Great Beast and trade the right direction with care.

Before we concern ourselves with next year, we might as well close out the present one first. Fast forward thru Monday, a day in which I won't even dial up my charts. Once I evolved outside the market addiction phase some years ago I made a vow not to trade half-sessions ahead of holidays ever again. Unless I'm managing open plays that require attention I learned thru costly experience that relieving my boredom during half-sessions usually came at a cost. After factoring how much money I lost in this low-odds venture it became apparent I should spend my time doing other things. And indeed I will on Monday, too!

But here's how things are shaping up:

(Weekly Chart: Dow)

The Dow finished another positive week but did nothing to break the growing bear flag. Think there's any buyers near support and sellers near resistance? You betcha! Think that will change soon? I doubt it. Price action threatens to break higher and very well may, but no charts I'm looking at have oscillators that suggest playing the upside is a high-odds bet from here.

(Weekly Chart: NDX)

Revitalized NDX may take its new, sexy additions and pop right back up into the ascending channel from 9/24 but that's not how I would play it. Beneath resistance now and stochastic values are clearly bearish, two strikes against long calls. Does that mandate a trip straight down to 1,000? Hardly, but 2,000 level is equally unlikely from where it rests tonight.

(Daily Charts: Dow & NDX)

And this is why. Care to buy some QQQ calls based on the daily chart at right? I'll pass... thank you kindly. Current levels below that neutral wedge and stochastic values looking to drill their way to China keeps me off the long side for now.

The Dow looks relatively strong, but that's a relative term. I'd say another pass up into the expanding wedge depicted is possible, but one could easily move that upper line to recent candle highs and form a nice little neutral wedge as well (not pictured). See that with your eyes? Of course you do! There are four clear touches on that wedge with Friday's high topped off at resistance on the upper line if we draw it in.

Stochastic values are in overbought extreme again and posting a bearish touch or "kiss". If those lines reverse and turn down from 80% overbought line I would load up on Jan puts and ride the waves to oversold from there. That would align weekly and daily charts in overbought extreme right here, now wouldn't it? Just the setup we've been waiting for to get on the right side of building pressure due to release.

(Daily Charts: OEX & SPX)

Both S&Ps look bullish by chart patterns and bearish by their oscillators. What's that mixed-message suggest? A probable pullback within the pattern at least one more time as weekly and daily charts set up in overbought extreme here.

(60/30 Min Chart: SPX)

Same deal in near-term charts: bull flags and nearly overbought stochastic values. We could also connect all of the lows from Dec 19th and come up with neutral wedges as well, which wouldn't really chance points of action very much. What next? Remains to be seen, but bounces near support should find buying action but pops higher probably get sold.

(60/30 Min Chart: QQQ)

I just can't seem to get a good picture for the NDX/QQQ as it moves in rather strange fashion. Oscillators are erratic, no clear chart patterns screaming out for attention. What to do in the short term via this picture? Nothing... that's my personal choice!

Conclusion
I scanned more charts from Friday to Saturday than a person should be allowed. Most of them look mixed to weak at best. If a vaunted "Santa Claus" rally is poised to launch its sleigh I can't see where the reindeer are connected. Could very well see price action move decidedly higher between now and two Fridays hence, but darned if it looks high-odds from here. I will hold to customary fashion and avoid trading or trade entry temptation on a half-day session empty on volume and full of noise. Holding options thru the holiday after a meaningless session is not within the plans.

Why exchanges even bother holding a half-day is beyond me. Are stock players that addicted to market action? Does a half-day fix before the Christmas rush begins really make a difference? Keep in mind that many futures markets close during times like this, a clue that the NYSE and NASDAQ should grab as well.

All gameplans are empty and idle until Wednesday's open when we resume tracking light-volume action until Jan 2nd finally arrives. Monday is a scratch: let's see if the widely expected January effect affects price action from there!

Best Trading Wishes,

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