Option Investor
Index Wrap

No Volatility... For Now

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       WE 12-28         WE 12-21         WE 12-14         WE 12-07 
DOW    10136.99 +101.65 10035.34 +224.19  9811.15 -238.31  +197.90
Nasdaq  1987.26 + 41.92  1945.83 -  7.34  1953.17 - 68.09  + 90.68
S&P-100  591.75 +  5.34   586.41 + 14.03   572.38 - 19.40  +  6.98
S&P-500 1161.02 + 16.13  1144.89 + 21.82  1123.07 - 35.24  + 18.96
W5000  10818.57 +173.64 10644.93 +201.37 10443.56 -301.81  +213.92
RUT      493.62 +  9.60   484.02 + 12.73   471.29 -  9.92  + 20.43
TRAN    2643.05 + 37.82  2605.23 + 28.13  2577.10 - 51.16  +116.48
VIX       22.33 -   .96    23.29 -  2.68    25.97 +  1.08  -  1.25
VXN       45.94 -  5.02    50.96 -  1.83    52.79 +  2.61  +  1.73
TRIN        .73             1.08             1.06             1.18
TICK      +1098            +1184             +388             +828
Put/Call    .69              .69              .72              .78 

No Volatility... For Now
Austin Passamonte

"Market Action" is an oxymoron these days. It has been a stock pickers's market for weeks now, and even that is quite dull for the most part. Gone for now are the days of wild price swings and large-range sessions. This feels more like the end of July than closeout of another year instead.

Traders who simply bought the right calls or stocks back on Christmas Eve and held thru the sideways chop would be up slightly in profits. Reminds me of the "old days" before late 1998 when we'd buy something and let it run for days or even weeks without concerning ourselves with an exit. Incredible volatility the past two years has shaken that confidence from most market survivors who are slow to enter & quick to exit.

Count me as one of that group! But perhaps it will be time to settle down and revert our approach back to the mean. Has the ceaseless volatility finally ceased?

Not likely. Somehow I get the feeling that major market moves are just around the corner. Which way remains to be seen, but I'd readily welcome either direction with open arms (and trading account) any time now.

(Weekly Chart: Dow)

Same story: different week. The Dow remains within its growing bear flag pattern the past two months and stochastic values are pinned in overbought extreme. Could stay there for who knows how long and price action could continue higher. Buying overbought markets to the long side almost never works out for me and I'll wait for clear direction to stake buy & hold plays on this one.

(Weekly Chart: NDX)

NDX is more clear: clearly weak. Now resting on mini-channel support with very bearish stochastic values. No sign of a bounce in this chart, but that's what bulls desperately need and soon!

(Daily Charts: Dow & NDX)

Non-descript price action in the Dow's daily chart. Sort of an ascending wedge but nothing I'd feel great about gaming. Just plain muddy picture for the Dow on a weekly and daily chart basis.

True to mixed market messages, the NDX daily chart is bullish with a nice bull flag and ascending stochastic values. Bearish weekly, bullish daily usually means sideways until both agree once more.

(Daily Charts: OEX and SPX)

The S&Ps might offer more clues. Long-time reader Okhee Sue asked about the validity of these possible bearish diamond formation patterns on Wednesday. While not the classic shape by any means, we certainly see some diamond-like consolidations here. The OEX measures 30 index points wide at the middle and the SPX is of course double that.

Theory is that a break from the point either way should move the same distance as measured width before changing direction from there. My experience with diamond patterns is that they often break to the upside in classic bull-trap fashion set by the bears and then smash down from there. We'll be watching for the 'ol pop & drop action to begin real soon!

(30-min Charts: QQQ and SPX)

And finally, a look at intraday (30-min) charts of the QQQ and SPX show that wedges coiled up again. What next? Don't know, but gaps beg to be filled on the downside. I'd prefer call plays taken at the bottom of each gap near support but buying an upside breakout could work the same way it did for small scalps on Wednesday. Again, nothing that screams high-odds setup here to me.

Conclusion
Monday's full session could go either way. Just what you tuned in to hear, right? Each day we grow a tad more restless as markets just coil & churn, coil & churn without really busting a move and running either way. Creeping rallies are tough to game, because it looks like nothing happened until a week goes by and the market is higher than we realize. I dislike buy & hold tactics right now and will be thrilled to get past artificial market action like we have right now, window dressing and all that mess. Once we reach Jan 7th and beyond, it should become a whole lot easier to see what's happening next.

For now I wouldn't expect much to happen either way. When charts are mixed it usually means sideways chop ahead. Any big move that comes up next week is invisible right now and will shock the charts more than it will those who watch them.

Next week begins the OI/IS merger and consolidation of info to you. I'm thrilled to say it will arrange my workload to delve deeper into index sectors than I've been able to for some time. I'm very sure you will like where the service is headed next, and 2002 is looking very favorable from here!

Best Trading Wishes,

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