Option Investor
Market Wrap

You Won't Hear Such Nonsense From Me

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      01-16-2002          High     Low     Volume Advance/Decline
DJIA     9712.27 -211.88  9916.54  9711.10 1.47 bln   1141/2002	
NASDAQ   1944.44 - 56.47  1981.81  1944.32 1.88 bln   1187/2392
S&P 100   574.99 -  9.86   584.85   574.89   Totals   2328/4394
S&P 500  1127.57 - 18.62  1146.19  1127.49             
RUS 2000  476.42 -  8.58   485.00   476.22
DJ TRANS 2638.34 - 49.74  2693.33  2635.36
VIX        25.26 +  0.84    25.42    24.03 
VXN        49.43 +  1.41    50.75    48.58
TRIN        2.41 
Put/Call    0.69

You Won't Hear Such Nonsense From Me

Very little makes me cringe more than hearing market reporters say things like, "It was an ugly day in the market". I've seen that incomplete statement all over the place today and it irks me no end. I say incomplete statement because such biased remarks depend squarely on emotional opinion, not logical fact.

Today's action wasn't good or bad: it merely was. If traders were long puts or short shares on the right stuff it was good. If they were on the wrong side of market action it was bad. If they were flat it was nothing at all except just another day. Simple as that.

Any other attitude places a person with such bias in grave danger of busting out of our profession frustrated, dejected and broke. Money flows both ways every day and in the case of this current and (probably continued) bear market it flows better downhill than up. January put plays on MMM up over +800% intraday for anyone fortunate enough to take them pretty much says it all!

On to the future.

Forget about anything INTC or EBAY could have possibly said to all who cared last night, and focus on supply/demand for a moment. Both of these stocks had huge 10/1 call-to-put ratios in January and February contracts heading into their reports. That kind of staggering bullish disparity tells us everyone who wanted to buy good news already did. If either company then reports stellar news, so what? Who's left to respond and push prices higher?

But if either/both say anything less than incredible things, there might be a sudden rush for the exits now that unrealistic levels of hope are dashed. The days of go-go news momentum via 1999 are dead & gone forever: we can go back to ignoring irrational market reaction and once again measure sentiment levels. Then trade this underlying evidence with high-odds effectiveness.

(Weekly Chart: Dow)

The Dow has been forming a bear-flag channel these past nine weeks straight and it confirmed with authority this week. Next target ahead is 9,500 area. Stochastic values just starting a reversal from overbought down towards oversold extreme might finish their endless cycle this time with price action well below that.

(Daily Chart: Dow)

Switching to a daily-chart view, the Dow failed to hold its first mild Fib retracement level in the current bear-market rally and next on the map is 38% near 9,440 area. We are quite apt to see an ultimate retracement of -50% to -62% this entire move, placing the Dow back down near its 9,000 level in the coming weeks ahead.

All at once? Not likely: oversold stochastic values suggest the slide will slow or halt and possibly chop its way lower, but that is just an assumption.

(Weekly Chart: NDX)

We've drawn this year-long channel in the NDX numerous times recently and expect it will last for awhile further. I'd watch that middle line (black) for price action to test when stochastic values reverse near/within oversold extreme for the next sustained rally to begin. Looks like about 1250 level or 31.25 in the QQQ. Seems a bit low to me, but the charts have proven all my "gut feelings" dead-wrong several hundred times before.

(Daily Chart: NDX)

We could say the NDX has formed a semblance of bearish descending triangle pattern and if so, price action now rests on support. A break from there leaves next stop near 1500 level or roughly 37.50 in the QQQ.

(Weekly/Daily charts: XAU)

Gold Fever strikes! Not talking about one of my favorite shows on the Outdoor channel, I mean the Gold & Silver Index that Jeff & Eric alerted everyone of back near the 54.00 level. Remember what those "pointy-finger" (point & figure) charts were saying last week? On his birthday, Eric told us in Market Monitor that a print above 55.00 level was a buy signal. Hope he spent some birthday cash on Placer Dome or like kind!

Need to watch current levels near 61.00 area as oscillators go toppy in overbought extreme and some old overhead supply areas are reached as well.

When the September rally stalled in early December and flailed sideways from there, most of us have waited since for the inevitable correction to begin. Looks like we've seen it start. I don't think there will be a straight-down plunge from here for many reasons, not the least of which is momentum players quick to hammer the short side these days that creates tinder for short squeeze explosions.

I do know that seasonal patterns tend to strongly repeat. Remember how the last two year's March/April patterns have gone? New yearly lows. May has launched powerful rallies after both plunges as well. Can we expect a hat trick? I would certainly not count that out.

Let's just be grateful we're all traders here, able to play either direction with equal aplomb. Don't you feel sorry for biased-bull stock players or call-buyers only trapped in the 1999 time warp? They've had brief moments to profit squeezed between long stretches of giving back those gains to us since then. But, that's just how trading works and no one can change it. Here in OI we all work very hard to educate the above-average individual on how to profit regardless what broad markets decide to do.

I have no idea whether we will see the Dow at 5,000 or 15,000 next, and frankly I don't care. I cannot afford to care, because it clouds my judgment terribly and keeps me from making money. Hard enough trying to earn vulgar amounts of profit with emotional baggage weighing me down, and I'm sure you'd agree. So, we'll take what the markets give us because that's what we're all gonna get in the end!

Earnings season will create volatility from one session to the next. Big picture via weekly charts is downward strength for now. We have plenty of important price levels to monitor and need to favor the downside on a broad index basis with upside bias for individual stocks along the way. The Dow and S&Ps have lost plenty of ground since failing at recent tops and are due to bounce around soon. I would not fall in love with either market direction right now as that may result in broken hearts or worse.

Earning results are merely short-term noise. How the market responds several days later is much more important than what gets said. Along with earnings gyration we have the next FOMC event two weeks from today. The Fed is quite dead to the upside, but a move away from continual cuts must happen eventually or we'll get paid to borrow money soon! Wouldn't that be grand? Don't count on it.

We've had fun in Swing Trade model these past couple weeks, and shorting every iShare symbol with bearish long-term charts looks favorable from here as well. For more views of intraday charts if you can't get enough looking at such doodling, please join me within the Gameplan sections each night. There will plenty of opportunities with calls and puts alike this year, so let's do our best to hit those winning entries with gusto both ways!

Best Trading Wishes,

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