Option Investor
Market Wrap

Bulls & Bears Delight

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      01-30-2002          High     Low     Volume Advance/Decline
DJIA     9762.86 +144.62  9775.59  9529.46 1.99 bln   1890/1207	
NASDAQ   1913.44 + 20.45  1913.66  1851.49 2.04 bln   1947/1621
S&P 100   564.38 +  7.10   564.66   546.13   Totals   3837/2828
S&P 500  1113.57 + 12.93  1113.79  1081.66             
RUS 2000  479.72 +  5.74   479.78   468.38
DJ TRANS 2762.11 + 23.46  2769.01  2712.46
VIX        24.94 -  1.32    29.92    24.77 
VXN        44.67 -  1.23    48.28    44.55
TRIN        1.16 
Put/Call    0.72

Bulls & Bears Delight

Today's session certainly had something for everyone. The day began upwards in tentative fashion before TYC, SPW and others absolutely collapsed, with major indexes followed suit.

Taking intraday put plays on a break below opening levels proved to be a winner as price action plunged from there. Very nice move to the downside. The VIX spiked up to graze its 30 level, put/call ratios and mirror-image option pricing soared in bullish contrarian fashion as well. With near term charts buried in oversold extreme, seemed as if a late day pop was brewing. Light call plays entered just off session lows were next in order.

Then our Fed announced no more bear bullets in the rate-cut gun. Indexes promptly soared and implied volatility in options spiked. Good time to exit those recent calls, or so it seemed as indexes pulled back sharply from the post-FOMC spike. Normally the initial market move is wrong and fading that wins past 3:00pm EST. This time the markets pulled back to near flat and then surged back up the charts in powerful fashion from 3:00pm into the close.

Whew! A lot went on in a short period of time. We could have done without the intraday turbulence that would have made call plays bigger winners, but bearish intraday charts and memories of FOMC afternoon power dives shook us out of our longs too soon. Major indexes finished well off their lows and actually reclaimed better than half of Tuesday's decline.

(Monthly Chart: TYC)

Joe Kernan of CNBC fame was all giggles & grins this afternoon, calling this a key reversal session (his words). Could very well be, and plenty of charts looked like this one. TYCO has taken a total pounding these last few weeks, down from near $60 to an intraday low of $27+ today.

This long-term monthly chart shows eight years of retracement history. Note how today touched and bounced from an important Fib level to close right on another. What next?

(Weekly/Daily Charts: TYC)

Weekly and daily chart signals are both oversold. The easy short play is over and a reflexive bounce may be next. Once both of these chart signals move back up and align together in overbought extreme, that will be in harmony with monthly chart stochastic values Previous chart) as well. Watch the overhead Fib retracement moving averages and stochastic values while this one sits on the back burner for now. We don't marry stocks and my thought from here would be "next" for a trade.

Tempted to add this baby to your long-term investment holdings now that it's "cheap"? Some pundits may tout that, but I'll wait for monthly charts to go bullish first. Right now they've just begun to hint of a bearish roll, and that could take deep into this year for completion.

(Weekly/Daily Charts: SPW)

Here's a key reversal session that may not be. SPW took a big dive and almost as big a bounce today for what would have been monstrous option plays in both directions. And there I am trying to chip away at the S&Ps! Silly me.

Anyway, look at the stochastic values here. Very bearish. Look at the 50 DMA touching 75% retrace right where the breakdown began today. I may not short this one right now but sure as heck wouldn't go long with any confidence, either. I don't know what their story is and quite frankly do not care. Price action in the stock is weak, which means it is under distribution and I'm not willing to stand beneath a dump truck on charts like this. Short or pass.

(Weekly/Daily Charts: Dow)

The Dow went down and flirted with 9,500 area today too. Big bounce from there on another large range session. Bottom in place? We've got the moving averages overhead along with former support at 10,000 level. Stochastic values remain mixed to weak. Just a dead cat bounce in prevailing downtrend until proven otherwise. When both weekly and daily stochastic values post bullish reversals and turn higher from here, I become an aggressive call buyer again!

(Daily Chart: NDX)

Nazz 100 remains pinned between Fib levels with mixed signals as well. I'd watch that 1578 to 1600+ level (roughly 40 in the QQQ) fro triple trouble with two major moving averages and 75% retrace waiting with palms facing down for the next rally attempt.

Conclusion
Just when markets lulled us all to sleep, things get interesting in a hurry. I went from ignoring my broker to taking several entries a day without fair warning from the market. Semper Paratus, right?

(10-Min Chart: SPX)

Today was another fun-filled flurry of action. Being a special occasion via FOMC and trying to oblige a few readers' requests I did my best to chronicle a day in the life of S&P mastery. Perhaps we fell a bit short of mastery, but there were some pennies to be gleaned regardless.

An early pop above 1100 level quickly failed and fell back thru with 10/5-minute chart stochastic values both posting bearish reversals from overbought extreme. Get short at break below 1100 and hold on. Price action promptly fell of a cliff again, all the way down to 1081 for a -19 index point decline. I should have exited there, but the quick rebound back to 1085 coupled with now bullish stochastic values reversing from oversold extreme got me into calls at 1085 in the other direction.

Puts gone, calls in and markets flutter sideways just above entry for some time. Then price action moves safely away as the FOMC event nears. A volatile pop higher after the news usually means a fake out move, so bid 21.50 / ask 23.50 is split at 22.00. Someone wants to buy my calls from me, bless their merry souls! I try a third play in puts on a break below 1098 but get popped out of that one below my stop as things gained steam to the upside near 3:00pm. Should have played the upside again for another +15 index point move, but the charts just didn't show it.

Five hours of market action (10:00am to 3:00pm) and I'm exhausted. Trading, typing, emails, potty breaks for the dog and occasionally me is one busy schedule. We won't do this very often, but hopefully it offers a glimpse into the busy side of trading.

Given a preference I'd make one entry on Monday, close it out Thursday afternoon and take three days off. Wouldn't that be awesome? But reality is I must trade the noise in between if Wendy is to avoid PayLess shoe stores. It's hectic, grueling, stressful and exhausting but a far cry better than the factory work I endured years ago.

Traders somewhat new to the game or at least one of this speed often lament they cannot learn quick enough to suit them. Join the club! We all want to begin life from crawling right to the starter blocks of Olympic sprinting, but the natural progression doesn't work that way. Others tell me their confidence is lacking (or worse) and they see the trades but just can't pull that trigger.

Me too. If I had free time I think it'd be fun to enter the Robbins Cup live trading contest and line up with the big boys. By day I believe I can smoke any of them in the S&Ps. But at 5:00am this morning I woke up in a cold sweat. Was dreaming I stood on stage at a live trading seminar and got my a, uh head handed to me losing every single trade while the crowd laughed and jeered.

Which is it? Cocky or cowardly? Guess I need to ask Dr. Phil of Oprah Winfrey fame. Trade long enough and you become various measures of both. We're all a neurotic bunch, so don't let that bother you. My advice is to trade small, learn to win and grow from there. For gosh sakes do so taking some of Jeff's, Eric's and Mark's equity plays! Have you seen the hot picks those boys have been ferreting out? Land sakes alive... who can't win following that dynamic trio?

Summation
Yes, I'm about done for those who wonder after suffering this long. What are the markets fixin' to do next? Beats the heck out of me, which is why I reverted to telling stories. But if I had to guess I'd say we start off higher tomorrow and struggle with points of resistance all long the way. Technical damage was done on Tuesday & Wednesday then partially erased in one fell swoop. The VIX has gone on a volatile ride. Bulls still want to rally this thing and I don't expect a serious test of last year's lows until March & April myself, so who knows what from here?

We can't know what will happen but we do know what to look for & where. Watch the Fib retracements, moving averages and VIX level if it quickly drops back below 22. Soon we'll have price action consolidating in wedges and it's time to enter & roll the dice again!

Best Trading Wishes,

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