Option Investor
Market Wrap

"Slip Slidin' Away"

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      02-06-2002          High     Low     Volume Advance/Decline
DJIA     9653.39 - 32.04  9733.10  9608.21 1.67 bln   1134/1930	
NASDAQ   1812.71 - 25.81  1853.13  1805.01 2.06 bln   1206/2364
S&P 100   550.20 -  2.18   555.04   546.89   Totals   2340/4294
S&P 500  1083.51 -  6.51  1093.58  1077.78             
RUS 2000  462.41 -  6.41   469.48   461.67
DJ TRANS 2621.98 - 80.45  2707.45  2615.84
VIX        28.05 +  1.28    28.66    27.14 
VXN        49.06 +  2.32    49.20    47.33
TRIN        1.21 
Put/Call    0.70

"Slip Slidin' Away"

Can't recall the singer, album or era but I do remember that being title to a song. Might as well moniker the markets with it too, while we're at it. Tonight's market report is easy: we can forego all the news items fluff from last night until now and sum it up with four picture windows instead. How's that sound?

(Weekly/Daily Charts: SPX)

In no particular order we'll review trends based on accumulation and distribution. First up, the SPX. A homogenous blend of all the other indexes to follow below, it's a nice place to begin. Weekly chart (left) shows price action at or slightly below some key retracement levels measuring year 2001 highs in May to lows in September. Stochastic values are still pointing straight down, telling us the market is under distribution right now.

That visual fact is reinforced by its daily chart (right) with stochastic values also rolling straight down in bearish fashion. Moving averages are miles above and ultimate support may come in around the 1036 area if 1050 doesn't hold first. We are talking about downside targets only because the trend and price strength are both in pure harmony across all time frames: down. If and when the signals shown turn bullish reversals ahead, we'll be targeting upside points of reference from there.

(Weekly/Daily Charts: OEX)

The OEX, mirror index of the SPX is of course exactly the same. We could and probably will see 528 area in the next few weeks or so. Zero signs of sustained bullish potential right now.

(Weekly/Daily Charts: Dow)

The Dow is slightly different, but not much. Weekly chart signals are trying to cease the halt but daily charts speak otherwise. The halfway mark of last year's price range just gave way and now serves as resistance. Looks like 9,300 area could be the next price magnet ahead.

(Weekly/Daily Charts: QQQ)

I'd guess the NDX/QQQ and primary sectors will be first to find a bottom and stabilize. Just as they were the first to break down, so shall tech sectors be first to flatten out. Bounce from there? Bulls should just be grateful for sideways action right now and that could come relatively soon.

Odds & Ends
You could stop right there and click out of this page with all that needs be known about the markets to make money. TYCO secures more credit to dig a deeper hole? CSCO conveniently slips out earnings before the markets open and way before any conference call? Bullish economic reports before the opening bell? Who really cares? Did price action seem to care? Not much longer than the first few minutes before prevailing trend resumed its course.

Thoughts to ponder: WCOM on its way to bankruptcy? Sure seems that way, and I expect the majority of current telecom and wireless components to follow suit. No one will buy anyone else out in that hapless sector because the few companies left with money don't need or want the other loser's overpriced, out-dated mess. I'm just hoping these dead stocks still walking can pop back up to resistance so I can ride them down the hill without missing the fun this time!

Wonder how CSCO's conference call is going? Maybe they didn't slip the markets a mickey today after all. Perhaps that inadvertent earnings release was not a ploy to prop up the stock before bad news leaks after all. I've had CNBC on mute since 2:00pm, my preferred mode of listening. Can't say as I tapped into the CSCO conference call, either. If I had that kind of idle time to fritter away it would've been spent napping on the couch instead.

Let's see how well CSCO pleased the analysts.... hmmm... gotta be a price in the post-market ticker soon... ah yes, 17.30 and falling. Is that where CSCO closed today or did it pop up a couple bucks higher after the bell? All those sell side fundies keep telling us how much cash CSCO has on hand. Maybe they'll buy back a huge chunk of their float if things are looking so rosy over there. Can you think of a better investment CSCO could make instead of a record-breaking buy back?

Alex Henderson of Salomon Smith Barney can't think of any. He's the analyst on CNBC last night at this very hour pounding the table on CSCO as a strong buy. His firm's price target is $27 to $35 by year's end and implored us to buy it today, before the monster earnings tonight so all we ignorant folk don't miss the huge spike up to follow.

Thanks anyway Allie, but I'll stick with shorting the S&P for now. Up just over +70 index points since last Monday and would like to bank +100 by this week's end. I'll invest in your CSCO call some other time.

None Of It Matters At All
Market news and analyst mantra amuses me much as the next person. I cruise various fundamental news sites to see how the other half lives but for gosh sakes never base any of my trades on that inane stuff. I want to, check that... I NEED TO see price action in the charts before ever making a single trading decision that involves my money and other people's too. Long ago I learned nothing else matters when chart action is clear, and clarity reigns right now.

The trend is down, chart signals are all heading down in unison. Short every single rally attempt from now until chart signals turn bullish. That's all any of us need to know. The rest is pure noise & distraction.

I'm going out on an editorial limb saying such strong words and I know for an absolute fact some readers are bristling. That's the price I'm willing to pay for saving others who are intent on trying to catch a bounce with index calls. Every day with no exception I get email asking if readers should buy index calls here or there, is this the bottom, etc. I also get more than a few notes from those who bought calls, are trapped with painful loss and ask me for a solution to save them that does not exist. My job in here is to try and help shelter aspiring traders from fiscal harm first & foremost, and strong words are sometimes required.

(60/30 Min Chart: OEX)

Skilled, knowledgeable, daring intraday traders can attempt call plays for brief scalps but rest assured that is bucking the dominant trend. On the 60-min chart (left) you'll see stochastic values crossing over in or near overbought zones three times. Swing Trade model played the downside on those first two and hit some fairly big moves with absolute ease. Two other times there were upside pops from oversold extreme of tradable distance that lasted a few hours or less each time. Be quick or be dead when fading weekly/daily charts trending powerfully as they are right now.

What does this tell us? Play the trend. This afternoon there was a third viable put play entry as the OEX failed near 555 and broke below S/R price magnet of 552.50 area. Puts long at 552.00 and held over the close might work real well tomorrow. Stops set at 555.25 just above the last high would limit risk fairly well. I did not take this play myself, but sure wish I had. With CSCO bleeding red all over the post-market ticker, it could be another very methodical day tomorrow once more.

You are fully armed & ready for the market. Watch your favorite stock, index or sector for weekly/daily charts just like these. Wait for 60/30 min charts to line up in overbought and turn bearish just like the ones above. Get short, set stops and hold on. Trading the downside right now is slightly easier than printing crispy, new $100 bills of your laser printer, and you will sleep easier at night knowing the Secret Service isn't about to pay a visit.

If that sounds brazen or cocky I apologize. But we are right in the middle of a beautiful trend to trade and most people I talk with have been looking upwards for the past two weeks. Turn around, look down, short every rally and fire up the printing presses in your home. The trend is your friend and we've all got a party going on with our friend right now!

Sell Every Rally With Gusto,

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