THE TRADER'S NOTES for Monday, October 4, 1999
Yesterday's Observations:
S&P 500, Nasdaq 100, Dow Industrials traded in a tight range, in a hold pattern, so far unable to move up to break resistance overhead after the daily charts were broken. The CBOE Internet index is in an uptrend on intraday timeframes.
Today's Theme:
Trading range expected to continue with FOMC meeting tomorrow. Results should be the catalyst to move indices out of the intraday trading ranges. With most commentators expecting no change in interest rates, we will be watching for unexpected market reaction following the announcement: "good news" that fails to spark a rally, or "bad news" that can't make the market go down. There is a lot of cash on the sidelines, with traders expecting an October bottom, and if good news fails to produce a rally, then it's going to get messy. Very messy. On the other hand, if there is bad news and the market cannot go down, then a serious short-covering rally could be produced. Either way, traders can probably look forward to some good directional trading.
Intermarket charts are not supportive of the bullish case, as the U.S. Dollar has broken a trading range to the downside. The 30-year bond rate has formed an ascending triangle that is expecting to resolve up. Commodity prices continue in an uptrend. Dow Utilities index is at a 20-week low.
S&P Futures/SPZ9: 1300-1310 area provides resistance going back to March and April 1999. Tight trading range pending FOMC meeting.
Intraday 45-minute chart=1289, 20-Day EMA=1319, 50-Day MA=1342, S1=1267, S2=1250.50, R1=1357, R2=1379.
S&P 500 Index/SPX: Tight trading range pending FOMC meeting.
Intraday 65-minute chart=1278, 20-Day EMA=1305, 50-Day MA=1325, S1=1256, S2=1206, R1=1338, R2=1361.
Market Internals: NYSE 52-week highs=31, NYSE 52-week lows=175. Small improvement in new NYSE highs relative to the lows. CBOE market volatility index has not really reached a point during any of the small sell-offs where widespread panic is been seen. This is a nagging concern. Usually a great deal of panic and put buying is seen at the bottoms.
Dow Jones Industrial Average/INDU: Trading range seen on the daily chart decisively broken. Resistance overhead at 10,600 area, at the low end of the multi-month trading range at the 20-day EMA.
Intraday 65-minute chart=10270, 20-Day EMA=10573, 50-Day MA=10820, S1= 10081, S2= 9625, R1= 10860, R2= 11142.
NASDAQ 100 Index/NDX: Trades back into July highs, trapping traders betting on a breakout. Cuts through 20-day EMA and is now testing the 50-day MA. Bounce so far has reached back to the underside of the 20-day EMA but unable to break resistance. The good news here is that it's still trading above the 50-day MA.
Intraday 65-minute chart=2404, 20-Day EMA=2435, 50-Day MA=2370, S1= 2345, S2= 2120, R1= 2539, R2= 2551.
CBOE Internet Index/INX: Triangle pattern on the daily chart breaks to the upside on a wave of buying. Rising 20-day EMA was supportive of the triangle consolidation. Now must capitalize on momentum. Intraday 65-minute chart is on an uptrend. Would first expect to find support at the 490 area on any retracement to the moving average underneath.
Intraday 65-minute chart=490, 20-Day EMA=470, 50-Day MA=443, S1= 445, S2= 417, R1= 500, R2= 580.
Last, but not least is a weekly chart of the Dow Industrials. Last week was a very narrow range week, forming a small doji representing indecision. After a week in a tight trading range, we would expect the market to make a big move this week.
EMA = Exponential Moving Average. MA = Simple Moving Average. S1 = Closest support on daily chart. S2 = Support below S1. R1 = Closest resistance on daily chart. R2 = Resistance above R1.
The Trader's Notes prepares the trader for the day ahead, providing information on market sentiment, internals, support/resistance levels and key pivot points in the major market indices. Use of moving averages and the Average Directional Index (ADX) indicator helps to determine whether the market is trending up/down or chopping sideways. Using Japanese candlestick charting techniques, observation of market action around support and resistance assists in the analysis of supply and demand based on fundamental principles of classical technical analysis. The results set up "if-then" scenarios used by the trader during market hours.
Technical analysis is not used as a tool to "predict" the future or to pick tops and bottoms. It is used to detect areas of trend change and emerging trends. In a trading range, traders generally look to buy at the low end of the range and to sell at the high end of the range ? or stay out all together. In a trending market, traders generally look to enter the market on every retracement until it enters a trading range and ends on a test. The goal is to buy every dip in an uptrend and sell every rally in a downtrend. The trend is your friend until the end when it bends!
Charts specific to these comments:
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