THE TRADER'S NOTES for Monday, October 18, 1999
Yesterday's Observations: Target of test of September 28 low on the S&P is met. The question now is if the market can hold or if the bottom drops out from here. TV commentators remain blas‚ and complacent.
Market internals getting extreme as new NYSE 52-week lows expand to 500 vs. 11 new highs with the 10-day MA of Net Differential of NYSE New Highs/New Lows going lower. CBOE Market Volatility index, the VIX, is at a 20-day high, but no reversal on the close yet.
Today's Theme: There has been much talk that the S&P 500 Index has formed a head and shoulders top over the past six months. Not to be alarmist, but if we apply the classic Edwards and Magee measurement formula, a projected target of 1105 is derived. We must state that this calculation is purely academic as projection into the future is not necessary for profitable trading, but keeping one's mind open to all possibilities definitely is.
The Dow Jones Industrial average has achieved the first price target of testing the September low off the sell signal generated at resistance in the 10,600 area. The NASDAQ 100 Index has almost achieved the second target of 2350 from the sell signal produced on October 12 on the test of top. The CBOE Internet Index has broken the uptrend line from the August low. Nearest support below is at the 440-460 area.
This week, we have the consumer price index, real earnings, housing starts and building permit data coming on Tuesday. The trade balance is due on Wednesday.
The Intermarket charts are still threatening as the U.S. Dollar hovers at support at recent lows with interest rates and commodity prices on the rise.
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 have been posted to
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