THE TRADER'S NOTES for Tuesday, October 19, 1999
Yesterday's Observations: Target of test of September 28 low on the S&P is met. The bottom did not fall out a la "Black Monday" style. NASDAQ 100 index reaches target for the sell signal produced October 12 on the test of top. CBOE Internet Index reaches the 50-day MA on break of the uptrend line from the August lows.
Market internals continue to be at an extreme with new NYSE 52-week lows at 418 vs. 8 new highs with the 10-day MA of Net Differential of NYSE New Highs/New Lows going lower. CBOE Market Volatility index, the VIX, reversed at the close to produce a short term buy signal with a stop loss at yesterday's low. A cautionary note that the S&P 500 index has still not closed above the September 28 low at this time to confirm this buy signal.
Today's Theme: Waiting for CPI, real earnings, housing starts and building permit number today with the trade balance numbers due tomorrow. Chaotic atmosphere laced with fear creating potential to break either way with force. These are exciting times. If the bounce comes, the first target for all the major indices is the 20-day EMA overhead with the exception of the CBOE Internet index, where the target is a test of top at 560.
December Treasury bonds looking better but there is a solid wall of resistance overhead. It's going to take a lot of good news to get through all this, so let's see if it can at least stop going down on bad news first.
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!
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