THE TRADER'S NOTES for Wednesday, November 3, 1999
Yesterday's Observations: Buyers did not come out in force on the pullback to the 1360 area on the December S&P futures and it closed near the next level of support below in the 1350 area.
The harami pattern seen on the daily chart of the S&P 500, with the narrow inside bar formed on Monday was broken to the downside. If this is indeed a new upward trend, we would still expect to see buyers come out to confirm support in the 1312 to 1315 area where the 20-day EMA and the 50-day MA are located. The 10-day MA of Net Differential of NYSE New Highs/New Lows is still pointing up with 67 new 52-week highs vs. 85 new 52-week lows. One note of caution is that most major market averages are now testing previous resistance points and the VIX is near the lower Bollinger band with the 5-day RSI becoming oversold, indicating "toppish" market action. One caveat is that if the SPX trades back under 1340, the last swing high seen on the daily chart from October 11, then a good case can be made that we've seen a short-term top with support below at 1320. If buyers do not show up at 1320, then 1300 and 1260 are targets below.
Of particular concern is the Nasdaq 100 Index, the NDX. Although it was exciting to see the index make all-time highs over the past few sessions, there is a broadening top formation clearly seen on the daily chart. If it trades back into the pattern, then many of the breakout players will be trapped and this won't be good for the market.
TV commentators were miffed by the sudden reversal and it would appear that the waiting game is upon us again, with traders being cautious ahead of the non-farm payroll numbers due out on Friday morning.
Today's Theme: A very delicate situation, with major averages vulnerable.
The Trader's Notes prepares the trader for the day ahead, providing observations on market sentiment, internals, support/resistance levels and key pivot points in the major market indices using the daily chart. 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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