THE TRADER'S NOTES for Friday, November 05, 1999
With the non-farm payroll numbers out this morning, we will take a brief look at the major stock indices.
For the past four days, the S&P 500 Index has traded inside the range of the big "up" day of October 29. This consolidation will likely be broken upon release of today's economic numbers and start a new move. Immediate support is seen at 1340 below and resistance is at 1380 above. Yesterday, new 52-week NYSE highs exceeded new lows, which has been rare lately. The 10-day moving average of the net differential of new highs and new lows continues to move up.
The Dow Jones Industrial average currently has support in the 10,500 to 10,600 area where the break of the downtrend line, the 20-day EMA and the 50-day MA are all approximately located. Given that it made a 20-day high last week at resistance, it must hold this area is key support. The Nasdaq 100 index continues to move up, but yesterday was a very narrow range day at the high and looks vulnerable. It needs to move higher immediately on heavy volume to continue its ascent. In other words, the thundering herd must step up to the plate and buy, buy, buy, or else doubt will set in. The CBOE Internet index has been trading in a tight range over the past few weeks and is approaching the high end of the range again in the 500 area.
Bonds continue to move up but we must remind ourselves that the low established on October 25 is a very unusual "V bottom" and has yet to be tested in any way.
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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