The Trader's Notes for Monday, December 13, 1999
For the past two weeks, we have been concentrating on the big picture due to the fact that on the weekly charts, the S&P 500, the Dow Industrials and the CBOE Internet Indices are all testing their all-time highs in this time frame.
Last week, the Dow Industrials traded in a very narrow range, inside that of the week before, forming a Japanese Candlestick pattern named Harami, indicating a pause, or hesitation. This week, we are watching for a break in the deadlock to the upside or the downside as this is a pivotal test of the old high. The same goes for the S&P 500 Index. The NASDAQ 100 Index, while eeking out a new high, also traded in an exceptionally narrow range last week, the smallest range since breaking out in the 2600 area. This also indicates hesitation, and the NDX is in need of a true thrust to the upside to prove to traders that it has more to go on the upside. The CBOE Internet index is the only index to draw excitement. So long as last week's low is not broken, the direction is up for this index.
In the intermarket chart, we pointed out several weeks ago the development of a breakdown in the Dow Utilities Index. Last week, it closed on its third new 20-week low, while the U.S. dollar found resistance at the old high. This is normally viewed as a harbinger of higher rates, although bonds are acting counter to Utilities at the moment by moving higher in price. With a week left before the last federalreserve.gov FOMC meeting of the year on December 21, traders are not expecting the central bank to move on rates, but you just never know?
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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