THE TRADER'S NOTES for Thursday, September 30, 1999
Yesterday's Observations: Brought to attention that intermarket factors were very much in doubt. Before the ink was dry, the Treasury bond market and U.S. Dollar came under extreme downward pressure again.
Bonds trading near the multi-month low and Dollar broke to new lows.
Can it hold or are we near a break to the downside? Things look grim, but all eyes were on Amazon and their new business model, and no one seemed to pay attention to the fact that the market is on the brink of disaster.
Financial commentary on television flashes the now-familiar head and shoulders top on the S&P 500 index around the globe. They seem to consider the market to be "OK" so long as the neckline has not been broken. They forgot to mention that on the first move to the neckline after the left and right shoulders have completely formed, there is typically a bounce, sometimes all the way back to the moving average overhead, before things get really exciting. However, for the S&P 500, resistance on this multi-month top is at around 1300 and dates back to the spring, and so far, the bounce has found willing sellers far short of the 20-day EMA.
Today's Theme: With the Dollar and Treasury bonds threatening to come unglued, the market is on very shaky ground. If there were ever a time for the magician to pull the bunny out of the hat, today would be a good day to do so. The market is now on Fedwatch as the FOMC meets next Tuesday.
S&P Futures/SPZ9: 1300-1310 area provides resistance going back to March and April 1999. Sellers materialized at the 1300 area and once again, it is trading below the 20EMA on the 45-minute chart, on it's way to test last Friday's low.
Intraday 45-minute chart=1290, 20-Day EMA=1321, 50-Day MA=1344, S1=1267, S2=1250.50, R1=1357, R2=1379.
S&P 500 Index/SPX: Sellers materialize after the S&P futures failed to capitalize on Tuesday's momentum and trades under the 20EMA on the 65-minute chart again on it's way to test the lows from last week.
Intraday 65-minute chart=1280, 20-Day EMA=1310, 50-Day MA=1328, S1=1256, S2=1206, R1=1338, R2=1361.
Market Internals: NYSE 52-week highs=37, NYSE 52-week lows=228. Small improvement in new NYSE highs relative to the lows. CBOE market volatility index has not really reached a point during any of the small sell-offs where widespread panic is been seen. This is a nagging concern. Usually a great deal of panic and put buying is seen at the bottoms.
Dow Jones Industrial Average/INDU: Trading range seen on the daily chart decisively broken. Resistance overhead at 10,600 area, at the low end of the multi-month trading range at the 20-day EMA. Found sellers on touch of the 20EMA on the 65-minute chart.
Intraday 65-minute chart=10289, 20-Day EMA=10592, 50-Day MA=10832, S1= 10081, S2= 9625, R1= 10860, R2= 11142.
NASDAQ 100 Index/NDX: Trades back into July highs, trapping traders betting on a breakout. Cuts through 20-day EMA and is now testing the 50-day MA. Bounce so far has reached back to the underside of the 20-day EMA but unable to break resistance. The good news here is that it's still trading above the 50-day MA.
Intraday 65-minute chart=2421, 20-Day EMA=2437, 50-Day MA=2368, S1= 2345, S2= 2120, R1= 2539, R2= 2551.
CBOE Internet Index/INX: Triangle pattern on the daily chart breaks to the upside on a wave of buying, with Amazon in the lead. Rising 20-day EMA was supportive of the triangle consolidation. Now must capitalize on momentum. Intraday 65-minute chart is on an uptrend. Would expect support at 485 area on any retracement to the moving average underneath.
Intraday 65-minute chart=487, 20-Day EMA=464, 50-Day MA=443, S1= 445, S2= 417, R1= 500, R2= 580.
EMA = Exponential Moving Average. MA = Simple Moving Average. S1 = Closest support on daily chart. S2 = Support below S1. R1 = Closest resistance on daily chart. R2 = Resistance above R1.
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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