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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Teresa Lo who wrote (4977)	10/27/1999 2:40:00 AM
From: Teresa Lo	Read Replies (1) \| Respond to of 18137

THE TRADER'S NOTES for Wednesday, October 27, 1999 Yesterday's Observations: More worries about the Employment Cost Index data due this Thursday. Big news was the pending addition of Microsoft Corp., Intel Corp., Home Depot Inc. and SBC Communications Inc. to the 30-stock Dow Jones Industrial average, replacing Chevron Corp., Goodyear Tire & Rubber Co., Sears, Roebuck & Co. and Union Carbide Corp. Funny how these cyclical stocks are being dropped as inflation finally picks up again. Perhaps it is a sign. While we are on the topic of NASDAQ stocks, we will take a quick look at the weekly chart of the NASDAQ 100 Index. The NDX drew a large bearish engulfing pattern on the weekly chart at the top. If we look closely, there is a broadening top pattern unfolding slowly. To be sure, this is not the textbook 1929 broadening top found in the Edwards and Magee book, but a look at the ADX confirms that while the action on NASDAQ has been positively hot, a directional uptrend this is not. For all we know, the addition of MSFT to the Dow Industrials marks some sort of huge sentiment top, but this is pure speculation at this point. While we do not look at stocks often, this is an appropriate time to review MSFT. On the daily chart, yesterday formed a dark cloud cover at resistance at $95. Action over the next few days will be very important. In this time frame, MSFT has essentially been chopping sideways since the July high. A dropping ADX confirms the narrowing range. A break should come soon. The intriguing possibility of the potential head and shoulders bottom seen on the 65-minute chart of the S&P 500 is now being put to the test. The SPX needs to hold and move up immediately tomorrow in this timeframe to confirm the pattern. Otherwise, it's a write-off. The bounce from the October lows seen on the daily chart has reached resistance at the 20-day EMA. All the major market averages are hovering near this level, hesitating, waiting for a catalyst to move the market either way. With the 50-day MA and the downtrend lines overhead, this is the moment of truth. The 10-day MA of Net Differential of NYSE New Highs/New Lows is still going down with 36 new 52-week highs vs. 316 new 52-week lows, a sign of continuing internal weakness. Today's Theme: Remains vulnerable. That's how we can describe this make or break week for the market. With both the S&P and the Dow Industrials approaching resistance on the upside, and the Nasdaq 100 and CBOE Internet index in a test of top (or trading range) in the works, buyers need to step up to the plate in a big way to move the market to the upside. Any hesitation will bring sellers back. 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! Charts specific to these comments have been posted to intelligentspeculator.com