Thoughts from Paragon Traders:
10/4/98
The Paragon Traders' Report
By Rick Tomsic
The following report contains excerpts from The Paragon Traders' Report, which
is published daily. The Paragon Traders' Report is a very detailed tool for
OEX, S&P and T-Bond traders. For information on The Paragon Traders' Report,
or to subscribe, please call 614-792-2690 or eMail info@paragontrd.com
Please visit paragontrd.com for subscription information.
The Paragon Traders' Report Weekly Outlook
Market Recap for the Week of September 28 through October 2
Despite the current volatility in the market last week the S&Ps remained range
bound. This range of nearly 80 points is a new wrinkle in the market.
Typically, a range environment is much smaller with the S&Ps banging back and
forth from side to side. Over each of the past two weeks the S&Ps have tested
both sides of this 996-1070 range, with minor excursions outside these
parameters. Once this range is broken the move in the S&Ps will be swift and
unrelenting. Those not prepared will see their trading accounts dwindle. We
encourage traders not to become overly bullish or bearish until these
parameters are broken. In addition, because the VIX remains above 40, timing
in trading the OEX options is more critical than ever. The market has absorbed
nothing but bad news over the past several months. The true key to the health
of the market will be how it reacts to the first batch of good news.
Market Outlook
Where does the market go from here? For the second week in a row the December
S&Ps tested both ends of the massive trading range between 996-1070. The lower
end of the range was exceeded as the S&Ps dropped to critical support at
976.00 but the selling could not be sustained. The parameters for another
major move remain a close below 976.00 or above 1080.00. The longer this range
persists the more powerful the move will be once the S&Ps close outside this
range. The recent action in the bond market should serve as a warning not to
fade the S&Ps once they do breakout of this range.
While the S&Ps were stuck in nearly an 80 point range the December T-Bonds
produced a massive rally gaining over 3 points on the week. Once the FOMC
announced it was only lowering rates by 1/4 point the bond buyers returned
pricing in another rate cut. The T-Bonds are now very overextended and a quick
pullback to the 130 level would be healthy.
We anticipate another tradable week in both the S&Ps and T-Bonds. Stay tuned
to our daily service and have a great week.
Daily Highlights from The Paragon Traders' Report for the week of September
28:
Monday September 28:
"Today the bulls and bears will continue their struggle to gain control with
the 1045-1062 area their battleground. A close below 1039 will be at a
minimum a short-term negative; above 1062 a positive."
The December S&Ps gapped open Monday to 1059.00, up 8.00 points. This early
strength continued as the S&Ps rallied to a high of 1072.00. As we mentioned
in last week's report the range on the December S&Ps was 996-1070. The upper
end of the range held again as the S&Ps sold off late in the session to a low
of 1051.00 before closing at 1063.20, up 12.20. The 1070 level remained
significant overhead and the bulls were not willing to buy above this level in
front of the FOMC meeting on Tuesday.
Tuesday September 29:
"Today's FOMC meeting will provide the fuel to breakout of Dec T-Bonds' three-
day range of 129-130. For the S&Ps, the 15-30 minutes following the release
will also see 8-10 pts "coast-to-coast" moves in less than 15 minutes."
Tuesday the market was fixated on the FOMC meeting. Prior to the release of
the rate cut by the Fed the S&P traded in a range between 1054-1065. As the
news was released the Fed would lower rates by a 1/4 point, the market began
its gyrations. From 1064 the S&Ps dropped straight down to 1045 only to turn
and rally to a new high at 1067.50. Meanwhile the Dec T-Bonds fell to 129
02/32 and turned and rallied to 130 04/32 in less than 10 minutes. Although
the gyrations in the S&Ps were impressive neither the bulls nor bears gained
control as they remain in the trading range. However, the T-Bonds did manage
to close above 130 a breakout of their three day range.
Wednesday September 30:
"Until the range is broken the bears control 1065-1076; the bulls 1045-1050.
The 1045.00 low and 1067.50 high following the release of the Fed news are
especially important levels."
The global markets were not impressed with the FOMC's decision to lower rates
by only a 1/4 point. This disappointment moved the world markets lower and put
significant pressure on the December S&Ps overnight. The weakness carried over
into the day session as the S&Ps opened at 1046.00, down 11.50. Wednesday was
a classic trend day with every rally being sold into by the institutions. By
the time the selling was over the S&Ps had set a low at 1022.50 before closing
at 1026.00, down 31.50 points. The bears were back in control. The upper end
of the range was tested at 1072.00 on Monday, now it was time to test the
lower end of the range at 996.00. After breaking out of their range on Tuesday
the Dec T-Bonds continued to march higher gaining 1 13/32 to close at 130
02/32. The strength in the bond market was another clear example of why it is
important never to fade a market that has broken out of a trading range.
Thursday October 1:
"Our indicators point to a maximum short-term downside of 968-1024 (average
995). If Wednesday's weak action was not entirely due to "window-dressing"
then a break below 1021 will at a minimum test 1006-1016. The close below 1030
is a longer-term negative with a potential target of 980."
After testing the upper end of the range on Monday and failing the S&Ps broke
down on Wednesday. Our indicators turned negative and were pointing to a
downside target of 995.00. Furthermore, since the close was below 1030 it was
our belief that the 980 may also be tested. It was obvious on the first day of
the fourth quarter the institutions did not want to own stocks. The selling
was relentless with the S&Ps falling the entire session. The low was set late
in day a 987.00 before closing down 31.20 at 994.80. In just one day our
target had been met. As the S&Ps fell the T-Bonds continued their breakout
move gaining 1 06/32 to another record close at 132 21/32.
Friday October 2:
"Our bias is now neutral and looking for a minimum 30-50 pts reflex rally over
the next 5 days. However, the selling must abate first with the S&Ps
stabilizing. The next critical support levels area at 976 and 986."
Our short term target of 995 had been met on Thursday and we were now looking
for the S&Ps to stabilize and produce a reflex rally of 30-50 S&Ps points. In
order to stabilize we also believed the S&Ps must hold the critical 976 level.
After opening the day session at 999.00 the S&Ps quickly began to drop. By
1045 ET the S&Ps had set a low of 979.00 on a -1284 NYSE tick reading. This
massive NYSE tick at the critical 976 level acted as a launching pad for the
S&Ps. From this low the S&Ps turned and rallied 37 points to a high of
1016.00. This was the reflex rally we had anticipated. The S&Ps closed at
1013.00, down 38.00 points for the week. The December T-Bonds finished at 133
02/32, up 3 08/32 on the week.
Past performance is not indicative of future results.
***************************************
ABOUT THE PARAGON TRADERS' REPORT
The Paragon Traders' Report is published by Paragon Trading, Inc. The report
covers the OEX, S&P 500 futures and T-Bond futures. The report is sent out
each night after the market is closed. Subscribers will receive the report no
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very detailed in nature and should serve as a trading tool for the following
trading day. The report is two pages and is broken down into the following
sections:
HIGHLIGHTS - This section will list what the current day's trading range was
vs. the projected range from the previous day's report. It will also focus on
ideas from the previous day's report that were of interest during the current
trading day.
RECAP - This section is a detailed recap of the day's trading activity. Each
trading day is reviewed to gain a better understanding of the market
internals. This section is a excellent trading tool. In each report we examine
what our indicators told us before the day started and how they actually
worked.
The trading approaches used in this report and reviewed in this section are
purely technical. Some of the tools used for S&P, OEX, and T-Bonds include
high-low tests, short term price patterns, futures spread, specialists option
pricing, divergences between T-bonds and S&P futures and the intraday tick.
These tools will be referred to as the tape action.
The techniques incorporated were developed from watching the market from the
open to close, tick-by-tick, each and every day. Several proprietary methods
to anticipate market reactions are also included in this section. The main
purpose is that "a good trader is always learning." We review each day to
always try to become better traders.
THE BIG PICTURE - This section provides an overview of the current market
environment and details specific parameters to measure this environment.
ECONOMIC REPORTS - This section lists the major economic reports due for
release for the next trading day. As short term traders it is very important
to know the release times of the major economic reports that can influence
market action.
TRADING PLAN - This section details a trading plan for the next day. In this
section various types of potential trades for the OEX, S&P 500 futures and T-
Bond futures are discussed. The types of trades include both day trades and
position trades. This section is meant to be used as a tool to help traders
enter and exit the market. We list several degrees of expected moves in the
markets each having its own probability. Traders can then decide how much risk
they want to take and execute their trades accordingly. This report is not a
black box approach to trading. The report is intended to be used as a tool to
learn various techniques for trading the OEX, S&Ps and T-Bonds.
THE NUMBERS - This section summarizes the trading parameters and numbers for
both the S&P 500 futures and T-Bonds. This section will include but is not
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- The day, 3 day, week and 4 week: (High, Low, Close, Highest Close, Lowest
Close and Range)
- Daily, minimum, and maximum projected ranges
- Daily and 3 day probability ranges
- Momentum Inversion Index
- 3 day patterns
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- OB/OS readings
- 1, 5, and 10 day Trins
- Globex matrix
- Short term signals
- Intermediate signals
- Various moving averages
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trades will be based on the numbers in this section and will be described in
the TRADING PLAN section.
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Past performance is not indicative of future results. |
