This page last updated: January 29, 1997 @ 9:00PM
Smell That "deaner indicator" cooking?...........................
Welcome back traders for another pleasant chat. Yesterdays commentary was a bit brief because I attended a local NCAA basketball game for some well deserved R&R. But towards the tail end I did say the following-"Now is not the time to be taking on fresh short positions" and "at least a couple components of the Trailing Indicator....that historically trigger change (were) waiving their red flags". This was not a recommendation to go long although the bias was clearly to the upside.Todays action confirmed those comments with the OEX closing at 758.39 up+9.72 on the day in a rally where the A/D line did not even come close to matching a DOW up 84 points.
Why would the Prudent Trader bypass a potentially profitable trade? Because he already made his profit on the countertrend and it's best not to make a habit of it. The TRAILING INDICATOR was still pointing to a Full Sell condition so why press my luck? As of the close today, the indicator now has CHANGED to a condition of NEUTRALITY. This means that you guessed it- it's time for all traders to clean their bathroom toilet so that it's ready the next time they feel the need to puke in it! It also means that traders should have or be exiting short positions BUT no new long positions are recommended at present levels either. But since you've been following my commentaries you know NO ONE was caught short based on my system. No pain, no problemo!!
The fact that the OEX closed up substantially is only "interesting to me". THINGS WILL NOT BE THE SAME this time around. That's because the Prudent Trader sees the "deaner indicator" in mid-development and the only thing that can prevent it is a breakout to new highs on the OEX. If this doesn't happen, the OEX will be beating down on the 50day MA beginnig in 4 or 5 days. The Prudent Trader does not see new highs on the OEX. Do you?
Let's look at the OEX chart. (Sorry it's not on the same page. Technical difficulties have temporarily prevented it for now) You will notice the index successfully has tested the 20 day MA and now has to revisit the trendline it failed to breach just 2 days ago. Notice the Bollinger Band contraction. This confirms that we still are in a corrective situation and until the bands begin to expand, the short side is the side with the most power. The 763 area is my target for the OEX but I especially want to see how it gets there. The longer it takes, the more confident I will be when I go short once again. HOWEVER, this time because the downside projection will be OEX 739, I will be more willing for the Trailing Indicator to tip it's hat that it's soup time in America. If the OEX reaches my 763 target tomorrow, it may be too soon to go short. Why? Because the premiums on index options are high, and a 3 day sideways movement or even further gains in the OEX will cost the put buyer unneccessarily. One again, being early to the party carries more risk. Being late will sacrifice some profit, but did anyone feel pain when they went short at OEX at 760 instead of 770? I rest my case on that issue.
Also on the chart you will notice the dark cyan trendline runnig up through the chart that is a resistance point for the OEX. It's the Prudent Trader's opinion that the OEX will toy with this trendline for 3 or 4 days. If it should fail to stay above it once it has done so on a closing basis, the market will tank. It may tank sooner or it may tank after a head fake to the upside but THE TIME IS RIGHT FOR THE DEANER INDICATOR! Keep cool, keep calm, let others brag about being long and making a few bucks.........that will be deaner, the Prudent Trader's, mantra over the next several days.
If you've been a frequent visitor to this page, the Trailing Indicator along with my G.U.T. decisions made during each market condition has kept you pain free. Let's keep it that way. Until tomorrow (which may be boring for you) enjoy life!
Also, I have included a triple chart of the SPX, DOW and OEX over the short term. Does it help anyone?
