This chart last updated: January 30, 1997 @10:30PM
It's going to be the Trailing Indicator vs the Deaner Indicator.....
Welcome back traders to what will be an interesting commentary. Last evening my OEX commentary stated that the index would rally to the 763 area and begin to set in play the infamous Deaner Indicator. You will remember I said I wanted to see how the OEX got there because if my target was reached too soon, it would be dangerous to go short. That is exactly what happened. The OEX reached my target , congested at the price point and then late in the day went beyond to end up closing at 769.66 which is a new closing high but well off the intraday high of 779.85 set on January 23rd. So if you followed my advice NO SHORT POSITION WAS ENTERED TODAY. Another reason to be idle was that the Trailing Indicator was indicating a Neutrality condition and we all know what that means. Consequently the Prudent Trader was realxing and prudently watching, as far as the OEX was concerned.
Sure profits were sacrificed today but one must understand the Prudent Trader philosophy-trade less frequently, with profitability and without pain. Since the inception of this page, the Prudent Trader's 2 OEX option trades have logged 2 winners for a sum of 30% with NO LOSERS and NO PAIN. Going into today, I was sure that OEX 763 would eventually be reached. I did not expect us to reach it so soon or to close substantially above. Nevertheless, as of the close today, the Trailing Indicator signal REMAINS AT NEUTRALITY. We may change to Full Buy tomorrow but at the present time the PRUDENT TRADER does not plan to go long if the condition does change. Why? Because the "Deaner Indicator" which signals downward movement in the index may (and I say may) still develop and be in conflict with the Trailing Indicator. The presence of conflict would sideline the Prudent Trader in the interest of safety.
As I commented yesterday, new highs in the OEX will be necessary to prevent the Deaner Indicator from coming out of hibernation. The Trailing Indicator could issue a Full Buy condition without going to new highs. So, do you see the potential conflict? How would it look if the Trailing Indicator went to Full Buy with no new intraday high and a day later the Deaner Indicator kicked in? And let me be perfectly clear, the Deaner Indicator is MORE POWERFUL than the Trailing Indicator.
Looking at the OEX Chart, you will see that the OEX closed between the 1st and 2bd std. deviation Bollinger Bands. That's a positive for the Bulls, but the upper Bollinger Band still has the potential to contain this index and hold it from breaking out beyond into uncharted territory. If this were to happen, the score would end up Deaner Indicator -1, Trailing Indicator- 0. Also, I will project the trendline that the OEX broke above today and watch it for further clues. AS I SAID YESTERDAY....if the OEX fails to remain above that trendline, (now that it has closed above it) this index will tank. The combination of this event and the full development of the Deaner Indicator would be about as good of a sign to go short as I can come up with using my technical expertise. Other technicians will use traditional second generation oscillators such as the MACD to show negative confirmation of price but this will be to slow to catch the downdraft.
Then again, this fickle market could continue launching on the back of a better bond market. If that were to happen, the Prudent Trader may remain sidelined throughout the next Full Buy condition and EG may regain a morsel of respect. BTW, the Prudent Trader does listen to EG.That's all for tonght. I hope this was of some help to you. It was to me. Until we meet again.............
