This page last updated: February 1, 1997 @ 10:00AM
The Rollercoaster Continues..................
Welcome to the weekend traders. Before I get into today's commentary, it would behoove ourselves to review yesterdays sage comments. If you recall, I spoke of the possibility that the Trailing Indicator would most likely signal a FULL BUY condition, but that the OEX may fail to take out the intraday high of 779.85 set back on January 23rd. . As of the close Friday, the Trailing Indicator did infact change to a FULL BUY condition . But despite the OEX closing at a marginal new high of 771.80 vs. the previous high of 771.19, the index did not reach a new intraday high falling short at 778.14. See OEX Chart
Today's commentary makes prudent reference to the "rollercoaster" nature of this market. Going into Friday's session, the Prudent Trader was out of the market because of the Neutrality condition that existed at the time. Intraday yesterday there were probably many traders who didn't want to wait for the Full Buy signal and so they went long before the signal was generated. Sometimes that will work but yesterday was not one of those times. The OEX sold off late in the day and many call owners will now spend the weekend wondering if they made the right decision to jump in early. On the other hand, the Prudent Trader had warned of the potential conflict between the Trailing Indicator issuing a Full Buy condition and the possible development of the Deaner Indicator, which has negative conotations for the market. The prudent thing to do was sit tight, be patient and let things develop further.
In my January 29th. evening commentary I said that the Deaner Indicator could possibly develop in 4 to 5 days. Going into trading on Monday, the time frame is now reduced to 3 to 4 days. So here is my take on the present situation. This market can still go either way and I do not pretend to be able to call its action exactly as it may unfold. However, if the OEX manages to congest in a range between 765 on the downside and 778 on the upside during the next 3 to 4 days ( and preferrably in the lower end of that range) it is the Prudent Trader's opinion that a sell off to the 50 day MA will be eminant . However, a move to a new intraday high, including a closing high above 780 will most likely forestall such a sell off until a later date. Being able to enter the market on the short side with safety will require full develpment of the Deaner Indicator and a break below the trendline (shown in dark cyan) that currently sits just below 765 on the OEX. There is always the possibility that things will trigger to the downside prematurely but the prudent trader won't go short too early.
Notice that I have not dwelled too much on the possibility of a move to the upside. Although it is a real possibility in the frame work of an Elliott Wave 5th move up, there are some serious negative divergences brewing, namely the McCellalan Oscillator, its companion Summation Index and in the MACD and Stochastics studies of the Philadephia Semiconductor Index (SOX). Look at that daily chart and you will see some serious momentum problems as this index has rocketed from 240 to 288 and is just 13 points shy of a potential double top! And since the OEX is heavily dependant on key technology issues in this index, this bears close watching.
In the event that the OEX is on a legitamate Full Buy rampage, the Prudent Trader knows the Deaner Indicator will not be denied but only delayed. A projection to the OEX 785 region is the likely top anyway.
Lastly, which option to scope is another difficult job because we are just 3 weeks from the Febraury expiration date. Premiums are currently high and poor timing despite being right about market direction can be painful if one goes with that series of options. The Prudent Trader currently likes the March series for that one reason. Going with at the money puts or 5 points out of the money seems prefferable to me at the present time.
Hope this was helpful to you. Now go read your Barron's and imparticularly check out the put/call ratios for the S&P100 and the CBOE equities for the past two weeks. I haven't seen them but sometimes a change in market direction can be deciphered from those figures. I like to guage the ratio of the S&P put/call ratio divided by the CBOE equity put/call ratio. When its MA is under 2 for two weeks running the market will rumble (higher). When it is over 3.3 for two weeks running, the market will stumble. There you have it- another deaner pearl!
Have a pleasant weekend.
