This page last updated: February 4, 1997 @ 10:00PM
80% Confident...................
Welcome back traders to another strategy session. Today at 3:00PM the Prudent Trader officially went on "high alert" as the OEX begans it's move closer to the possiblity of the first Deaner Indicator of 1997. It's not a done deal, but from where I sit tonight, the Prudent Trader is 80% confident that it will materialize. That's alot of confidence, but there are numerous technical tools that point to it's arrival. Only a fundamental development that can shock this index to the upside stands in the way of things now. And that my fellow traders can happen tomorrow after the Federal Reserve finishes its two day meeting.
As of the close today the TRAILING INDICATOR still signals a Neutrality condition. Anyone who was long or short this index over the past two days can now appreciate this condition. Just being in play is detrimental to your financial health. Why? Because after a period of unusual volatility, and expansion of the VIX, premiums begin to contract and even if the index moves in your direction, your calls or puts don't appreciate. In fact, they sometimes lose value!
As mentioned in my previous commentary, the OEX, SPX, and SOX indexes are showing obvious technical divergences even to novice technicians, so why would anyone want to be long at this juncture. I think the most glaring divergence is the McClellan Summation Index that is not even close to surpassing it's previous peak set back on January 22nd when the OEX closed at 771.19, some 4 points lower. There is still time for this divergence to be corrected but the Prudent Trader is content to see it happen and remained sidelined if this index continues to rise. As mentioned previously, my price target for the OEX should we move higher is the 785 region.
For now, the Prudent Trader is "tweeking" his price points from yesterdays calculations. It now will take a move and close below 768.50 to trigger the assualt on the 50 day MA which is upper from yesterday's 767 price point. A move and close above 780 is still required to forestall the Deaner Indicator. That remains unchanged. Oddly enough, the DOW chart (which I have not posted) is in the worse shape of all the indexes that I follow. Despite it's 27 point rise today, it still closed below the 1st standart deviation band on the daily chart. This tells me that it is entitled to try and move into the area between the 1st and 2nd std. deviation band as matter of course before things begin to break down. Next in line of weakness is the NASDAQ Composite index and the SOX index which I have posted tonight. They are followed by the OEX. The index in the best shape, in my opinion is the S&P500 (SPX). So it is the Prudent Trader's view that the widely watched S&P500 will be a follower to the downside or perhaps a leader to the upside.
The Prudent Trader's plan of action for tomorrow is simple. Let any move to the upside run without me on board. Let the OEX continue to congest between 768.50 on the downside and 780 on the upside. A move (with a close) below 768.50 on the OEX will trigger the Deaner Indicator . This would most likely be accompanied by the Trailing Indicator issuing a FULL SELL condition. The cake will then be baked my fellow traders. I will attempt to go short on a down draft late in the day, and once I'm in play, I will use a move back above 772 to exit my position for safety reasons. Why would I do that with an 80% level of confidence? Because when the Prudent Trader goes short, I should be late to the party and the OEX should be accelerating to the downside, and not reversing course. A reversal in coarse means something isn't right.
I will be away all day Wednesday. And who knows how the markets will react to fundamental developments. My initial price point to exit my puts profitably will be at OEX 759. So I'll go with the "approach" method and exit at OEX 760. The Prudent Trader likes the March 765 puts for the purposes of going short if things go according to plan. Finally, using the Prudent Traders philosophy you experienced no gain but no pain and certainly nothing was lost today resulting from my commentaries. I hope you have a pleasant trading experience tomorrow.
