This page last updated: February 5, 1997 @ 10:45PM
GUILTY...GUILTY...GUILTY On All Charges........!!!
No, not OJ! The Prudent Trader is the guilty one. I'll gladly take the blame for today's downdraft which I've carefully outlined right here at my Prudent Trader Advisory since last Thurday. In my weekend commentary I stated that things would start rocking in 3 to 4 trading days (today was day 3). As mentioned yesterday, the Prudent Trader was on high alert with a rising confidence level that the Deaner Indicator was going to hit. Call purchases were being warned against and the Trailing Indicator once again played a key roll in keeping the Prudent Trader pain free until today. In my last commentary I stated that the Prudent Trader planned to go short with the OEX March 765 puts (OEXom) if the OEX broke 768.50 . Late today at around 3:30 pm eastern I understand the OEX did just that. Notice I said "I understand". To my chagrin, I was "very deep in slavery" today and I MISSED MY OWN INDICATOR!
But I know many of my faithful followers were up to the task and right on top of things. The downdraft was brisk and now the big question of the night. Did everyone exit the put positions when they should have? You will recall that the Prudent Trader, trying to be as helpful as possible, left you his own personal Cliff Notes that if the OEX hit 760 (on it's approach to 759) that would be the signal to exit the trade quick, clean and profitably with ZERO pain. I hope everyone did so. If you did, you are on your way to earning your GED. If you got caught being hysterical and missed it shame, shame. The OEX did reach an intraday low of 757.52 (which was 1.48 points of my target) but because of the fast market conditions, an exit trade entered at 760 on the way down probably got filled when the OEX was around 758 or so. Oh well, this is a learnering process, so let's move on............
As of the close today, the Trailing Indicator has signaled a FULL SELL condition. Also, the Deaner Indicator still has some work to do to meet it's final objective of reaching the 50 day MA. Referring to the Deaner Indicator, you will recall that the 50 day is not a done deal by any means. But that's no matter because the PRUDENT TRADER will be able to prdeict the end of this downdraft using the tools of his craft. It will be retrospective but absolutely no later than 1 day and in most cases I will tell you on the preceding day exactly when this correction will end. So stick around traders because there's plenty of money to be made even if you were unable to catch the wave today.
Let's talk strategy for tomorrows trading session. You already know the prudent thing to do was to have exited your put position at OEX 760. Barring a negative open, the Prudent Trader recommends exiting all put positions fisrt thing in the morning. Look at the OEX chart. The OEX should bounce because a trendline of support was hit in the form of the 20 day MA and the lower white trendline. Also, one can make the case that an ascending triangular "wedge" has formed and this is often a continuation pattern, which in this case is to the upside. Remember that safety is of principal concern to the option buyer. Sure we'd all like to go for the gusto but that eventually ends up causing needless pain. Here's the prudent way to play this index.................
The OEX has the ability to rebound back to the 768 price point which should prove to be good resistance. This could be traded if you're nimble but the Prudent Trader does not recommend it because it would be a countertrend of the FULL SELL condition If the OEX were to reach 768, accompanied by sloppy internals and weaker volume, the Prudent Trader feels those March 765 puts would be worth scoping again. If acquired a move above OEX 771 would stop me out of the trade. On the other hand, if in the near future, the OEX breaks below 756.5, this would indicate that the 50 day MA will soon be visited. Should this happen tomorrow and the Prudent Trader purchase puts ( most likely the March 755 puts) I would use a move above 761 as a price to close out the position in the interest of safety. Remember traders, if you've been trading along with me, WE ARE PLAYING WITH THE HOUSE's MONEY and we can afford small losses. No one can afford big losses. Here is a Deanerism- If you can't make it, at least don't lose it. Live by that philosophy and you will be successful trading options.
It's been a long day for the Deaner. I will be around all day Thursday to update the situation and any trades that are realized. Just click on the flashing alert RED/BLUE alert button for intraday updates. Until tomorrow get your rest and don't dwell too much about unrealized profits. Think about then AFTER the money is in the bank. In the meantine think about entry and exit price points
