You
can now see why on 2/7 the 768.50 price point was significant and why 764
seemed to be so logical to exit. Some would argue that 762 or even 758
was a logical choice to shoot for. But we never made it to 758, did we?This page last updated: January 7, 1997 @ 10:30pm eastern
The Valley of Death is no place for a prudent trader.......
Welcome to the weekend traders. Once again before we discuss the OEX market, I want to clear up a very important issue regarding Deaner's PRUDENT TRADER ADVISORY. This page has grown exceptionally fast in terms of viewership and expectations. And before it "gets out of control" , I'd like to clarify how the Prudent Trader wishes it to be used. Visitors to this site are encouraged to take as much out of my commentaries as they can find. Often times, the Prudent Trader will be specific in regards to price points for entry and exit of trades and for points at which trades should be "stopped out". Do with them whatever you wish. However, the Prudent Trader does not want viewers to try to duplicate his trades. This can create problems. For example, in a thinly traded contract too many people trying to put on the same trade at the same time can cause disruption. Likewise if too many people are trying to get out the same door at the same time an order inbalance may result. It will be best if traders trade their own "economy" and select their own investment vehicles independant of what the Prudent Trader has up his sleeve. Also, this will avoid the potential conflict of me being accussed of placing orders ahead of the pack. When I update my page, there is sometimes a 10 minute lag from thought process to successful upload to the Geocities server. It would be totally IMprudent to attempt to match my performance if a trader was waiting on my decision to be declared, especially in a fast market condition. THEREFORE, to keep things totally P R U D E N T , I will no longer state my intentions as to what I will trade. My record will be verifiable by graphic illustration of the price points and through my daily commentaries. How much return is realized by the Prudent Trader will be a non issue. Although it would be fun, my legal advisor says, "it simply isn't prudent".
Wow, what a day! What a week for that matter. Going into today's trading session the OEX's market condition was FULL SELL. In my previous commentary the Prudent Trader stated he was sidelined and had recommended all other be sidelined because a significant price point has been hit, bounced off of, but not yet sufficiently penetrated to have gone short. Likwise the possible upside price point represented the countertrend and according to the discipline it was best to leave call purchases alone. The unpredcitable nature of the market when it leverages all it's weight on a single fundamental piece of data AND on a Friday of all days made it just too risky to be "in play" over night.
When the market rose sharply right from the opennig bell the prudency of not being short was rewarded. Sure painless profits on the call side were sacrificed but could anyone have predicted that a non-farm payroll figure some 50,000 higher than consensus would be considered as extremely bullish? I wouldn't have. This behavior then made it imperative to focus on the upside price point, but also to force it to meet a higher standard before acting on it once it was reached. If you recall I was focused on the OEX 770 price point. Early on I advised traders I would be sitting tight. The OEX did manage to go to the 772-773 range which also was a significant price point. But my 774 "stopped out" price was not breeched. It then became necessary to see how the retracement would unfold. The 768.50 price point was the level of support that the market found before bouncing back above 770. Isn't it interesting that the 768.50 support level was the price I had chosen in my February 4th. commentary to go short if it was breeched! So it should have been no surprise that the Prudent Trader might go short if the OEX fell back below 770 AND below the 768.50 price because of it's pivitol nature. That's exactly what happened and in dramatic fashion the OEX tanked.
Now we get to this weekends reference
to "the Valley of Death". The Prudent Trader views break outs
above and below extreme resistance and support levels differently than
breakouts that occurr within them. The break below 768.50 was within the
confines of the 756.50 to 770 price points that I feel are the "extreme"
resistance points.The price points has been clearly developed and marked
on the OEX chart.To trade in between them was to
be playing in the Valley of Death So it was not prudent to go short and
then leave the old computer terminal and go shopping. The Prudent thing
to do was to exit at the first significant resistance point that came along.
For the OEX, that price was 764. The chart below tells the whole story.
You will notice that it wasn't long before the 764 point was achieved and
the Prudent Trader's work for the day was done.You
can now see why on 2/7 the 768.50 price point was significant and why 764
seemed to be so logical to exit. Some would argue that 762 or even 758
was a logical choice to shoot for. But we never made it to 758, did we?
So let's talk strategy for Monday.......... As of the close friday, the Trailing Indicator has signaled a change in market condition to NEUTRALITY and things could rapidly change to FULL BUY if we get a market close above 776 on Monday. As of the time of this post, that may seem psychologically risky and the Prudent Trader will wait for the signal to occurr AND NOT ANTICIPATE IT. As far as playing the downside, the current Neutrality condition warns against it. My fellow traders, monday is a traders holiday and if you don't know why, read the definition of NEUTRALITY. In the interest of safety over potential profits the Prudent Trader will sit back and watch as the market migrates itself into another potential pain free situation. It's also a full blown day of SLAVERY for this prudent trader. I hope everyone has a pleasant extended weekend.
