This page last updated: February 21, 1997 @ 10:30PM est
What did you do today?............
Good evening traders and happy expiration day. In my last commentary I laid out a clear plan on what to do today. At least I thought it was clear. The object was to go short but at the most opportune time. My advice was to watch the market rise above 783 and approach or exceed 785.50. Then if the index fell back below 783 that was the signal to go short. So I'd like to know....what did you do today? I did nothing because I went shopping with my seven year old. But upon my return , 5 minutes before the market close, I see that my plan may have caused some indecision for followers of my Prudent Trader Advisory. Looking at the 5 minute OEX chart its possible to see where some Prudent Trader's may have gone short while others missed the trade because the "approach" to 785.50 only came to within 0.98 points . (The intraday high was 784.52) .Had the Prudent Trader been watching I would have gone short myself.
If you recall, I had recommended a mental protective stop be placed at OEX 787. For those that did go short, that protective stop should now be lowered to 782.50. Why? Just look at the trendlines I have drawn on the chart above. The OEX is going through a mini consolidation period. A break above the declining trendline may trigger a move up to 786 or beyond. Since premiums contracted on Friday, (and they may continue) it will be important to exit early to break even on the trade and AVOID THE RISK OF A LOSS. Likewise, if 779 is taken out on the downside the potential for my original target of OEX 774.50 is very likely. IF 779 is taken out on the downside I would reduce my mental protective stop to OEX 781 until the restest of the break is confirmed. Once 779 repels any retest, I would move my protective stop down 2 OEX points for every 2 OEX points the index moves. So for example: if the OEX makes it to 777, the protective stop should be 779, at OEX 775, the stop should be .... .....?.....True Prudent Traders should be exiting at 775.50. Remember?
So you ask , "Deaner, why all the super precaution"? If you recall I said there were multiple support points on the downside between OEX 779 and OEX 774.50. Frankly I don't know which if any will hold. The Trailing Indicator still points to a FULL SELL condition but my work tells me that the SOX Index and NASDAQ Composite are due to bounce within 1 or 2 trading days.The charts of these 2 indexes I have posted are WEEKLY charts. The daily charts are different. It is my feeling that we could see one more bogus rally before things develop into another scary downdraft like we saw in late June of 1996. Abbey Cohen eat your heart out! That bogus rally could even be to the 802 price zone that I have mentioned several times before.
Another reason for my unusual caution is that the OEX (see daily chart) is currently dead in the middle of two price targets that I see for the OEX. The upside target (which is the counter trend direction) is 786-787 while my best downside target is OEX 784.50. This just also coincides with the Jan 23rd price peak of 794.66 for the S&P 500 (SPX) Index. and probably the DOW's 20 day MA which is currently 6864.
My friends, the prudent thing to do is NOT bet the ranch and NOT look at price points too far away until further notice. Also the chart of IBM may be an indicator as to the markets direction. Look for this stock to bounce off the 130 price point for technical reasons. Meanwhile, I will contemplate things further over the weekend and update my alert button before the open Monday if things become more clear to me.
I hope this post hasn't confused you. Some times it pays to admit that the market has confounded you. It will be interesting to see what next week brings. For now. if you put a gun to my head (which really wouldn't be prudent) I'd say we go to OEX 774.50 then go up to the OEX 791 to 802 range. How's that for a prediction? I hope everone has a pleasant weekend. Until Monday, its been my pleasure.
