This page last updated: March 19, 1997 @ 3:30AM est
It's anybody's guess................
Welcome back traders. Sorry for the late posting but sleep got in the way. This posting will be brief but to the point.
In my last commentary, the Prudent Trader had issued a Neutrality condition based on the Trailing Indicator. There are many cross currents that make it hard to say which we we are going over the short term. Going into Wednesday's trading session, the Trailing Indicator has slipped back to a Sell condition. I have reservations about trading it on the downside for several G.U.T. reasons. First, the 30yr long bond has steadfastly refused to trade above a 7% yield. It is my opinion that interest rates want to decline. This should support the OEX. Secondly, the daily OEX chart is showing some divergences in the second generation technicals such as the Momentum and CCI indicators on the chart. Although I do think that lower prices are likely, I also think they will be short lived. I think that the 758 price point I have talked about will hold near term. That's 10 points from current levels but with the CPI being reported and this being Triple Witch week, I'm content to sit on the sidelines. Currently the OEX has finally closed below the 50 day moving average. This is a rate event during this bull market.
For the time being, I treating the OEX as unpredictable until it closes above it's 20 day moving average at 778 or closes below 758. BOTH ARE 10 points away. I will go long on a close above 778 and go short on a close below 758. I know thats boring but that's the Prudent Trader's style. I will be in slavery all day Wednesday and it will be difficult for me to trade safely. At this point, the safest scenario is to let the OEX trade to either price extreme and assess the technicals at that time. Just call me "chicken little" and I'll take that as a complement. However, if I wasn't in slavery on Wednesday.....................
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I would play an intraday break below 758 on the possibility that OEX 740 is a 50/50 proposition. Looking at the OEX 5 minute chart, the chart tells me that a break below 759 is bad news and a break above 774 is good news. The good news could still come to an end at 778 so that's not tradable to me. Currently it has to be considered counter trend. A break below 759 would put the OEX outside the lower Bollinger Band and it could be "Niagara Falls" time. For you Elliot Waver's that would mean that we are in the 3rd wave of a third wave which is the most profitable price move that one can trade. So you see the risk/reward is worth the price of addmission. So here's the plan........................
Go short on a break below 759 but only if the 30 year yield "spikes" above 7% Since that would dissappoint most bond traders it would definately disturb the market.. Use a protective stop of OEX 763 and lower the stop by 2 points for every 2 points the OEX drops. Again, since I will not be around to watch the blow by blow, this will not be an active trade by this Prudent Trader. It's my feeling that since the SOX Index and the NASDAQ are both outside their lower Bollinger Bands and since the McClellan Summation index is in a firm downtrend, the odds favor a continuation to the downside if the 7% yield is cracked. Finally, I might play the break with half the number of contracts that I normally trade. If I'm right, the return will be twice as much as usually. If I'm wrong, the damage will be half as much. Now that I think of it, I might try to play this scenario despite being in leg irons on Wednesday. After all, us modern day slaves still have telephone privelages and the right to persue happiness.
Best of luck trader's in whatever you decide. But first and foremost remember to live mechanically when it comes to closing out your position when the protective stop is hit.
