This page last updated: March 19, 1997 @ 11:55PM est

"Sox" it to me baby!.............I can go both ways.

Welcome back traders. In my last commentary I stated that the Trailing Indicator had signaled a change in condition to Sell from Neutrality. I also laid out a specific intraday trading strategy for going short if the OEX index broke below 759 AND the long bond went above 7% in yield. Additionally I said a close below 758 (or even an intraday break below 758) would be a good bet to go short. NONE OF THESE SCENARIOS UNFOLDED TODAY, so if anyone got whipsawed today it was because of their own inability to follow the Prudent Trader's directions specifically. At the very least, I hope traders used 1/2 the normal trading position because it is most likely that protective stops should have forced you to exit a short position when the OEX rebounded late in the day.

One of the problems that I am dealing with is what to do when a the OEX moves 7 or 8 points to a price target where you should be contemplating taking a postion that requires continued movement in the same direction. Lately this has been somewhat hazzardous so I am in the process of rethinking the stategy for initiating the trade. I will get back to you on that when I back test it a bit.

Let's review the 5min OEX chart briefly with the knowledge that as of the close Wednesday the Trailing Indicator is now shifted to a FULL SELL CONDITION from Sell.

I have drawn 3 red trendlines tonight and they all merge at 767. Traders should know that the range between OEX 758.50 and OEX 773.50 represent a trading range for the time being. With the OEX closing at 765.20 the index is essentially in the middle of the range. I still would prefer to avoid trading within this range and just play the break below 759 (with a bond yield above 7%) or a break below 758 even without a 7% yield. Why? The reasons abound. 1) put/call ratios still have not signalled a bottom.... there are still too many call buyers of CBOE equities. 2) the NASDAQ and the SOX Index have traded below my targets of 1260 and 262 respectively and both are currently outside of their lower Bollionger Bands 3) the McClellan Sumation index is in a steep decline 4) the companion McClellan Oscillator is not showing a divergence with lower prices 5) The Trailing Indicator's Full Sell condition.

HOWEVER, a mediocre attempt at breaking 759 tomorrow that fails will result in a move back to the 774 to 776 price zone. The difficlut question will be how to decide if 759 will hold. There is at least 1 indicator I use that tells me we might bounce. That is my comparison of the 4 day moving average vs the 5 day moving average. I have used this comparion quite successfully and today, despite a down day, the 4 day moving average rose above the 5 day. That usually is a sign of an impending change in market direction. Coupled, with the chart of IBM that appears to be completing it's bottom this has to be figured into the game plan for this Prudent Trader going into tomorrow.

So let's huddle around as I outline 2 plays. Ready, ......Set............

I will play the break below 759 and 758 exactly as outlined yesterday using 1/2 sized positions. On a break above 767 that clears all 3 red trendlines I will go long if the 30 yr bond is up strongly, say 3/4 of a point and the advancer vs declines is better than 2 to 1. I will use 1/2 my normal position size for this trade also. I know, I know, the Trailing Indicator says no trading the long side durnig a Full Sell condition. That's is not so. There are special circumstances such as the negative tick rule and that also includes the 4day ma crossing above the 5 day ma. For this trade, the exit strategy would be if the OEX hit the 776 price point. Remember the yellow trendline on the OEX daily chart and how significant it was at OEX 776? Well the 20 day moving average will also be in that neighborhood tomorrow. Use the "approach method" to exit at OEX 775. For both the long and short entry plays, use a protective stop that starts out 3 points above or below the stated price point and adjust that protective stop two points each time the index moves 2 points in the desired direction. Notice between OEX 759 and 767 I plan to do nothing as of this post. A triple bottom , if it is formed at the 759 price point would also be very significant but until it unfolds, it would be imprudent at the present time to speculate on what to do. That will require visually watching the minute by minute price action, however, a spike of 2.50 OEX points within 15 minutes is a good sign that things are reversing. We shall see.

That's all for tonight. Here are the buttons for IBM and the S&P500.

Oh yes, I almost forgot to mention ...........................HIKE !

Go to OEX chart

Go to SPX chart

Go to SOX chart

Return to menu