Summary for Week Ending 12th October 2002

All three markets this week displayed an element of compression with falls followed by outside days, indicating a distinct lack of desire to get on with it. Whilst in itself this is not a standalone signal of an impending reversal, it does indicate to the analyst that the downwards energy in the system is dissipating and that more conventional signals of a reversal should be watched for.

For the past couple of weeks I have been indicating that Oct 10/11 was worth watching as a possible COT date. Leading into Thursday we had a Down on Monday, and Outside Day on Tuesday and a down day on Wednesday. All this action, whilst being turbulent only managed to move the S&P just 24 points ( closing prices), yet in the previous week the action was more defined as far as direction was concerned.

Looking at price, the S&P gave a marginal break below the July lows and usual expectation would be for it to accelerate to the downside. When markets go down...they go down !! In this case there was extreme reluctance to push down, further confirming the appearance of a possible COT.

Volume has be consistently rising yet there was no 'blowout' on Thursday so we couldn't use this directly as a supporting indicator, although the High Volume on the strong reversal day does go someway to providing support for the change in trend.

Looking forward, the question is 'Is this a Change in Trend, or just another counter-trend rally?
The answer to this lies in the S&P range of the rises on Thursday and Friday. So far there has been a move of 74 points up. The largest counter trend rally of the decline from Aug 22 was 54 points, so we can make an assumption that there is far more upside energy in the system that there has been since 22nd Aug.

Looking at the longer term, assuming we have a false break and have seen the COT on Thursday the view is a run up to the next point of major resistance which is the Aug highs. This will form an Elliot 'FLAT' 3 wave corrective pattern and then we can expect the declines to continue. In the short term...another Up day on Monday to or past the 850 swing highs will generate a true Higher Swing high, thus setting us up for a Higher swing low. I am now looking at upside opportunities ( higher swing lows ) to place short term CALLS.

I am asked occasionally why not trade on the COT date ? The reason is simple.. Whilst it can be extremely profitable (and thus very attractive) it is the highest risk kind of trading. There are always plenty of opportunities of you have the trend direction correct, so its far less of a risk when you have confirmation. Patience in the markets may not generate spectacular profits, but is does help stop spectacular losses.

Swing Charts
DJIA, S&P500, NASDAQ
Looking for the higher swing High - Higher Swing Low combination.
Charts

DJIA
The chart this week shows the possible areas of resistance as well as the Solar degree intervals which closely line up with dates indicated in the S&P chart.
S&P
The chart this week has the 153/4 Square Grid overlay as well as the price and time markers indicating the possible ranges in Time and price should the forthcoming rally eventuate. The run down was 49 days with the previous run up taking 29 days. Assuming an equality in Price and time then we have resistance at the 950 area which is also in the same area as the 2001 Sept Low. Looking at time, 29 days gives us 8th Nov and 25 days ( 49/2) gives us 4th Nov.

NASDAQ
The NASDAQ has so for been running its own race and showing little correlation to the other markets. Should it decide to step in line then the same technical measures are applied. Upside resistance is at the 22nd Aug level as well as the standard retracement levels. The Sept 2001 low is also significant.

DJIA See Chart

S&P 500 See Chart

NASDAQ See Chart