I See Two Possible Scenarios, Longer Term

January 7, 2003
Don Miller

The S&Ps have been playing
ping-pong between 13-minute and hourly trend supports as we approach midday,
while the stronger Nasdaq is attempting a bit
more follow through to yesterday’s uptrends.Â Trading volatility has improved
this morning (like the New England weather or pro sports teams, if you don’t
like what you see, just wait), and the nicely spaced opposing 13 & 60 minute
trends on the S&Ps have provided outstanding parameters for morning short and
long trades.Â The best opportunity of the morning to pare shorts or attempt longs
was on a bit of market overreaction to European news that a potential toxin was
found in Sunday’s terrorist arrest.

Heading into the afternoon, confirmed 13-minute reversals to the north are
needed if the hourly bounce is to have any additional steam beyond the first
pullback bounce, and keep in mind that lurking in the bushes (sorry couldn’t
resist) is the unveiling of the President’s economic plan.

On a longer term basis, I’ve posted the weekly chart of the S&P cash below which
provides for two possible scenarios, both of which are linked by a similar
premise.Â The first possibility is a continued extension of theÂ handle bounce
off trend support currently in progress.Â Readers and

students know that the current move off the bullish cup handle, which
coincides with trend support, is one our favorite formations.Â The second
possibility is potential emergence of weak price/momentum divergence on any
approach to the 950 area, at which point eyes would look for any break of the
trend support to trigger a potential reversal trade.Â In both cases, the key is
the weekly trend support which is hovering around the psychologically key 900
level.

So how does one trade such a formation?Â Just as we would on an intraday chart —
which is to respect the current trend in progress until support is broken in
terms of long stops or short entries. Existing longs may want to consider the
hourly as a tighter trail (traders in cash could also consider positioning for
pullbacks off the hourly with the same stop premise), while I see no entry on
the longer-term short side until at least the hourly breaks.Â Longs should, of
course, consider paring out into the upper Bollinger Band extremes (and if you
haven’t yet, check the old greed pulse meter … that’s why the wide standard
deviation bands are there folks!), while prospective shorts watch in cash.

ES (S&P)Â Â Â Â Â
Tuesday January 7,Â 2003Â 11:40 AM ETÂ Â Â Â Â Â Â NQ
(Nasdaq)