In Trading, These 2 Rules Hold True

  • June 28, 2004
  • Chris Curran


Stock index futures finished mixed in what
was yet another quiet week of trading.  The Tech sector was the star of the
week, which had a lot to do with news from SBC regarding plans to build a
network. Offsetting the positive news in the Tech sector was disappointing
economic news, as well as continued negative geopolitical developments.  The
soft Durable Goods data did cause some concerns that the U.S. economy may not be
as strong as originally believed.  Also, Q1 GDP was revised lower for the 2nd
time, which also suggested that economic growth was not what the data implied 2
months ago.  Following the news, bonds rallied (yields fell), while equities
struggled late in the week. 

The
September SP 500 futures closed Friday’s session with a loss of -6.00 points,
with the Dow futures sliding 58 points.  However, the 2 contracts finished the
week mixed, with the ES adding a whopping 1.25 points and the YM losing 17
points.  On a weekly basis, nothing has changed technically as both contracts
hold their weekly downtrends, with the ES posting a doji and the YM posting a
market structure high.  Looking at the daily chart, the ES and YM both extended
Thursday’s pullbacks from bearish Stochs divergence. 

               

One index
to key the ES and YM off of is the Transportation Sector (TRAN), which is
forming both a daily and weekly bearish Butterfly, with a reversal area at 3184.

               

September
bonds (ZB) posted an inside doji day, but have room on the upside up to weekly
38% Fib resistance at 106.25. The Semiconductor Index (SOX) reversed off of its
2 1/2 year old trend line only to run into its daily trend line resistance.

^next^

Looking
ahead, in the next several weeks the markets should largely be event-driven. 
The long awaited June 30th FOMC meeting (Thank God!) and handover in Iraq are
finally upon us.  In addition, June 30th happens to be the last day
of Q2, which means earnings season is right around the corner.  At this point,
most are expecting a 25 basis point hike from the Fed and a fairly robust
earnings season ahead.  Of course, what the Fed says about future rate hikes and
inflation expectations will probably be more critical than what they actually do
on Wednesday.

The wild
card for the week ahead is the handover of power in Iraq, which is a very
uncertain event.  Most market players are likely braced for further tensions
ahead of it, and as far as expectations go, I would think that opinions are
mixed about what the outcome will be.  Whatever happens could decide who gets
elected in November.  It’s one thing if stocks would have sold off prior to the
event and priced in bad news, as they did before the invasion of Iraq.  However,
this is not the case, given that the key indexes have moved higher over the last
2 months.  Consequently, it would be prudent to go into June 30th with a neutral
bias.

Thought
For the Week

 In
trading, 2 rules hold true: 

  1. There is more than one
    way to make money.

  2. The way that is best
    for making money today will not necessarily be the same as the one that is
    best for making money tomorrow.

It is
surprising how many traders will learn a technique, and then will simply stop
learning.  As traders, we are never done learning.  In fact, the title “trader”
is generally deceptive.  As a trader, our real job is adapting to changing
market conditions.  To learn only one strategy or market will hurt your chances
of being profitable tomorrow, and will result in your missing out on some great
opportunities to produce abnormal profits.

 

 

Please feel free to email me with any questions
you might have, and have a great trading week!

Chris
Curran

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