Part Of Being Successful In Trading Is…


major indexes rallied again last week
, as the post-election market
showed few signs of slowing down.  Catalysts such as a continued decline in
Crude Oil, optimistic comments by the Fed, and solid earnings from Dell Computer
were cited for the gains.  However, more than likely, it was seasonal factors
and the fear of being left behind that drove stocks higher.  It’s been well
publicized by the media that the majority of fund managers trail their
benchmarks on a year-to-date basis.  As such, many have likely felt pressure to
employ a more aggressive posture.  In addition, recent fund flow data has shown
that inflows from the public have started to pick-up.  With the election behind
us, there seems to be a renewed sense of optimism that has drawn the once
gun-shy retail investor back into the game.  Strength was seen across the board,
with just about every sector posting respectable returns.

December SP 500 futures closed out the week with a gain of +15 points, while the
Dow futures tacked on another +142 points.  Open interest has continued to
expand, and is still suggesting that a lot of sidelined money has been getting
that “miss the train” feeling.  On a weekly basis, the ES broke double-top
resistance with Jan/Mar ’02, and has hit the 1st reversal area on a bearish
Butterfly pattern.  However, we need a weekly reversal candle to confirm the
pattern.  Looking at the daily charts, the ES continues to climb a steep trend
line into a rising wedge.  The YM also continues to climb its steep trend line
and is facing its April high resistance at 10560.  For you 3-Line Break
followers, both the ES and YM break prices moved up to 1160.50 and 10397
respectively.  In the small caps, the ER2 closed out the week at another new
all-time high, and is also climbing a steep trend line into a wedge pattern. 
How low can the VIX go?  We’re seeing another reversal off of the 13 area, which
has held as good support for some previous moves up.


The action
seen in the equities markets in recent weeks has provided a clear bullish
message.  With the SP 500 decisively breaking out after going nowhere for almost
10 months, stocks are likely signaling something positive is on the horizon.  We
likely won’t know until after the fact why stocks are moving higher, but there
could be a host of reasons.  A case can also be made that the recent gains are
simply being driven by speculation and the common “follow the herd mentality”
often seen on Wall Street.  Nonetheless, because of the continued buying
interest and clear shortage of sellers day in and day out, there is no reason to
fight the current action.  Part of being successful in trading is having the
ability to be flexible and recognize change.  A powerful change in direction
took place in late October, which appears as if it could have more staying power
than any of the many false rallies we have seen this year, and definitely more
staying power than those trying to hold on the short side.  Consequently, until
evidence materializes that the current rally has run its course, there’s no
reason to try and be a hero (or an egotistical idiot) and pick the top.


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