What will 2006 have in store?
Trend Market View:
The new year’s financial
market action lies straight ahead. Wipe the slate clean, money managers have a
brand new start. Will they buy, sell or simply let tapes drift sideways like the
past two months?
Let’s flip thru a couple of
monthly charts for some long-term trend views and see what there is to glean:
Dow
Industrials spent the past two years coiling their way into the apex of this
wedge. One slight candle close above resistance in November was negated in
December… that tiny blip of a red dot which represents four full weeks of
price range measured. My, my. Have you ever seen a tighter month in the Dow?
This chart certainly has not.
If price
action cannot close back above that upper wedge line of resistance, look for the
lower line of support to be tested for the umpteenth time again. Edge goes to
the bears right now, with price action having failed its way back inside the
pattern.
Nasdaq 100 has the Elliott wavers and Fib projection group eyeing that
critical 1700 level. It is the first resistance target from the past 1,2,3
swing, and may hold for awhile. The 1900+ level is possible, equally so for a
dip back down to 1400 again.
EURUSD closed below this long-term trendline of support last month, and
retested it in failed fashion this month. Could lift all the way to 1.2400 while
remaining weak, but this semblance of a head & shoulders (not drawn) top points
toward 1.2000 being a tough ceiling to crack.
Likewise,
retracement from 2002 lows to 2005 highs has 38% near 1.1700 level. Good place
to look for buy signals on smaller charts from, with a range between 1600+ and
2400 likely to be rolled thru in the next few weeks or months ahead.
Guest Spot:
(
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PowerRating) oil services HOLDRs are up on stilts at the close of 2005. This was
clearly the petro-bulls playground, and remains bullish even on a pull back to
$110 or so. I’d probably be a buyer of some 125 strike call options six months
out of expiration whenever that 110 level might be hit. Potential for +100% to
+300% or better appreciation on those contracts would be favorable, in my
opinion.
Opinion
What were
the opening prices of major indexes this year versus where they closed? Other
than inside small caps and techs, it was not much of a bullish victory.
Brett
Steenbarger has done a usual stellar job in crunching data for us to project how
future price action may behave. His research that shows low volatility leading
to more of the same sure describes the past two years of stock market action.
That said, eventually the cycle must break or stock markets are doomed to cease
trading altogether, one fine day in the future.
I would
assume that won’t happen, and eventually we will see a return to higher levels
of volatility with normal market ranges in tow. For sure, 5pt intraday spans on
the S&P 500 near 1300 levels is a long ways from “normal”… that being a
relative term. The Dow and Nasdaq 100 both spent the better part of past two
years in consolidating fashion. When the tide changes and volatility rises, it
could last an equal length of time.
Commodities
and currencies offered big-money potential across numerous symbols again this
year. Cocoa, sugar, cotton, copper, gold, oil… all made some significant trend
moves upward. Currency markets shed considerable value against the USD from
early 2005 highs to closing lows. When currencies trend, those moves tend to
last for years. If the dollar strength is more than a mere bear market
correction, we should be shown that in the charts real soon.
Summation
My personal
goals for 2006 include a return to swing trading commodities again, and enhanced
focus on FX swing trades as well. Option trades on trending = volatile markets
is a great way to control risk, deliver staying power and reap significant
rewards when managed properly. A good swing or trend trader is likewise a good
options trader… straight calls & puts will make money inside moving markets.
Year 2005
was neither good nor bad. It is what it was. 2006 lies straight ahead, filled
with ample opportunity for profits in numerous markets and all styles of
trading. That constant never changes: there is always opportunity for profit in
some financial market. Our task is to identify such, position ourselves
accordingly and allow time & law of averages to work in our favor from there.
Please
enjoy a safe and fun-filled holiday weekend. Prepare yourself for a stellar
performance in the year ahead… it begins as the next opening bells ring!
Trade To Win
Austin P
(Weekend Outlook trend-view
section…
open access each Saturday evening)
Austin Passamonte is a full-time
professional trader who specializes in E-mini stock index futures, equity
options and commodity markets.
Mr. Passamonte’s trading approach uses proprietary chart patterns found on an
intraday basis. Austin trades privately in the Finger Lakes region of New York.