This Page Last Updated: January 24,1997 11:30PM
Did I say 10:00AM?..........I think I did!
When we last met,(see yesterdays comments) the Prudent Trader left you with a clear scenario of how he planned to enter his short position on the OEX now that the Trailing Indicator had calculated a FULL SELL condition. Consistant with the start of the last 2 Full Sell conditions the OEX had a very anemic "bounce". About 5 minutes before the 10:00AM time frame, the Prudent Trader scoped out the OEXnl's at 13 3/4. It was clear that a sharp bounce was not in the cards.
We then proceeded to continue the downdraft but WE DID NOT sufficiently "approach" the index's 20 day MA , only going as low as 753.09 intraday. The 20 day MA as calculated by Friday's closing price is currently 745.73. Technically my oscillators are in a steep decline so I feel that there is room for further decline heading into next week. Also, there is really no supportive price point until this index hits the 20 day moving average. Why? Because since we broke above the 740 resistance level in early January, the index moved too far, too fast. However, NO MATTER WHAT, the intent is still to exit just above the indexes projected 20 day MA for monday which I estimate to be around 747.00 . Therefore the prudent thing to do is exit at 749 on the OEX.
Once that is accomplished a Prudent Trader has a difficult decision to make. The Trailing Indicator states that during a FULL SELL condition, a long position should never be entered into "except for certain circumstances that are considered pure day trades". The "approaching" of the OEX to it's 20 day MA after an extended hiatus is ALMOST ALWAYS a special circumstance! It is the Prudent Trader's intention to enter a long position almost immediately after dumping the nl's.
The only exception would be if the index was to rebound right out of the box monday morning. This would require the immediate sale of all puts in the interest of safety. Because I expect the OEX to only rebound to the 760 price point, which is less than 10 OEX points away, a call purchase would not be part of the Prudent Trader's game plan. HOWEVER, when the OEX arrives back at the 760 price point, it will be time to begin scoping another short position.
For the time being consider this index rangebound between the 20 day MA and the 1st standart deviation band to the upside. The spread is roughly 14 to 15 points so their is relative safety in trading it from end to end. The Prudent Trader would not purchase options more than 5 points out of the money during this perios of time.
That's all for now. Don't forget to watch the Super Bowl! I'm off to attend an Arenacross competition in Niagara Falls. Until next week, enjoy yourself.
