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[Camisa Roxa]

FRIDAY a.m.
January 24, 2003



Just a bounce
by David Nichols

This morning I'll be briefer than usual, as I'm catching an early flight back from sub-Arctic Chicago. I was here on a quick trip to get all the details on single-stock futures from executives from both the OneChicago and Nasdaq Liffe exchanges. I also met with the team at Lind-Waldock, the big futures broker that will be auto-executing our single-stock futures recommendations for our options subscribers who want this feature.

Just so everyone knows, Lind-Waldock will also be auto-executing an account for me personally, with the exact same executions as subscribers, so there can be no potential conflict.

Obviously I'm jazzed about these new trading vehicles, and the methodology we've developed to trade them. In my opinion, single-stock futures are now the ultimate vehicle for trading. Unless you're planning on holding a stock for a long, long time, there really isn't a reason to buy the common shares over the futures, if the contract is available.

We'll be launching our SSF trading as part of our options service next week. Our trading methodology for these futures contracts is locked down, optimized, and fully ready for prime-time. I'll have more details on our trading plans in a special update on Monday for options subscribers.

Regarding the market, the Nasdaq 100 -- and its more popular proxy, the QQQ -- was the strong performer yesterday. Yet was it really strong?

A look at the daily chart shows the expected bounce after a remarkably linear cascade down. Yet the bounce has so far stopped at two interesting points: below the "window", as the Japanese call it, or gap -- which candlestick theory posits as likely resistance. The QQQ was also solidly repelled at the simple 20 period moving average, which just about every trader in the world looks at as the middle line of a typical Bollinger band.



So it's a bounce, but so far that's it. Just a bounce. Such a move back to "kiss goodbye" the underside of the 20 period moving average is a well-known, textbook continuation pattern to the downside. On the chart above, you can see how it played out just like this in late December. So it looks like the downside thrust has more work to do, and the next round of selling should take the QQQ down to the bottom of that band at 24.

But there might be another day or so of waffling around before the down move really gets going again. The short-term advance phase that kicked off yesterday is still relatively fresh, so there is definitely room to make another try at that middle line, or perhaps just drift sideways for a bit.

This 24 level has been the spot where the QQQ has been ending its downtrends, ever since the October bottom. So I'm looking for at least that again, and we'll see if it holds this time. The market looks and feels particularly vulnerable here.