S&P 500 Commentary for Monday, February 5, 2001

S&P 500  Mar  SPH1

Pattern Signals - an automated pattern recognition process which
identifies today's most likely market scenario based on recent price behavior.

90-10 Low Continuation & Reversal: Look for morning
follow through on yesterday's weak close and then a likely reversal.

Momentum Pinball Buy: If price action is strong enough to break the
first hour high, then a bullish bias should be assumed. Look to either buy the
breakout (aggressive) or buy the retracement to the breakout (conservative).


Pivot System Support & Resistance Levels - used by floor professionals to determine
value based on prior day price activity. Shifts in market psychology often occur near these levels.

R3·1418   R2·1396   R1·1375   DP·1363   S1·1342   S2·1331   S3·1309

Range Projections - This market will have a tendency to trade within the Normal
High/Low Range today as noted below. If those levels are exceeded, use the Extended Range.

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TODAY'S S&P 500 COMMENTARY

We have two Pattern Signals fired for today's trading in the S&P, the first of which is the 90-10 Low Continuation & Reversal. The concept behind this signal originates from the 80-20s set-ups as described in "Street Smarts". But, rather than using the 80-20 guidelines, the parameters have been narrowed to 90-10. This reduces the pattern's frequency of occurrence, but increases its probability as a forecasting tool.

The 90-10 Low Continuation & Reversal signal is fired when the day's open is within the top 10% of the day's range and the day's close is within the bottom 10% of the day's range. This signal is telling us to expect continuation of the downmove in the morning, and then a reversal sometime during the day.

The second Pattern Signal fired for today's trading is the Momentum Pinball Buy. The Momentum Pinball Buy and Sell Signals represent an attempt to identify periods of very short term buying and selling exhaustion so as to capture a likely move in the opposite direction. Before any action is taken, however, the Momentum Pinball Buy signal requires a breach of the first hour high for confirmation.

Because Momentum Pinball Buy/Sell signals are intended to flag the end of a short term trend, it is not unusual to see, on the same day, other Pattern Signal firings which indicate likely movement in the opposite direction. When this occurs we know that a break of the first hour high/low represents a market bias in the opposite direction as originally indicated by other Pattern Signal firings.

On the S&P Half Day chart, all three of our Cycle Indicators moved lower into oversold territory with Friday's activity. Although its a bit too early to tell, if cyclical activity has returned to more normal behavior, we should expect to see a period of base-basing develop before they launch their next move higher. Our first clue will come from a turn in the 7 period %K. A turn of this indicator from its overbought or oversold zone is usually a good indication that a new trend has begun and at least several more bars of new short term direction should follow.

The only economic report on today's agenda is NAPM Services at 9:00CT.

ADX levels on 5, 15, and 30 minute charts are all above 30, indicating that the trend to lower prices is still intact in these timeframes. If we were triggered into a short position by a price reversal pattern and/or Oscillator Divergence near the 20EMA in any of these timeframes, we would have the makings of a Holy Grail setup. A trade based in part on a Holy Grail pattern can take as its minimum profit target a return to the most recent swing pivot extreme. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making.

The 90-10 Low Continuation & Reversal signal is telling us to expect more downside in the morning. Whether that might be tradable or not is difficult to determine, but regard any rally prior to Friday's low being broken as a potential short entry point. Watch for a reversal pattern and/or oscillator divergence on a retracement move towards any 20EMA or the 1363.50 Daily Pivot. Friday's 1352.10 low would be a potential target, but that doesn't negate the possibility that price may go lower, and we should be prepared to take advantage of the move if it should occur.

From there, keep a sharp eye out for price reversal patterns and/or 3/10 Oscillator Divergence on potential lines of support below this level. Likely reversal zones include the 1343.00 daily swing pivot low, the 1336.90 level of the Normal Low Range Projection, and the 1324.30 level of the Extended Low Range Projection.

The aggressive trader can try to catch the initial reversal turn itself, should it occur. The more conservative might be better off just letting it happen, and then attempt to get in on the retracement. Holy Grail patterns are particularly effective for this. Pay special attention to the 5 min. 20EMA. Another technique is to draw a downward trendline along the highs of a 5 or 15 minute chart and use the break as your trigger into the trade. Make sure that you have a logical place to put your stop within your preferred limits of tolerance.

Going into trading today, we have a signal implying more downside with the possibility of a strong reversal. However, such signals should never be interpreted in mechanical fashion. They are to be used as a "heads up" for the day's trading . . . not as a strict set of rules, but only as an aid in the creation of a strategy. Pattern Signals are an indication of what has happened on a fairly consistent basis in the past, but they make no guarantees of the future.

Always let immediate price action be the ultimate determining factor in all your trading decisions.

20 PERIOD EXPONENTIAL MOVING AVERAGE AND 14 PERIOD ADX

ADX18 indicates ambivalence: use chart pattern breakouts to help determine directional bias. ADX30 defines trend
moves in that timeframe: watch for retracements to the 20EMA.The colored bar under ADX represents trend direction.

Nasdaq 100 Commentary for Monday, February 5, 2001

Nasdaq 100  Mar  NDH1

Pattern Signals - an automated pattern recognition process which
identifies today's most likely market scenario based on recent price behavior.

2 Day ROC Sell

90-10 Low Continuation: Morning follow through
on yesterday's weak close is likely. Look for shorts.

Momentum Pinball Buy: If price action is strong enough to break the
first hour high, then a bullish bias should be assumed. Look to either buy the
breakout (aggressive) or buy the retracement to the breakout (conservative).


Pivot System Support & Resistance Levels - used by floor professionals to determine
value based on prior day price activity. Shifts in market psychology often occur near these levels.

R3·2793   R2·2692   R1·2590   DP·2533   S1·2431   S2·2374   S3·2272

Range Projections - This market will have a tendency to trade within the Normal
High/Low Range today as noted below. If those levels are exceeded, use the Extended Range.

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TODAY'S NASDAQ 100 COMMENTARY

We have three Pattern Signals fired for today's trading in the Nasdaq 100, the first of which is the 2 Day Rate Of Change Sell. This signal is the Raschke and Connors way of quantifying the swing trading methods as taught by the Taylor Trading Technique. This technique teaches that there is a natural pattern to the sequence of buy and sell days. The 2 Day ROC Sell signal is telling us to expect today to be the "sell day" part of that pattern.

The second Pattern Signal fired for today's trading is the 90-10 Low Continuation. This signal originates from the 80-20s set-ups as described in "Street Smarts". But, rather than using the 80-20 guidelines, the parameters have been narrowed to 90-10, thus reducing the pattern's frequency of occurrence, but increasing its probability as a forecasting tool.

The 90-10 Low Continuation signal is fired when the day's close is within the bottom 10% of the day's range. This signal is telling us to expect morning continuation of the downmove.

The last Pattern Signal fired for today's trading is the Momentum Pinball Buy. The Momentum Pinball Buy and Sell Signals represent an attempt to identify periods of very short term buying and selling exhaustion so as to capture a likely move in the opposite direction. Before any action is taken, however, the Momentum Pinball Buy signal requires a breach of the first hour high for confirmation.

Because Momentum Pinball Buy/Sell signals are intended to flag the end of a short term trend, it is not unusual to see, on the same day, other Pattern Signal firings which indicate likely movement in the opposite direction. When this occurs we know that a break of the first hour high/low represents a market bias in the opposite direction as originally indicated by other Pattern Signal firings.

On the Nasdaq 100 Half Day chart, all three of our Cycle Indicators moved lower into oversold territory with Friday's activity. Although its a bit too early to tell, if cyclical activity has returned to more normal behavior, we should expect to see a period of base-basing develop before they launch their next move higher. Our first clue will come from a turn in the 7 period %K. A turn of this indicator from its overbought or oversold zone is usually a good indication that a new trend has begun and at least several more bars of new short term direction should follow.

The only economic report on today's agenda is NAPM Services at 9:00CT.

ADX levels on 5, 15, 30, and 60 minute charts are all above 30, indicating that the trend to lower prices is still intact in these timeframes. If we were triggered into a short position by a price reversal pattern and/or Oscillator Divergence near the 20EMA in any of these timeframes, we would have the makings of a Holy Grail setup. A trade based in part on a Holy Grail pattern can take as its minimum profit target a return to the most recent swing pivot extreme. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making.

Both the high ADX readings and a number of Pattern Signal firings are telling us look for shorts in today's early trading. The ideal setup would entail corrective action towards one of the resistance levels directly above Friday's closing price, the most significant being that of the 2532.50 Daily Pivot level. If price were able to reach this zone as higher timeframe 20EMAs were coming down to meet it from above, we'd have an extra reason to get short. A price reversal pattern and/or Oscillator Divergence can trigger us into the position with the 90-10 Low Continuation signal telling us to expect Friday's low to be exceeded.

Also, keep in mind that the Momentum Pinball Buy signal is indicating short term downtrend exhaustion with a likely move in the opposite direction. If today's first hour high is breached we'd want to more seriously consider a bullish bias. The aggressive trader can enter on the break. The more conservative might want to wait until a return to the breakout level, which often happens before a sustained move begins. As always, our most confident entries are accompanied by Reversal Patterns and/or Oscillator Divergence along known levels of support.

20 PERIOD EXPONENTIAL MOVING AVERAGE AND 14 PERIOD ADX

ADX18 indicates ambivalence: use chart pattern breakouts to help determine directional bias. ADX30 defines trend
moves in that timeframe: watch for retracements to the 20EMA.The colored bar under ADX represents trend direction.

US T-Bond Commentary for Monday, February 5, 2001

US T-Bond  Mar  USH1

Pattern Signals - an automated pattern recognition process which
identifies today's most likely market scenario based on recent price behavior.

2 Day ROC Sell

90-10 Low Continuation: Morning follow through
on yesterday's weak close is likely. Look for shorts.

Momentum Pinball Buy: If price action is strong enough to break the
first hour high, then a bullish bias should be assumed. Look to either buy the
breakout (aggressive) or buy the retracement to the breakout (conservative).


Pivot System Support & Resistance Levels - used by floor professionals to determine
value based on prior day price activity. Shifts in market psychology often occur near these levels.

R3·106´06   R2·105´19   R1·105´00   DP·104´22   S1·104´03   S2·103´25   S3·103´06

Range Projections - This market will have a tendency to trade within the Normal
High/Low Range today as noted below. If those levels are exceeded, use the Extended Range.

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TODAY'S T-BOND COMMENTARY

We have three Pattern Signals fired for today's trading in T-Bonds, the first of which is the 2 Day Rate Of Change Sell. This signal is the Raschke and Connors way of quantifying the swing trading methods as taught by the Taylor Trading Technique. This technique teaches that there is a natural pattern to the sequence of buy and sell days. The 2 Day ROC Sell signal is telling us to expect today to be the "sell day" part of that pattern.

The second Pattern Signal fired for today's trading is the 90-10 Low Continuation. This signal originates from the 80-20s set-ups as described in "Street Smarts". But, rather than using the 80-20 guidelines, the parameters have been narrowed to 90-10, thus reducing the pattern's frequency of occurrence, but increasing its probability as a forecasting tool.

The 90-10 Low Continuation signal is fired when the day's close is within the bottom 10% of the day's range. This signal is telling us to expect morning continuation of the downmove.

The last Pattern Signal fired for today's trading is the Momentum Pinball Buy. The Momentum Pinball Buy and Sell Signals represents an attempt to identify periods of very short term buying and selling exhaustion so as to capture a likely move in the opposite direction. Before any action is taken, however, the Momentum Pinball Buy signal requires a breach of the first hour high for confirmation.

Because Momentum Pinball Buy/Sell signals are intended to flag the end of a short term trend, it is not unusual to see, on the same day, other Pattern Signal firings which indicate likely movement in the opposite direction. When this occurs we know that a break of the first hour high/low represents a market bias in the opposite direction as originally indicated by other Pattern Signal firings.

On the T-Bond Half Day chart, all three of our Cycle Indicators turned sharply lower from overbought territory with Friday's activity. Although its a bit too early to tell if cyclical activity has returned to more normal behavior, there are a number of important clues that point to that assessment. Probably the most significant would be the clear development of two 10 period cycles (indicated by the red 5 period Double Stoch) within a single 20 period cycle (indicated by the blue 10 period Double Stoch). Our Cycle Indicators are telling us to expect lower to sideways activity.

The only economic report on today's agenda is NAPM Services at 9:00CT.

Both the 2 Day ROC Sell and the 90-10 Low Continuation signals are telling us look for shorts in today's early trading. The ideal setup would entail corrective action towards one of the resistance levels directly above Friday's closing price, the most significant being that of the 104-22 Daily Pivot level. If price were able to reach this zone as higher timeframe 20EMAs were coming down to meet it from above, we'd have an extra reason to get short. A price reversal pattern and/or Oscillator Divergence can trigger us into the position with the 90-10 Low Continuation signal telling us to expect Friday's low to be exceeded.

Also, keep in mind that the Momentum Pinball Buy signal is indicating short term downtrend exhaustion with a likely move in the opposite direction. If today's first hour high is breached we'd want to more seriously consider a bullish bias. The aggressive trader can enter on the break. The more conservative might want to wait until a return to the breakout level, which often happens before a sustained move begins. As always, our most confident entries are accompanied by Reversal Patterns and/or Oscillator Divergence along known levels of support.

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YESTERDAY'S T-BOND TRADING