August 19th, 2005 Issue # 14

Written By Richard Bastien
Author of Index Trading System
© copywright besttradingsystems.com

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The Index Trading Weekly Newsletter Is now accessible directly from an RSS Feed. If you have a My Yahoo account or an My Msn account go to the Weekly newsletter page to register and you will be advised immediately when changes occur on the site either with trading signals, weekly newsletter or any other changes on the site. You can also create a new entry in an RSS reader. Click Here to register for RSS Feed Markets brief SP500 continues to weaken and is about 10-12 points away to give buy signal ND100 also weakening and now in a short term downtrend DOW pausing and weakening under the moving average August continues to be sluggish and all markets are in a short term downtrend except DOW which is pausing around 10550. Markets in a short term downtrend Last trades update Index Market Last signal Entry date Entry Price Current Price Win / Loss Weekly Change # cycles completed SP500 Sell June 10th 2005 1198.11 1219.71 -21.60 -16.42 2 ND100 Sell August 16 2005 1574.01 1573.72 0.29 -18.03 1 Dow Sell August 8 2005 10537 10559 -22 -41 2 SP500 Last Signal Comment We are now behind 22 points in that last sell signal. With an 11 points loss this week this market is now in a short term downtrend lasting now for almost 3 weeks. SP500 is now under the moving average and about 10-12 points away to give us a new buy signal. We are now back under the last breakout point (1225). This point no longer acts as a support and this market should come down any time soon to 1200-1210 range. Considering that august is rarely a good month, chances are we will see in the next 2 weeks a retreat to the lower band. We still have a solid support between 1140 and 1160. We just completed our second cycle this year and we are now waiting for the next buy signal to start a new one. ND100 Last Signal Comment We had our last sell signal on August 16 2005. We locked in a 5.37% profit on the last buy signal. Not bad for a losing year so far on this index. We are now break even with this new trade initiated this week. ND100 tagged the 3 years high mark about 3 weeks ago and is now in a short term downtrend. We are now looking for a buy signal which could occur around 1550 mark. Stay tuned for any new signal with this market. This market is not oversold yet with an RSI reading of 40. So we can expect more downside action before any upswing to occur. It is also very important to mention that we have a solid support just above 1400. We are having our 2nd cycle in this market for this year. DOW Last Signal Comment We had our last sell signal on August 8 2005 (Sorry for last week). We locked in another 2.3% profit with the last buy signal. So far we are behind 22 points with the latest sell signal. The DOW remains under the moving average and continues to pause around 10550. We can expect this market any time soon to fall to the lower band and gives us a new buy signal. We had so far already 2 completed cycles this year. It seems that we have a good support at 10100 (see graphic below). Special Option Strategy Update We just completed August SPX 1140 PUT and cashed in again another 125$ per contract. We now have a new trade to put in as suggested on the trading signals page. We now enter a naked PUT sell on the SPX index for September 1150 at around 2.50$ or for more security September 1140 at around 2.00$. Always remember that you need between 11,000 and 15,000 USD margin for each contract. Economic Current Conditions Table of Economic Numbers Economic Info July 2005 June 2005 May 2005 Apr 2005 PPI +1.0% Unchanged -0.06% Core PPI +0.4% +0.1% + 0.01% Retail Sales +0.3% +1.0% 0.3% + 1.5% CPI +0.5% +0.1% - 0.01% + 0.5% Core CPI +0.1% +0.1% + 0.01% Unchanged Housing Starts 2.042M 2.045M + 0.02% Building Permits 2.167 Millions 2.132 Millions 2.11 Millions 2.15 Millions Employment 207,000 166,000 104,000(revised) 275,000 Durable Goods Orders +1.4% + 6.4%(revised) Durable Goods Excluding Transportation +2.6% +0.9%(revised) New Homes Sales + 2.1% Existing Homes Sales 7.33 Millions ISM Index(Manufacturing) 56.5% 53.8% 51.4% ISM Services 60.5% 62.2% Factory Orders +1.0% +2.9% +0.7% GDP(Gross Domestic Product) Numbers 2nd Quarter 2005 1st Quarter 2005 4th Quarter 2004 3.4% 3.8%(revised) 3.5% Inflation Numbers 2nd Quarter 2005 1st Quarter 2005 2.4% 3.1% This week we had CPI and PPI Economic numbers. You can find those numbers in the table above. Last CPI and PPI numbers now show real inflation threat. They both jumped higher than expected. The crude is still around 67$ seriously threatening economic growth. Our last week fear that higher energy cost would be shifted on consumers seems to materialize itself with those last numbers. The markets now start to react to that negatively. The prime is now at 3.50. Mr. Greenspan sentence did not change about when the rate hikes will stop. We will have for sure at least 2 others .25 increase in september and december. Experts now thinks it will get up as high as 4.50% before we can see a pause on rate hikes. We are now into the dangerous period of the year (August - Mid October). We can't expect a continuation in markets uptrend like we had in july. August is most of the time very sluggish and it seems like it will be this way this year again. The SP500 PE ratio is at 20.21 which is still considered low. Remember that when the last major economic cycle that started in march 2003 the PE ratio was at around 16. So we are at the low end. The markets are way from being overbought and we should not expect any major bear market for the time being.

This is it for this week and continue to monitor any signal change on the Index Trading Signals page