September 2nd, 2005 Issue # 16

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 had it's short term rebound as expected and set to retest the lower band ND100 failed to give a by signal and on a short term rebound. DOW is trying to consolidate around the last buy signal level Short term rebound was as expected on all markets, we may now be up for another slide to the lower band. Markets on a short term rebound Last trades update Index Market Last signal Entry date Entry Price Current Price Win / Loss Weekly Change # cycles completed SP500 Buy August 26th 2005 1205.10 1218.02 12.92 12.92 2 ND100 Sell August 16 2005 1574.01 1573.12 0.89 1.60 1 Dow Buy August 24 2005 10435 10447 12 -16 3 SP500 Last Signal Comment Our new buy signal given last friday is ahead 13 points so far. SP500 is right at the moving average which is still declining. We had our expected short term rebound but SP500 is still vulnerable and could very well set back to the lower band around the last buy signal level. The short term downtrend is still not resolved at this point. What we are looking for here is an attempt to get a new support which could very well be at 1200. We just completed our third cycle this year. ND100 Last Signal Comment We had our last sell signal on August 16 2005. We are still ahead 1 point with this new trade. ND100 came a few points shy to get a new buy signal and then had the expected short term rebound. ND100 is still on a short term downtrend despite the last rebound. We are still looking for a buy signal which could occur under 1540 mark. Stay tuned for any new signal with this market. We can consider that our next support is at 1500. We are having our 2nd cycle in this market for this year. DOW Last Signal Comment We had a new buy signal on august 24. So far we are ahead 12 points with the latest buy signal. The DOW is now trying to consolidate around the last buy signal level (10400). DOW did not exactly issue a short term rebound as expected. What we are looking for now is for the consolidation to continue and establish a new support to launch the new buy signal to profit. We had so far already 3 completed cycles this year. It seems that we have a good support at 10100 (see graphic below). Special Option Strategy Update We are now 2 weeks away from expiration with our last SPX naked PUT sell for September 1150 now worth 0.95$. We can expect another nice profit with this trade. Always remember that you need between 11,000 and 15,000 USD margin for each contract. Economic Current Conditions Table of Economic Numbers Economic Info August 2005 July 2005 June 2005 May 2005 Apr 2005 PPI +1.0% Unchanged -0.06% Core PPI +0.4% +0.1% + 0.01% Retail Sales +0.3% +1.0% 0.3% + 1.5% CPI +0.5% +0.1% - 0.01% + 0.5% Core CPI +0.1% +0.1% + 0.01% Unchanged Housing Starts 2.042M 2.045M + 0.02% Building Permits 2.167 Millions 2.132 Millions 2.11 Millions 2.15 Millions Employment 169,000 242,000 166,000 104,000(revised) 275,000 Durable Goods Orders -4.9% +1.5% + 6.4%(revised) Durable Goods Excluding Transportation -3.2% +2.6% +0.9%(revised) New Homes Sales +6% + 2.1% Existing Homes Sales 7.16 Millions 7.35 Millions ISM Index(Manufacturing) 53.6% 56.6% 53.8% 51.4% ISM Services 60.5% 62.2% Factory Orders -1.9% +0.9% +0.7% GDP(Gross Domestic Product) Numbers 2nd Quarter 2005 1st Quarter 2005 4th Quarter 2004 3.3% 3.8%(revised) 3.5% Inflation Numbers 2nd Quarter 2005 1st Quarter 2005 2.4% 3.1% This week we had Employment and manufacturing Economic numbers. You can find those numbers in the table above. Factory orders felt sharply (-1.9%), ISM factory index was also lower at 53.6% while the employment market was lower than previous month. The manufacturing seems to show more and more what could be the beginning of a slowdown in consumers spending. The crude is still above 68$ seriously threatening economic growth. 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. Again we start to get mixed signals from the eocnomy with the slowdown in manufacturing activities and a quite low employment report for august. If we have another month like that we might see the FED to stop interest rates hikes. We should have another rate hike but after that it is not so sure. We almost half way through into the dangerous period of the year (August - Mid October). Now we have to start thinking that we did not have yet this year a strong cycle (10% or more profit in one cycle alone). This strong kind of market happen very often in the last quarter. So we should get prepared for that. May be this current buy signal on SP500 is the one, may be not. But consider that it should kick in the latest in mid october. The SP500 PE ratio is at 20.18 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