Ocotber 7, 2005 Issue # 21

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 We had a good sell off this week on all markets. We now have a declining moving average and all markets are oversold. Several major companies will report this week and will give us a clue about where markets are heading. SP500 slipped just under the 1200 mark. This first level support is threatened right now. We have an RSI reading way under 30 which is quite oversold. ND100 finally retreated to the lower band and gave us a buy signal on thursday. DOW also retreated to the lower band again and is oversold quite the same level as SP500. October sell off blues 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 1195.90 -9.20 -32.91 3 ND100 Buy October 6 2005 1552.94 1555.92 2.98 -45.74 3 Dow Buy August 24 2005 10435 10292 -142 -276.39 3 SP500 Last Signal Comment Our last buy signal is now behing 9 points. This is a second chance to enter for those who did not move on the initial buy signal. SP500 just broked under the 1200 support level and is now quite oversold with an RSI reading of 23. The moving average is now declining. This coming week is crucial because several major companies will report for third quarter results. If it is inline with expectations we could have the beginning of a rally, otherwise it could be the beginning of a bear market. My feeling is it will hold. But if it does not we will play our system to the letter. It may give us a bad signal which would be followed by a strong one. Our next support is at 1140. We just completed our third cycle this year. ND100 Last Signal Comment We finally had a lower band touch buy signal last thursday yielding a small profit of 22 points on our last sell signal. Patience always pays off. We are now ahead 3 points on that last signal. ND100 retreated significantly this last week but is not as oversold as SP500 and DOW. This was the fitth consecutive good signal on this market. We can consider that our next support is at 1500 and the next support is at 1400. DOW Last Signal Comment We had our last buy signal on august 24. So far we are behind 145 points with the latest buy signal. DOW turned around again to retouch the lower band giving a third chance to enter this market. It is still in a very tight trading range between the lower band and the moving average like SP500. DOW is quite oversold with an RSI reading under 30. As for all other markets this week will be crucial when the first third quarter results will come out. We had so far already 3 completed cycles this year. It seems that we have a good support between 10300 and 10400(see graphic below). The next support is at 10000. Special Option Strategy Update Next week we might issue a recommandation to play early for November especially if the market seems to hold. Stay tuned. See the trading signal page for more information. 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 September 2005 August 2005 July 2005 June 2005 May 2005 Apr 2005 PPI +0.6% +1.0% Unchanged -0.06% Core PPI Unchanged +0.4% +0.1% + 0.01% Retail Sales +0.3% +1.0% 0.3% + 1.5% CPI +0.5% +0.5% +0.1% - 0.01% + 0.5% Core CPI +0.1% +0.1% +0.1% + 0.01% Unchanged Housing Starts 2.009M 2.042M 2.045M + 0.02% Building Permits 2.124 Millions 2.167 Millions 2.132 Millions 2.11 Millions 2.15 Millions Employment -35,000 211,000 242,000 166,000 104,000(revised) 275,000 Durable Goods Orders +3.3 -5.3% +1.5% + 6.4%(revised) Durable Goods Excluding Transportation +4.2 -3.7% +2.6% +0.9%(revised) New Homes Sales -1% +6% + 2.1% Existing Homes Sales 7.29 Millions 7.15 Millions 7.35 Millions ISM Index(Manufacturing) 59.4% 53.6% 56.6% 53.8% 51.4% ISM Services 53.3% 65.0% 60.5% 62.2% Factory Orders +2.5% -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 4 Economic numbers. You can find latest numbers in the table above. The ISM manufacturing was stronger than expected along with the factory orders. However the ISM for services was down sharply. The employment number was bad with a loss of 35,000 jobs. However this is all due to the last storms. Experts were expecting a loss of 150,000 jobs. So in a way it as better than expected. GOLD remained strong indicating inflation fear. The crude is now under 62$ down from last top of 71 which gave the market some breath. The prime is now at 3.75. Mr. Greenspan is sticking to it's gun and did not mention any easing on it's policy of rate hiking despite devastation in Louisiana and Texas. Officals reaffirmed this week that we will get other rate hikes for the months coming. Inflation became a major preoccupation with a well doing economy despite high price on crude oil. We have just 1 week left into the dangerous period of the year (August - Mid October). This coming week will give us the first financial results from several major companies. If most of them are inline with expectations we might not have the beginning of a bear market. 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. It is at a level where it could initiate a 10% or more rally. But consider that it should kick in the latest in mid october. The SP500 PE ratio is at 19.81 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