Ocotber 14, 2005 Issue # 22

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 The sell off started last week on all markets continued and finally found an intermediate low thrusday and rebounded friday. Several major companies reported this week and overall they were up to expectations. SP500 slipped down to 1170 intraday. It was very oversold (RSI at 22) and then rebounded from there. This first level support is now broken and will now act as a resistance. We have an RSI reading at 32 which is still oversold. Short term recovery is expected ND100 was stronger that our 2 other indexes and is still quite close to our last buy signal entry point. DOW broke under 10400 support went oversold on thursday and rebounded on friday. Short term recovery is expected to continue. Markets oversold under 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 1186.57 -18.53 -9.33 3 ND100 Buy October 6 2005 1552.94 1544.29 -8.65 -11.63 3 Dow Buy August 24 2005 10435 10287 -148 -6.00 3 SP500 Last Signal Comment Our last buy signal is now behing 18 points. SP500 went in a quite high oversold condition (RSI at 22 and a band offset of .9). Under such condition we always have at least a short term rebound which started late thursday afternoon. We came close to hit the stop loss point but we did not. The 1200 support level is now broken and will now act as a resistance. We have an RSI reading of 32 which is still oversold. The moving average is still declining. Several major companies reported for third quarter results and were mostly inline with expectations. We can now expect a retest at 1200 in a very short time frame. Our first support is at 1140 and the next one is between 1080 and 1100. We just completed our third cycle this year. ND100 Last Signal Comment Our last buy signal is now behind 9 points. ND100 was much stronger then SP500 and DOW. It slipped like SP500 and DOW for a few days but was back almost to where it was a week ago. It is much less oversold. We can expect this market to hold and start a rally soon. We can consider that our first 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 148 points with the latest buy signal. DOW could not hold on as our 2 other markets and went oversold thursday to do a nice little rebound after. 10400 support is broken and will now act as a resistance. DOW is still oversold with an RSI reading under 37. A short term rally is expected. We had so far already 3 completed cycles this year. The next support is at 10000. Special Option Strategy Update We now suggest to enter an SPX naked PUT for November at around 2.70. 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 +0.1% +0.2% +0.4% +0.1% + 0.01% Retail Sales +0.2% -2.1% +0.3% +1.0% 0.3% + 1.5% CPI +1.2% +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 2 major Economic numbers. You can find latest numbers in the table above. The CPI numbers came in this week overall better than expected with a core CPI of 0.1% only higher and CPI as 1.2% higher with 90% due to higher energy cost. Retail sales were up 0.2% after behing down 2.1% the previous month. This was enough to spark a short term rally friday. The crude is now around 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 are now at the end of the dangerous period of the year (August - Mid October). Financial results we got this week were inline with expectations and inflation fears were eased a bit with last core CPI number and decreasing oil price. 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. I have the feeling our current buy signal on SP500 is the one despite the fact we are behind right now. 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 19.50 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