Ocotber 21, 2005 Issue # 23

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 As expected markets rallied up to their respective resistance level (SP500 at 1200) and then retreated to retest recent lows. SP500 rallied up to 1198 close to 1200 resistance and retreated to retest the 1170-1180 current support. This support level seems to hold. We have an RSI reading at 30 which is still oversold. Beginning of a new cycle is now expected ND100 was stronger that our 2 other indexes and is even posting a small profit. DOW had the same behavior as SP500 and now shows more and more solid support at 10200. Beginning of a new cycle is now expected. Markets consolidating building support 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 1179.59 -25.51 -6.98 3 ND100 Buy October 6 2005 1552.94 1565.12 13.16 -20.83 3 Dow Buy August 24 2005 10435 10215 -220 -72.00 3 SP500 Last Signal Comment Our last buy signal is now behing 25 points. SP500 rallied up to the resistance point of 1200 to turn around and retest the current support line between 1170-1180. We have a downtrend now lasting for 7 weeks and we have also a more and more solid support line at 1170. This level is holding up for 2 weeks now. We have an RSI reading of 30 which is still oversold. Several other major companies reported for third quarter results and were mostly inline with expectations. We can now expect the beginning of a new cycle any time soon that could carry us up to 1300. November and december are almost always good period. Our next 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 ahead 21 points. ND100 was much stronger then SP500 and DOW. This is the only market posting a profit on the last signal. It hit the moving average and trying to reverse the mild downtrend we have since 5-6 weeks. We can expect this market to retest 1625 level before the end of the year. 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 220 points with the latest buy signal. DOW is building more and more solid support at 10200 level. DOW is still oversold with an RSI reading under 31. Beginning of a new cycle is now expected any time soon. We had so far already 3 completed cycles this year. The next support is at 10000. Special Option Strategy Update Our SPX naked PUT for November now worth about 3.00. This is a small paper loss at this time. However I suggest to keep it for now considering we are oversold and a rebound is expected on SP500. We have 4 weeks left before expiration. 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 +1.9% +0.6% +1.0% Unchanged -0.06% Core PPI +0.3% +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 2.11M 2.04M 2.042M 2.045M + 0.02% Building Permits 2.19M 2.14 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 3 major Economic numbers. You can find latest numbers in the table above. The PPI numbers came in this week quite strong at +1.9% with a core PPI of 0.3%. Those numbers were higher than expected reviving inflation fears and higher interest rates. Housing starts and building permits were higher than expected showing good signs of solid ecomomic growth. As we can see again economic signals remain mixed and investors seem to focused on inflation fears. The crude is now under 60$. If the crude can stabilize around 60 for a long time it will create more stability for prices and keep the inflation under control. 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. At least 2 other rate hikes are expected in Novembre and December. We are now out of the dangerous period of the year (August - Mid October). Financial results we got so far were inline with expectations and inflation fears remain a preoccupation for investors. The table is set to see our 10% yearly rally that could start any time now. This strong kind of market happen very often in the last quarter. So we should get prepared for that. The SP500 PE ratio is at 19.54 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