Over the last week or so my girlfriend and I have made a ton of money based on your [plays] on the SOX and OEX. Thank you so much. It appears they pretty much move with the NASDAQ only with great price swings. Which leads me to believe (for the most part) that as long as we have a handle on the direction of the [Nasdaq] then we can play the indexes accordingly. My questions are these, since you don't always include the indexes in your reports, are there some rule of thumbs for playing them, i.e., resistance levels, open interest, etc.? (August 28, 2001)
First, we are trying to cover the indexes more and more for all of our subscribers. In this market, the indexes can give some of the best payoffs for the very reason you have pointed out: if you figure out the market direction, you win with the indexes and are not as subject to individual news stories on any particular stock. The S&P tends to follow the Nasdaq, just a bit delayed. Note how the Nasdaq broke down first below the July lows, and now it has dragged the S&P with it. The Dow is more of a different animal, but with the S&P down, the Dow is fighting for its life to hold onto the July lows. So the OEX is one of our favorite plays because it gives more moves than the QQQ, though we can play the MNX, or the mini NDX (Nasdaq 100). This is one we plan to cover more in the future in addition to the QQQ.
The SOX is a part of the tech world. Indeed, it is one of the most if not the most important pillar of tech; after all, semiconductors are the foundation of practically all technology. It tends to influence the Nasdaq up or down, but it does not always move lockstep with the Nasdaq. Case in point on Monday when the Nasdaq was down but the SOX was up. It is great to play as well because it gives super moves and sets up great patterns. It is also great because it does tend to lead up or down and gives a signal for the Nasdaq and the OEX.
What do we look for? We love to play the downtrends or uptrends when an index runs into the downtrend or sells down to the up trendline. Those are just great entry points. We also love to play when an index rams its head into resistance such as the SOX with the 200 day MVA on Monday. On the other side, we like to play the upside when an index sells down to solid support and bounces; this is best in an uptrend, but it also works in a trading range (e.g., the Dow earlier in the year between 10,500 and 11,000). The SOX and indexes also set up head and shoulders patterns, double bottoms, double tops - - signature patterns of upside and downside moves to come. The SOX is very good for these. Moreover, they do it intraday as well, and we can play the day and the trend over several days. Talk about flexibility in a choppy market!
Playing the indexes for the most part means playing options. But index options are so liquid you usually have no trouble getting in and out of them. Indeed, even if there are very few open interests (something we are seeing in the recently issued October options on several of the indexes), you don't have as much market maker shenanigans because there is such a ready market. We can get good, fast trades pretty much when we want them.
There are many things to like about playing the indexes. We cover this strategy in detail in our seminar series. As this writer indicates, there is a lot of money to be made in the market even in these times. The key is knowing what to play and how to play it. We teach you this in our seminars.
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