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For the S&P; 500, Nasdaq 100, and T-Bond Futures Markets

S&P; 500 Commentary for Tuesday, December 17, 2002 S&P; 500  Mar  SPH3 Pattern Signals - an automated pattern recognition process which identifies today's most likely market scenario based on recent price behavior. 2 Day ROC Buy 90-10 High Continuation & Reversal: Look for morning follow through on yesterday's strong close and then a likely reversal. Momentum Pinball Sell: If price action is weak enough to break the first hour low, then a bearish bias should be assumed. Look to either sell the breakout (aggressive) or sell the retracement to the breakout (conservative). Pivot System Support & Resistance Levels - used on the floor to determine relative value based on prior day price action. Significant shifts in market psychology often occur near these levels. R3·932   R2·924   R1·917   DP·904   S1·896   S2·883   S3·876 Range Projections - This market will have a tendency to trade within the Normal High/Low Range today as noted below. If those levels are exceeded, use the Extended Range. Normal Extended High 920 927 Low 899 891          Most Recent Trading Day With Pivot System             Historical Volatility & Narrow Range Days            S&R; Levels and 5, 15, and 30 Minute 20EMAs.          Expect range expansion when HisVol is low. TODAY'S S&P; 500 COMMENTARY We have three Pattern Signals fired for today's trading in the S&P;, the first of which is the 2 Day ROC Buy. This signal is the Raschke and Connors way of quantifying the swing trading methods as taught by the Taylor Trading Technique. This technique teaches that there is a natural pattern to the sequence of buy and sell days. The 2 Day ROC Buy signal is telling us to expect today to be the "buy day" part of that pattern. The second signal fired for today's trading is the 90-10 High Continuation & Reversal. The concept behind this signal originates from the 80-20s set-ups as described in "Street Smarts". But, rather than using the 80-20 guidelines, the parameters have been narrowed to 90-10. This reduces the pattern's frequency of occurrence, but increases its probability as a forecasting tool. The 90-10 High Continuation & Reversal signal is fired when the day's open is within the bottom 10% of the day's range and the day's close is within the top 10% of the day's range. This signal is telling us to expect continuation of the upmove in the morning, and then a reversal sometime during the day. The third Pattern Signal fired for today's trading is the Momentum Pinball Sell. The Momentum Pinball Buy and Sell Signals represent an attempt to identify potential periods of very short term buying and selling exhaustion so as to capture a possible move in the opposite direction. Before any action is taken, however, the Momentum Pinball Sell signal requires a breach of the first hour low for confirmation. Because Momentum Pinball Buy/Sell signals are intended to flag the potential end of a short term trend, it is not unusual to see, on the same day, other Pattern Signal firings which indicate likely movement in the opposite direction. When this occurs we know that a break of the first hour high/low represents a market bias in the opposite direction as originally indicated by other Pattern Signal firings. On the S&P; Half Day chart, all three of our Cycle Indicators moved higher with yesterday's activity. Of greatest significance is the upturn in the 7 period %K. A turn of this indicator from its overbought or oversold zone is usually a good indication that a new trend has begun and at least several more bars of new short term direction should follow. Economic reports on today's agenda include the Consumer Price Index and Housing starts, both released at 7:30CT. The BTM Weekly US Chain Store Sales and the Redbook Survey of US Retail Sales comes out at 8:00CT. Industrial Production/Capacity Utilization is released at 8:15CT. ADX levels on 5 and 15 minute charts are above a level of 30, indicating that the trend to higher prices is still intact in these timeframes (see ADX charts below). If we were triggered into a long position by a price reversal pattern and/or Oscillator Divergence near the 20EMA in either of these timeframes, we would have the makings of a Holy Grail setup. A trade based in part on a Holy Grail pattern can take as its minimum profit target a return to the most recent swing pivot extreme, which would be yesterday's 911.00 high. If the move to that level can occur on Momentum Confirmation, there should be even more upside in the making. The 90-10 High Continuation & Reversal signal is telling us to expect more upside in the morning. Whether that might be tradable or not is difficult to determine, but we should regard a pullback prior to yesterday's high being broken as a possible long entry point. Watch for a price Reversal Pattern and/or Oscillator Divergence on a retracement move towards any 20EMA or the 903.60 Daily Pivot level. Yesterday's 911.00 high would be a potential target, but that doesn't negate the possibility that price may go higher, and we should be prepared to take advantage of the move should it occur. From there, keep a sharp eye out for price reversal patterns and/or Oscillator Divergence on potential lines of resistance above this level. Possible reversal zones include any of the three Pivot System Resistance Levels, the Normal High Range Projection level of 919.70 and the Extended High Range Projection level of 927.50. The aggressive trader can try to catch the initial reversal turn itself, should it occur. The more conservative might be better off just letting it happen, and then attempt to get in on the retracement. Holy Grail patterns are particularly effective for this. Pay special attention to the 5 min. 20EMA. Another technique is to draw an uptrendline line along the lows on a 5 or even 15 minute chart and use the break of that line as your trigger into the trade. Just make sure that you have a logical place to put your stop, and that it is within your preferred limits of tolerance. Going into trading today, we have a signal implying more upside with the possibility of a strong reversal. However, such signals should never be interpreted in mechanical fashion. They are to be used as a "heads up" for the day's trading . . . not as a strict set of rules, but only as an aid in the creation of a strategy. Pattern Signals are an indication of what has happened on a fairly consistent basis in the past, but they make no guarantees of the future. Always let price be the ultimate determining factor in all your trading decisions. 20 PERIOD EXPONENTIAL MOVING AVERAGE AND 14 PERIOD ADX ADX>18 indicates ambivalence: use chart pattern breakouts to help determine directional bias. ADX>30 defines trend moves in that timeframe: watch for retracements to the 20EMA. The colored bar under ADX represents trend direction.

Nasdaq 100 Commentary for Tuesday, December 17, 2002 Nasdaq 100  Mar  NDH3 Pattern Signals - an automated pattern recognition process which identifies today's most likely market scenario based on recent price behavior. 2 Day ROC Buy 90-10 High Continuation: Morning follow through on yesterday's strong close is likely. Look for long entries Pivot System Support & Resistance Levels - used on the floor to determine relative value based on prior day price action. Significant shifts in market psychology often occur near these levels. R3·1083   R2·1070   R1·1057   DP·1034   S1·1021   S2·998   S3·985 Range Projections - This market will have a tendency to trade within the Normal High/Low Range today as noted below. If those levels are exceeded, use the Extended Range. Normal Extended High 1062 1075 Low 1026 1012          Most Recent Trading Day With Pivot System             Historical Volatility & Narrow Range Days            S&R; Levels and 5, 15, and 30 Minute 20EMAs.          Expect range expansion when HisVol is low. TODAY'S NASDAQ 100 COMMENTARY We have two Pattern Signals fired for today's trading in the Nasdaq 100, the first of which is the 2 Day ROC Buy. This signal is the Raschke and Connors way of quantifying the swing trading methods as taught by the Taylor Trading Technique. This technique teaches that there is a natural pattern to the sequence of buy and sell days. The 2 Day ROC Buy signal is telling us to expect today to be the "buy day" part of that pattern. The second signal fired for today is the 90-10 High Continuation. This signal originates from the 80-20s set-ups as described in "Street Smarts". But, rather than using the 80-20 guidelines, the parameters have been narrowed to 90-10, thus reducing the pattern's frequency of occurrence, but increasing its probability as a forecasting tool. The 90-10 High Continuation signal is fired when the day's close is within the top 10% of the day's range. This signal is telling us to expect morning continuation of the upmove. On the Nasdaq 100 Half Day chart, all three of our Cycle Indicators moved higher with yesterday's activity. Of greatest significance is the upturn in the 7 period %K. A turn of this indicator from its overbought or oversold zone is usually a good indication that a new trend has begun and at least several more bars of new short term direction should follow. Economic reports on today's agenda include the Consumer Price Index and Housing starts, both released at 7:30CT. The BTM Weekly US Chain Store Sales and the Redbook Survey of US Retail Sales comes out at 8:00CT. Industrial Production/Capacity Utilization is released at 8:15CT. The ADX level on the 15 minute chart is above a value of 30, indicating that the trend to higher prices is still intact in this timeframe (see ADX charts below). If we were triggered into a long position by a price reversal pattern and/or Oscillator Divergence near the 20EMA in the 15 minute timeframe, we would have the makings of a Holy Grail setup. A trade based in part on a Holy Grail pattern can take as its minimum profit target a return to the most recent swing pivot extreme, which would be yesterday's 1047.00 high. If the move to that level can occur on Momentum Confirmation, there should be even more upside in the making. Both the 2 Day ROC Buy and 90-10 High Continuation signals are telling us to look for longs in today's early trading. The ideal setup would entail corrective action towards one of the support levels directly beneath yesterday's closing price, the most significant being that of the 1034.00 Daily Pivot. If price were able to reach this zone as higher timeframe 20EMAs came up to meet it from below, we'd have an extra reason to go long. A price reversal pattern and/or Oscillator Divergence can trigger us into the position with the 90-10 High Continuation signal telling us to expect yesterday's 1047.00 high to be exceeded. Use similar price and oscillator behavior characteristics to determine an appropriate exit point above this level. Although not expected, if the Daily Pivot level were to suffer a serious breach to the downside, we'd have to assume a more bearish bias. 20 PERIOD EXPONENTIAL MOVING AVERAGE AND 14 PERIOD ADX ADX<18 indicates ambivalence: use chart pattern breakouts to help determine directional bias. ADX>30 defines trend moves in that timeframe: watch for retracements to the 20EMA. The colored bar under ADX represents trend direction.

US T-Bond Commentary for Tuesday, December 17, 2002 US T-Bond  Mar  USH3 Pattern Signals - an automated pattern recognition process which identifies today's most likely market scenario based on recent price behavior. Low Range Close: 80% chance that today's low will be less than yesterday's. Look for shorts. Momentum Pinball Buy: If price action is strong enough to break the first hour high, then a bullish bias should be assumed. Look to either buy the breakout (aggressive) or buy the retracement to the breakout (conservative). Pivot System Support & Resistance Levels - used on the floor to determine relative value based on prior day price action. Significant shifts in market psychology often occur near these levels. R3·111´17   R2·110´23   R1·109´30   DP·109´14   S1·108´21   S2·108´05   S3·107´12 Range Projections - This market will have a tendency to trade within the Normal High/Low Range today as noted below. If those levels are exceeded, use the Extended Range. Normal Extended High 109´25 110´08 Low 108´16 108´00          Most Recent Trading Day With Pivot System             Historical Volatility & Narrow Range Days            S&R; Levels and 5, 15, and 30 Minute 20EMAs.          Expect range expansion when HisVol is low. TODAY'S T-BOND COMMENTARY We have two Pattern Signals fired for today's trading in T-Bonds, the first of which is the Low Range Close. This signal indicates that the close of yesterday's trading was within the bottom 20% of the day's range and suggests an 80-85% chance that today's low will be less than yesterday's. The second Pattern Signal fired for today's trading is the Momentum Pinball Buy. The Momentum Pinball Buy and Sell Signals represent an attempt to identify potential periods of very short term buying and selling exhaustion so as to capture a possible move in the opposite direction. Before any action is taken, however, the Momentum Pinball Buy signal requires a breach of the first hour high for confirmation. Because Momentum Pinball Buy/Sell signals are intended to flag the end of a short term trend, it is not unusual to see, on the same day, other Pattern Signal firings which indicate likely movement in the opposite direction. When this occurs we know that a break of the first hour high/low represents a market bias in the opposite direction as originally indicated by other Pattern Signal firings. On the T-Bond Half Day Chart, all three of our Cycle Indicators moved lower with yesterday's trading and are now within oversold territory. This does not necessarily mean that we should expect them to soon turn. If short term cyclical patterns have returned to normal behavior, we should see a period of bottoming action develop before they launch their next cycle higher. Our first clue will come from an upturn in the 7 period %K. A turn of this indicator from its overbought or oversold zone is usually a good indication that a new trend has begun and at least several more bars of new short term direction should follow. Economic reports on today's agenda include the Consumer Price Index and Housing starts, both released at 7:30CT. The BTM Weekly US Chain Store Sales and the Redbook Survey of US Retail Sales comes out at 8:00CT. Industrial Production/Capacity Utilization is released at 8:15CT. ADX levels on 5, 15, and 30 minute charts are above a level of 30, indicating that the trend to lower prices is still intact in these timeframes (see ADX charts below). If we were triggered into a short position by a price reversal pattern and/or Oscillator Divergence near the 20EMA in any of these timeframes, we would have the makings of a Holy Grail setup. A trade based in part on a Holy Grail pattern can take as its minimum profit target a return to the most recent swing pivot extreme, which would be yesterday's 108-31 low. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making. Both the 2 Day ROC Sell and the Low Range Close signals are telling us to look for shorts in today's early trading. The ideal setup would entail corrective action towards one of the resistance levels directly above yesterday's closing price, the most significant being that of the 109-14 Daily Pivot level. If price were able to reach this zone as higher timeframe 20EMAs were coming down to meet it from above, we'd have an extra reason to get short. A price reversal pattern and/or Oscillator Divergence can trigger us into the position with the Low Range Close signal telling us to expect yesterday's 108-31 low to be exceeded. Also keep in mind that the Momentum Pinball Buy signal is flagging potential short term downtrend exhaustion with a possible move in the opposite direction. If today's first hour high is breached we'd want to more seriously consider a bullish bias. The aggressive trader can enter on the break. The more conservative might want to wait until a return to the breakout level, which often happens before a sustained move begins. As always, our most confident entries are accompanied by Reversal Patterns and/or Oscillator Divergence along known levels of support. 20 PERIOD EXPONENTIAL MOVING AVERAGE AND 14 PERIOD ADX ADX<18 indicates ambivalence: use chart pattern breakouts to help determine directional bias. ADX>30 defines trend moves in that timeframe: watch for retracements to the 20EMA. The colored bar under ADX represents trend direction.