OPENING POSITION
December 2002
Believe it or don't, but they may - just
may - finally be here. I'm talking about single-stock futures (SSFS), the
product we have been waiting anxiously for since the beginning of 2002.
Unfortunately, their launch comes in the midst of a bear market, not the
best time for an innovative product to be eyed with much optimism. Not
only that, but not much effort has been made to create awareness about
SSFS among traders. So far, the focus has been on launching the product,
which has involved the regulatory authorities and the exchanges. But once
single-stock futures are launched, what's next?
In this issue, we at STOCKS & COMMODITIES
asked the folks at OneChicago and NASDAQ LIFFE (NQLX) a few questions about
single-stock futures. Their answers can be found starting on page 49. But
how do you trade something that has been introduced into the market so
recently? Technical analysts won't have historical charts to rely on. Massimiliano
Scorpio's article "Developing Hot Zones," which starts on page
20, may give you some ideas on how to trade this new product. The article
focuses on analyzing the open in relation to the previous day's price bar
to determine where the close will be.
Other strategies such as arbitrage, pairs trading, and hedging can also
be applied, and we will continue to bring these to you once SSFS finally
start trading. We hope the product will be a success, in spite of being
launched in a bear market that doesn't seem to show any signs of ending.
This brings us to that most frequently asked
question, "Just when will this market start rallying?" Significant
rallies in the broader indexes, especially when they occur two days in
a row, stir up a lot of optimism in the financial media. But you really
need to see more - much more - than two rallies in a row to get excited
about the markets.
In the S&C interview this month, we spoke with chaos scientist Edgar
Peters of PanAgora, who has spent a great deal of time analyzing the history
of the markets. He makes an interesting point: Huge selloffs are not characteristic
of a bear market bottom. A gradual faltering is more likely. But as of
this writing, we haven't seen any signs of the bear "petering out,"
and we may not for a while. Yes, the markets are uncertain, but don't let
that dampen your holiday spirits: As Peters points out in his interview,
uncertainty generates opportunity.
Happy Holidays!
Jayanthi Gopalakrishnan,
Editor
Originally published in the December 2002 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2002, Technical Analysis, Inc.
