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.



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