SHORT TERM VS. MEDIUM TERM: Most short term commentary is relevant to day traders for the following session. The Medium Term is 1+ weeks. In our Medium Term commentary, we are trying to get "on the right side" of the market for an extended, medium term move. Sometimes, these moves last only a day or two. The more typical duraction is 3-5 days and occasionally 2-3 weeks. It all depends on the levels that establish themselves, and how tight our stops are.

FULCRUMS: A fulcrum is essentially a "line in the sand" or "demilitarized zone" in the battle between bulls and bears. These lines, identified by experience, are equilibrium points between buyers and sellers, and are usually found in the centers of consolidations (trading ranges). When price moves away from a fulcrum, it usually moves quickly and a great distance.

TRADING RULES: Unless otherwise noted in the commentary, we ALWAYS follow the following four rules each day, starting with our levels.

Rule #1, The 30 MINUTE RULE: It is best to wait 30 minutes before entering new medium term positions. Otherwise, you can easily get caught in a fading market, since markets often gap in the direction of trend at the Open, and then fail. For the purposes of this commentary, we will only enter trades after the first 30 Minutes of trading have played out. If our entry level is triggered before the first 30 Minutes of trading have passed, we will wait until after 10:00 AM EST to enter the position upon the crossing of the intraday high (or low) made during the first 30 Minutes of trading. That is, if our Long entry trigger level is 8,500, but the high formed during the first 30 Minutes is 8,550, we will enter Long above 8,550 after 10:00 AM EST. No positions are entered in the last 30 Minutes of trading.

Rule #2: The HIGHER HIGH RULE: When we establish a fulcrum, we watch for higher highs or lower lows around the level, and do not enter again in a move away from the fulcrum unless the recent highest high or lowest low is broken. For re-entering a position using the HH Rule, we will wait until the highest high or lowest low is surpassed by 10 points. By doing this, we are able to avoid multiple whipsaws -- UNLESS there is an expanding triangle.

Rule #3: VOLATILITY RULE: The Higher High (Lower Low) Rule will get us in after we are stopped out, provided the market makes another attempt in the same direction. However, after 2 losses in a row in the same direction, we are likely to be forming a volatile range and therefore will not trade a 3rd time (i.e., a third Long or a third Short, in a row).

Rule #4: BREAKEVEN RULE: Once our position has moved in our favor by 25 points on the Dow, we will move our stops up to the entry. The rule will help to reduce the number of stopouts for losses, especially within volatile ranges. Use 5 points for the NASDAQ Composite, NASDAQ 100, and S&P 500; and 3 points for the S&P 100.

HOW WELL DOES THIS METHOD WORK?: Our goal is to be "in" on the larger, extended moves the market makes. Often, we will have 2-3 small (10-25 point) losses, followed by a large gain (100-200 points) This type of trading has led to consistent, positive performance on the indexes since the commentary was launched in September 1998.