(12-23-03) The indices  inched higher, the Dow got above resistance, but closed 2 points below it, the SP is 10 points below it, and NASDAQ is just 6 points below resistance.  Given the momentum behind the advance,  the odds are better than even that higher prices await ahead. Like yesterday, the only potentially negative development which suggests that the indices may pullback from resistance, is the Thrust Oscillators which are both flattening out. Thus, we got to expect higher prices, but be alert for a reversal at, or near   resistance .

(12-22-03)The indices are within a few points from resistance, while all indicators are pointing up, meaning they can overcome it. The only potentially negative development which suggests that the indices may pullback from resistance, is the Thrust Oscillators which are both flattening out. Thus, we got to expect higher prices, but be alert for a reversal at, or near resistance.

(12-18-03)  The indices  broke out and then rallied right up to channel resistance.  Given that they are at channel resistance, this would be a logical point for a retreat, which can possibly lead to a trip all the way back to channel support. However, given today's strong volume, breadth and momentum, one can not, and should not, rule out another break above channel resistance, which  would immediately target the 10350 level for the Dow, and 1100-1106 for the SP. Thus, for tomorrow we want to pay attention to whether we get continuation right from the start. If we do, then that means the Dow, and the SP broke  above channel resistance and they are headed to the next upside targets. If we get a reversal, from channel resistance to the downside, it may be worth considering a small pilot short position (10%-20%) with a stop at today's highs. If the indices return back down to test channel support, that is a worthwhile move to participate in.  On the other hand if they continue higher, you also may want to consider adding to longs, with a stop at today's lows.  

(12-17-03)  The indices traded in a very narrow range in a manner  indicative of "coiling"  but with an upside bias, which can be attributed to options expiration this coming Friday. In our view, the indices -at least as far as the Dow and the SP are concerned- are building energy in order to break out of the  wedge formation that has defined  the price action since March. It is true that wedge formations break to the downside 2 out of every  3 times, however,  one out of three, they break out to the upside, and thus, such outcome warrants consideration. Given the myriad divergences that have been present over the past 6 months, one would be justified to expect a break-down. However, given that all the surprises during the same period of time, have been on the upside, one would also be justified to expect a break-out. In all the years that we have been students of the markets, we have never witnessed such a bifurcated action lasting for as many months, as this one has. However, such bifurcation and disconnect  aren't   necessarily  bearish. This type of action,  means that the markets lack depth, and they are ill prepared to deal with the unexpected. As long as nothing "unexpected" happens, the markets can maintain their bullish bias.  In our view, oil prices, the dollar, and interest rates, if they continue on the same path, they can provide a lethal combination of the "unexpected" for equity investors, but that moment hasn't come yet. The bottom line is, investors/traders will be better served by being open minded, and plan for both a bullish, and a bearish outcome. In our view,  options - straddles/strangles- can be a useful tool in devising a strategy that allows to take advantage of a break, regardless of its direction. Notice that a break out of this wedge, has the potential to be a 100 point move in the SP! 

For tomorrow's trading  -once again- focus on the support and resistance levels listed on the table below. Both the SP, and the Dow finished very close to resistance, if they can overcome it, then we should expect the first upside targets to be met. It should be a sign of caution, if the indices trade below today's lows.

 (12-16-03)The indices traded in a very narrow range in a manner  indicative of "coiling"  but with an upside bias, which can be attributed to options expiration this coming Friday. In our view, the indices -at least as far as the Dow and the SP are concerned- are building energy in order to break out of the  wedge formation that has defined  the price action since March. It is true that wedge formations break to the downside 2 out of every  3 times, however,  one out of three, they break out to the upside, and thus, such outcome warrants consideration. Given the myriad divergences that have been present over the past 6 months, one would be justified to expect a break-down. However, given that all the surprises during the same period of time, have been on the upside, one would also be justified to expect a break-out. In all the years that we have been students of the markets, we have never witnessed such a bifurcated action lasting for as many months, as this one has. However, such bifurcation and disconnect  aren't   necessarily  bearish. This type of action,  means that the markets lack depth, and they are ill prepared to deal with the unexpected. As long as nothing "unexpected" happens, the markets can maintain their bullish bias.  In our view, oil prices, the dollar, and interest rates, if they continue on the same path, they can provide a lethal combination of the "unexpected" for equity investors, but that moment hasn't come yet. The bottom line is, investors/traders will be better served by being open minded, and plan for both a bullish, and a bearish outcome. In our view,  options - straddles/strangles- can be a useful tool in devising a strategy that allows to take advantage of a break, regardless of its direction. Notice that a break out of this wedge, has the potential to be a 100 point move in the SP! 

For tomorrow's trading  -once again- focus on the support and resistance levels listed on the table below. Both the SP, and the Dow finished very close to resistance, if they can overcome it, then we should expect the first upside targets to be met. It should be a sign of caution, if the indices trade below today's lows. 

(12-16-03)  Today we got a reversal to the upside, but only in the case of the Dow, it was robust enough to inspire confidence. In the case of the SP it was modest, and in the case of NASDAQ, it was outright weak. Never-the-less,  Friday, is options' expiration, and the bias is on the upside, thus, further upside progress is in the cards. However, given today's modest overall performance, and given that the indices rallied right into the retracement zone we mentioned yesterday,  caution is warranted until -at least- they get above resistance. We continue to believe that the real focus should be on oil prices, the dollar, and interest rates. 

(12-15-03)  The indices gapped up at the opening, but they were unable to sustain their gains, ending with an "outside key reversal day."  More importantly -in our view- oil advanced, the US dollar lost more ground, and yields ticked up a bit. Obviously, none of these three and rather sophisticated markets thought that the capture of Saddam Hussein changed the overall equation. This is important more so on the intermediate and long-term, rather than on the short term. In any case, although today's action did  have  a bearish connotation, the key thing is continuation, keep in mind that Friday is options expiration, and since the "infrastructure of fraud" is  still intact on Wall Street, it leaves quite a bit of room for manipulation by large institutional traders, which can result in yet another "upside key reversal day" going into options expiration! If there is going to be continuation to the downside -following an outside key reversal day-  three out of four times, the next day we get a 50% retracement, before prices turn back down again. Therefore, if we get a rally in the morning that takes the Dow to 10080-10090, the SP to 1074-1076, and NASDAQ to 1945-1955, and then the indices turn down, it would mean that there is a 75% probability the decline will last more than just one more day. On the other hand, if the indices decline right at the opening, then pay attention to support, if it holds, we'll end up with another reversal day, and a rally into options expiration.

(12-11-03)  Yesterday we concentrated on the oversold readings fro several NASDAQ indicators, because we believe that should have been the primary focus. However, today we need to shift our focus to the SP, and the NYSE. We got two important developments:

a) Notice that the NYSE Oscillator is at the zero line, while the NYSE is making a new recovery high. If the NYSE Oscillator  doesn't get above zero, it would suggest a rally failure.

b)  Notice that the move so far, is identical to the previous one, and today we are at the point where the previous stalled.

In summary, we got the bounce, but now the indices are at a make-it, or, break-it point, because if today's rally was to fail, it would fail between current levels and 1% higher.

(12-10-03)  The action today didn't provide a resolution to the impasse, however, buyers'  emergence near the close, along with the oversold condition reached by several indicators such as the McClellan Oscillator, suggests that the odds are better than even for a rally tomorrow, or, the day after. The real question is whether any  rally that originates from this oversold condition, can actually develop into a break-out move that will take the indices to the first upside targets. 

 (12-8-03) In the weekly report, we  mentioned that  the current market configuration,  suggests that the odds for  a continuation on the upside, are almost equal to the odds for termination of the overall rally (please see weekly report for 12-5-03)  Thus, investors/traders should be prepared for either outcome. Today's price action fits the bill perfect. Notice that we had a similar pattern in the SI25 in two previous occasions, look at the similarities between  the present pattern, and the pattern at points A, and B. The pattern at point A, turned out to be a continuation, while the pattern at point B, turned out to be a short term top. The point is, it can go either way.  

 In fact, given the price action, the following 4 charts, show the 4 most common patterns that develop out of such price action.

Notice, that penetration of either  the lows, or, the highs, of the tight trading range, usually provides a reliable clue, with regards to the final resolution. Consequently, over the next 1-2 days, we got to pay attention to the highs and lows of the SP during the previous 4 trading days.  A  close above resistance, would suggest  a break-out in place, while a close below support, would suggest a break-down. We believe that the odds are almost even for  both outcomes, thus, we remain neutral, and we have no bias at this point. 

(12-4-03) Today's price action changes the picture -once again- at least for a day. Normally, the action up to today has resulted in pullbacks in  excess of 2.5% 80% of the time over the past 20 years. However, 20%  of the time, the same type of action has turned out to be a high end consolidation, something that happened with the current market  in late August (see circled data points below)  So, at this point we could be looking at either a top (which means today's snap-back was the "failed rally" we talked about yesterday) that will result in a pullback of at least 2%, or, a high end consolidation that will result in a continuation move, pushing the SP to 1080-1100, and NASDAQ to 2090-2160.  Tomorrow's employment should  provide the catalyst for the resolution.

(12-3-03) The indices rallied early, as the chart structure was suggesting, but they couldn't hold on to their gains, as the dollar lost more ground. Today's reversal near resistance could very well be the beginning of the pullback that we talked about on Monday, and we also mentioned in the monthly report on Sunday. For now we need to concentrate on the 60 minute charts for two reasons:

1. Notice the pattern that has prevailed for the previous 12 weeks. The indices penetrate the 50 hour moving average, snap back, and then turn back down again. If the character of the market is still intact, we should see a similar pattern (notice price behavior at point 1, 2, and 3) If we don't get a snap back and the indices go straight down and take out the most recent lows, then that should be the first reliable clue/indication that the overall character of the market has changed, and the bears have gained the upper hand -at least for the time being.

2. If we do get a snap back in the SP around the 1060 level, then we want to watch out for a failed rally (notice price behavior at point 1, 2, and 3) to go once again, fully short.

(12-2-03) The indices pulled back from resistance,  while the BSEs and TOs flattened out, which means we should indeed see another pullback within the 2-3 couple of days, although tomorrow could very well be an up day, given the current chart structure. The $US dollar index broke support, and although up to now the stock market has not cared about it, it may be difficult for market participants to continue ignoring it, if it cascades towards the 80 level.

(12-1-03) The indices rallied strongly and finished the day near upper channel resistance. At the same time, all indicators are in positive territory, suggesting there is more room to the upside. How much more room? In our monthly report we mentioned roughly 2% from Friday's levels, that places the SP between 1075 and 1080. If that level is exceeded, then we'll have to re-evaluate from there.