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Summary for Week Ending 15th November 2002
Although I didn't issue a market report last week, it appears that it
didn't matter anyway. There was a burst forward on Monday the 4th Nov
but this appears to have been all that the market had in it. After congesting
briefly at the high, it started to falter and led into this week with
a series of declines. More about this later. There was an attempt at a
rally this week with Thursday and Friday showing some strength to hold
on although even this could at best be described as strained.
The original expectation ( see
report ) for the current rally has been the Aug 22 highs and
a Time target of Nov 4-8. Price is nowhere to be seen, however we did
get the COT on an average of the 2 dates.Looking at the market action
( DJI & S&P 500) as a whole over the past 3 weeks, we have seen
a brief rally out of the consolidation period, only to see this consolidate
barely above the previous high, and then a sustained decline back into
the previous area of congestion. Essentially the minor rally formed a
false break on the upside which was well below the targeted Aug 22 highs.
The points to note this week is the depth of the decline, which is larger
then the previous decline since the rally began on Oct 10th. This is the
first sign of weakness. The decline covered 5 trading days which is the
longest sustained drop since the rally began, and hasn't been seen since
the trend was definitely down. This is a second sign of weakness. Looking
at the market now, the Aug Highs are no longer looking like a valid target.
The recovery which started on Thursday would have been convincing if it
had pushed further and harder, as I would expect a rally from such a decline
in a bullish market to be far more enthusiastic. With 2 days up, and still
not close to the Nov 6 high, a down day at this point will generate a
lower swing top, which could be enough of a signal to change the bullish
expectations into very strong bearish possibilities.
Briefly looking at the NASDAQ, unlike the other 2 markets, the Aug highs
were touched 2 weeks ago, and the market duly peeled back from this point
for 3 days. There has been a 4 day rally back this week, but of note of
course is that in 4 days it has yet to breach what only took 3 days to
create. Again this is a weak signal and this should be watched carefully
this week for the possibility of a lower swing high formation.
Looking at the coming week, the markets will need to proceed with some
enthusiasm to break out of the current malaise. Any sign of weakness should
be taken as just that... a sign of weakness and perhaps the possibilities
of Put options in the indices may appear profitable. I am working from
the assumption that the current rally is now over and that a lower swing
high will give me the required signal to taking a short position ( DJX
Puts ). Behavior on Monday will probably set the tone for the coming week.
If we get a strong start on Monday I would expect confirmation of this
on Tuesday, to keep me convinced that there is still life in the old bull
yet. A weak or even down day on Monday, gives me my signal to look at
the short side with a stop loss at Fridays high ( if not taken out, else
wise, Mondays high if up weakly).
Charts
DJIA The Chart this week deals primarily with the above
analysis. As can be seen, the Rally from Oct 10 has been very close to
wave equality to the rally up to Aug 22, as well as almost cleanly contained
within the declining parallel channel. Looking at the recent declines
we can see that the first was a decline for 361 points with last weeks
running for 501 points. There is a possibility of an Elliot style 'running
correction' to the upside but with these, you would not expect the second
leg to be longer than the first, but it is still on the table as a possibility.
S&P500 The Chart this week is similar in tone to
the DJIA, although the rally from the Oct 10 low is noticeably of lesser
extent that was found with the DOW, so can be considered to be lagging.
Again there is the possibility of a running correction, but like the Dow,
this is usually in the same company as a very strong move. This is something
we do not have at present.
NASDAQ The chart this week highlights the rally top the
Aug highs which we originally considered to be the primary point to stop
the rally. Should this indeed be the high point then a close look at the
chart gives us a lower double top, generally a very bearish pattern.
Just a quick note about the discussion in the last report. As time
and markets have borne out, just because you can make differing tools
converge to the same point in price and time, it means nothing unless
the market does what you predict. Hence (after great expense!), I have
found it best to let the market tell you what its doing, don't try and
tell it what to do. Its a losing proposition....
DJIA See
Chart
S&P 500 See
Chart
NASDAQ See
Chart
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