Summary for Week Ending 4th January 2003

The Year has begun in defiance of the previous years closing by staging an impressive rally over the closing part of the week.One can only hope that the uninspired trading that was typical in December is behind us and that we can at long last see the markets 'trending' without generating too many false technical signals.

Looking back over the past few weeks, it is patently obvious that the market was intent of doing as little as possible whilst approaching the end of the calendar year. The unknown impact of global political events such as the Iraq issue probably did not help these matters and although they are yet to be resolved, perhaps the markets have finally absorbed these issues.

From a technical perspective, both the DJIA and the S&P found price support at the 29th Oct low. As I have been saying previously, the initial downwards push was technically a very strong indicator, yet the markets were not playing along. As price is never wrong, we could only assume that we were getting a false signal as to the strength of the move, and this was evidenced with the pathetic way that the markets drew towards the Dec low. This point is also marginally above the 50% retracement mark for both markets, The low came in the last day of the year (31st Dec) and again, this day displayed more resilience that any attempt to push down hard. Technically, the 1st Jan marked 30 solar degrees from the 2nd Dec high. This in itself is not particularly strong time signal, however the 30,45 and 60 degree time zones are always worth paying attention to.

Looking ahead for the S&P and the DJIA, we can see that the 2 day rally has been sufficient to absorb a majority of the recent declines and has hit up against the 26th Nov low, where it could be expected to encounter some technical resistance. If we assume that the decline is over and we are now in the midst of the 'January Effect', then we can perhaps expect the rally to continue. A higher swing low would offer an excellent entry point, and should we receive one, then I would expect the December high to be taken out fairly swiftly. A continuation of the rally without a break would have me as a spectator as I will not trade without a technical entry point ( ie a swing based entry ). Looking at the opposite side, if this rally is simply a counter trend, then I would expect that the recent rally to be taken out to new lows within 3 days. At present I favor the rally concept as it has both technical and cyclic factors supporting it. Quickly looking at the NASDAQ, it is in a similar technical position, however it is not as clear cut as the other two markets. There is as yet no higher swing high and as such remains suspect. Should it fold into the pattern as expressed above, then it too becomes a contender for some short term calls.

DJIA See Chart

S&P 500 See Chart

NASDAQ See Chart

p.s. Happy New Year to all (and lets hope it is also profitable)