Summary for Week Ending 8th February 2003

Another week of high level news items that for some reason failed to spark any real interest in either side of the market. The UN speech, the Presidential address and the terrorist warning late in the week all failed to galvanize any real reactions and as such, this indifference was reflected as a slow burn throughout the week.

Looking at the week in review... Monday provided the countertrend reaction I was expecting which gave an excellent opportunity to add to the short position. If the market was going to go up from this point and confirm the Fri COT possibility, then the movement on Monday would have been more explosive, instead there was a pathetic attempt at strength which was at a high probability point that it was unlikely to be followed up with another Up day. Tuesday fulfilled expectations and was down sharply early on but did manage a rally later in the day which was followed on Wednesday with some more strength early on but failed to take out the Monday swing high and this eventually gave way to more downward pressure. Thursday was essentially sideways for the day but still managed to finish down on the day and Friday saw a minor rally early but this was short lived and the market essentially melted for the rest of the session. There was a distinct absence of sharp moves this week, in comparison with the experience of 2 weeks ago, and looking at the volume figures, there is no apparent sign as yet that the longs have given up just yet.

Looking at both the DJIA and the S&P charts we can see that Fridays Low is within the 50% Range square. This in itself is only significant if it does indeed create a sustained bounce point, however the current volume figures do nor support a trend terminating event. The Swing high on Monday failed to penetrate the region of the late Dec lows. This in itself is a solid bearish indicator that can usually be relied upon to provide some acceleration to the movement, however we have already had a high speed decline from the Jan 13 high and following from the Elliot rule of 'Alternation', if one wave is simple then the next will be complex. The decline from Jan 13 to 31 Jan can be considered simple, so it would follow that should the current decline continue then it will be more complex in nature. This is best expressed that there will be numerous countertrend rallies in the decline, which is in turn characterized by investors fighting the trend.

The Following is a scenario that fits the current situation.
Looking at the DJIA we had the congestive period from November to December. We can make the assumption that most investors would have missed the first 3-4 days of the rally off the Oct Low. This would mean that investors coming in with new buying would have got set mostly during Nov and Dec and at present both the S&P and the DJIA are trading below this level, so it would follow that the investor positions are also underwater and volume is saying that they are hanging on. What we are looking for is a signal that they can no longer take the pain and begin to jump ship. This will show up in the Volume figures.

Looking ahead for the coming week, I am expecting more turbulence. The International situation with Iraq appears to be heading for a logical conclusion, but then we have Nth Korea entering the fray from left field and seriously disturbing the mix. The Long term trend line on the DJIA from the Nov 94 Low shows a crossover around the 15th Mar and for the S&P around the 28th Feb. Strangely enough this is around the date that is being speculated for when the bombs start dropping.

As I mentioned last week, until the uncertainty of a war with Iraq is settled, and the Korean problem is addressed, turbulence will be reflected in the markets and as such, trading windows should be kept very narrow. My current short position ( DJX March Puts) is on a very short leash.

DJIA See Chart

S&P 500 See Chart

NASDAQ See Chart