Summary for Week Ending 10th May 2003

Whilst not wishing to appear like a broken record, it was yet again, much of the same as last week, and the week before that etc etc...the march forward continued this week. When looking for news to hand or even perhaps news that is pending, there is very little evident that may provide any kind of mind altering impetus to change the current mood of the markets.

Looking at the action this week, we saw rises early in the week with a mild volume push on the Tuesday high with an apparent slide sideways on diminishing volume. Of only minor interest was the approach to the Jan 13th high which provided the first of the upcoming obvious points of resistance however it is the Dec 2002 high and the August 2002 highs that are of greater significance when looking at the obvious .

For the newcomer, obvious resistance is an area that plainly even the most basic analyst can see that tested the markets, This is almost always previous highs. When being bearish, this then becomes support and previous lows.

Looking towards the week ahead, I would assume that we will continue and that the December 2002 high will be the next target on the upside. SInce we have little else to entertain us this week, I though I might once again highlight a common problem that arises when doing Gann (or even Elliot) style analysis, and this is 'Form Fitting' the market.

What I mean by this is than when you use some or all the tools that are available , you sometimes 'SEE' things in the future that appear to work out perfectly, although the markets may have something else in mind. As an example, this weeks S&P 500 chart is a lightweight example of such form fitting. On the chart is a parallel channel (red) from the two legs of the recent lows an extended off the December High. On its own, this is valid and may well come into play in the future. The second point of interest is the descending Trend line (blue) from the May 2001 and the March 2002 highs. This is extended forward to cross the upper parallel line. As can be seen, we get a crossover around the 13th/14th May. Lastly we apply a Square of 144 to the October 2002 low. We can now see that the Square ( 1.5 times forward ) also meets at the crossover !! At first glance this looks just too good to be true. When I see these setups, I always keep a note of them in a rough diary, but I never use them to form a solid market perspective. Should however the market unfold exactly like this next week, then I will be a genius !!! :-)... but I'd rather bet against it.

This leads me to the next issue regarding this market fitting. There are are no shortage of promoters out there in Internet land charging a small fortune, who can show you hundreds of examples of where these beautifully crafted setups worked perfectly, and there is at least one promoter here in Australia who is famous for it. Hindsight is 20/20 and I too can do it.. but there is no money to be made from predicting the past.

The rule of thumb should be, if you can make one construction to a future point in time, then you should be able to make at least another one that may arrive at a different price or a slightly different time. The point here is that there is no such thing as pre-destination in the markets but there can be a number of likely paths that the markets may take. Choosing the right path in advance and sticking to it, and having it work out is pure luck as far as I am concerned, and has more to do with vaudeville than with a solid repeatable approach to effective market analysis. The word here is 'repeatable'

Time to get off the soapbox. Have a successful week .