Summary for Week Ending 14th June 2003

A bit more turbulence this week, where both the S&P and the DJIA managed to close the week a short distance from where they opened the week. We didn't see anything that could be considered shocking or stunning and at a glance it appears that we have seen a much overdue correction.

Looking at the week that was, we were expecting some sort of reaction against the previous Fridays COT topping movement. The market duly complied and we saw a sharpish fall on Monday. Following on from this a solid decline on Tuesday could have been expected but instead we got an inside day, which consolidated the Monday slump. Wednesday saw a good up day which was again followed by a small up day on Thursday. The important thing to watch here is the time that it takes to recover from the Monday slump off the previous Fridays high. By Thursday the S&P had yet to recover the distance and the DJIA had just marginally broke above it although had not closed above this point. Friday saw a slight decline. In comparison to last Fridays volume, this week activity was at best, light.

Following on from the above we now have a lower swing high in the S&P. Taking a bearish perspective, we can also look at the new swing high in the DJIA as a false break. Herein lies the problem when looking a two or more markets simultaneously. When they are slightly out of step you get conflicting messages. To rationalise the above I again return to the depth of corrections in the S&P. The 'target' decline is 42 points. We have now had a 37 point decline and this week a 35 point decline, so we can see that the indicators are bullish not bearish. Also looking at the swings themselves we can see that with the swing low in the S&P is well above the previous swing high which is adding to the bullish perspective. Hence we have two clear cut positions that are directly in opposition, which is why I look for confirmation as this allows for more time to isolate any toxic noise that may be clouding the picture.

This week, I would expect that this confluence will resolve itself in either direction. The current rate of accumulation in the S&P is too steep to be maintained for an indefinite period, so a consolidation is on the cards. The 6th June COT is still holding in the S&P but the reaction so far is less than optimal. A move to a high above the Thursday high should see a resumption of the upside. The DJIA appears to have reacted off the 90 solar degree highlighted last week, but again the reaction so far does not inspire confidence for a biggish downside move. Lets see what happens next week.