Summary for Week Ending 18th January 2003

A week of consecutive gloomy market reports and the ongoing threat of war in Iraq saw the markets respond accordingly and after Mondays high, all three markets slowly slid down, Friday saw the markets slip below the first line of defense of Jan 9 low and both the S&P and NASDAQ closed below this point. The DOW was less effected and although trading below this point during the day, it did manage to close marginally above this level.

Looking at all three charts, we can see that the High on Monday has produced a higher swing High and the low on Friday will produce a Lower swing Low when we get an up day. At this point it is unknown when this will occur. If we look at both the S&P and the DJIA weekly charts, it is obvious that we have 3 lower highs in place and does provide some evidence that the market is in a weak position. When looking at action for the past three months I know this appears to be an obvious statement, but we were expecting that the Dec high to be taken out. As I have been saying for a while now, the markets have been in a difficult mood and have been disinclined to trend in either direction.

Last week I was looking for action that may provide a hint to the COT that was expected on Wed to Fri. Looking back, Fri has produced some evidence towards this date, however if it is indeed a valid COT then I would expect that Mondays high to be taken within three days. The evidence running against this scenario is the fact that there is a new swing low in place and as such indicates the weak position of the market.

Since we have acknowledged that under current circumstances the market is truly capable of anything then we can also look at the opposite scenario and look at possible downside indicators. From a time perspective, The decline from 2nd Dec to the 30th Dec took 28 days (DJIA). The run up from the 30th Dec to 13th Jan took 14 days or 50% in time. This is a valid, although a notoriously unreliable indicator. Looking at the chart it appears that it has come in this time around, so all that is in question, is How valid is this signal. A 1-3 day rally in the coming week, that does not take out the (the Jan high will see a lower swing high in place and would produce one of Gann,s favorite signals to go short If this comes to pass then it would be expected that Fridays low to be taken out swiftly and the 30th Dec low to provide the obvious point of technical support. This may also provide the first signal that the market is breaking out of its current malaise.

On this upside the risk of entry is high due to the lower sing low. On the Downside, the risk is lower due to more favorable technical indicators. Again I will be looking for a valid entry point to take some options, although I am mindful that the market has produced a series of false signals in the recent past.

DJIA See Chart

S&P 500 See Chart

NASDAQ See Chart