Summary for Week Ending 24th May 2003

At last we have seen the markets behave in a way that commands some attention. After weeks of the same slow, grudgingly march upwards, we saw that the often acknowledged levels of resistance have made an impact to this movement. Since the March low the upwards movement has been characterised by short spurts forward followed by short spurts backwards, although consistently maintaining the north-easterly direction .

Looking at the week that was, we started with a sudden slump on Monday which gave us the largest pullback we have seen since March 31. This was followed up on Tuesdays with some more bottom fishing but generally a thin range day and again on Wednesday yet some more bottom fishing but certainly nothing that followed up on the Monday run down. Thursday saw a little movement forward but was unconvincing and Friday again saw a little movement forward but again that was unconvincing.

Last week I said I was looking for more of the same. Mondays slump certainly changed that as the markets suddenly became interesting again.Up until this point both the DJIA and the S&P have been following a standard technical pattern of a couple of days up followed by 1-2 day retracements where the lows have been holding above the previous lows. I mentioned a couple of weeks ago that the market was giving the appearance of compressing, whereby the Gains and the retracements become shorter in range. This kind of action generally builds energy in the system which when expended can go either way i.e. a wide range sudden burst upwards or downwards. Once this energy is expended we generally know that we are seeing the opportunity for a change in trend as the character has altered significantly. Looking at the S&P since march the retracements have been 42, 22, 21, 20 and 12 points. This weeks run was 37 points which is close to the previous max of 42 ( although I would have been happier if it was bigger )and has broken through 2 previous swing lows. The retracement back off this run down has so far stopped near the 61.8% mark so we'll have to waot to see if this holds..

The question of course is "Where to from here ?"

Again we come to the question of setting scenarios. Looking at the evidence we have had a break to the downside which may be the initial break down or may be the pre-emptive signal that the market has begun to fracture. Looking from a time perspective we were looking at the 27-28th as a likely COT date and this is coming up on us very quickly. Should the market run into this date then it would show a high probability of coming off however the market is always correct and price/pattern is what should be followed in the first instance. If we are seeing the break then the 16th May high should have been taken out by Fridays close ( 2 days up - see the previous run up for days to post new highs ). Obviously this has not happened and after 3 days down and 2 days up we are still not near the previous high. This fact should be watched closely. If the market wanders below this level for too long then this would indicate a sign of weakness and I'll be tempted to take some puts. At present the trend is up ( although very weak) and I will not be bucking this until I see further signals that the trend does indeed look like its reversing. Should we see another break, look for outside influences that may accelerate this proposition.