Summary for Week Ending 25th January 2003

A shortened but spectacular week this week in the markets where it appears that the very real possibility of war with Iraq has finally descended upon the markets. Television reports have been filled with the build up of troop movements including the British contingent and this week saw the first of our own deployment ( Australian) to the cause. A decision on market direction may have been reached. Down ! The approach of the Jan 27 deadline for the report to the UN may be a precipitating factor, however it should be noted that there is nothing new or surprising in the news reports, its just that it all seems very, very close right now.

Last week I wrote that I was expecting a couple of UP days this week which provide an opportunity to take a Short position via some Put options. Unfortunately and most surprisingly both the S&P and the DJIA didn't slow down enough to provide a swing entry point, although the S&P did put up an outside day on Thursday, however I didn't consider this enough of an upward expression to take a short position. The Nasdaq behaved a little differently and did give a 1 day counter trend rally which was quickly swamped on Friday. More about this later..

Looking at both the DJIA and the S&P this week there is really not too much to speak of. They both went straight down and broke through the obvious support at the 31st Dec low. An obvious question at this point is 'Can the market stage a rally off this point without breaking the 2002 lows?'. The answer is of course yes, should factors be present that would enable a rally to occur. The most obvious event is a resolution of the current events in Iraq and to a lesser extent the nuclear business happening in Nth Korea. Whilst the world feels unsafe, there will always be a flight to caution and this in turn is reflected in declining asset prices. This week chart for the DLIA is similar to the NASDAQ in that there is a clustering of price using both standard price retracements and a Price range square. Seeing that the previous decline took 28 days, then projecting this time frame forward gives us the 10th Feb. as a possible date to watch. This weeks chart for the S&P is very simple in that there is none of the price clustering so we are left with standard retracement levels as a primary indicator. I leave it to yourselves to play with the other Price discovery tools.

Looking at the NADAQ we can see that the market gapped down and this gap was not recovered by Thursday rally and as such we have a little island appearing on the chart. the next point to look at is the extent of Thursdays rally which came in below the previous swing low of Jan 8th. This gives us a secondary Gap on the downside signal, which in normal circumstances is extremely bearish. Also looking at this weeks chart we can also see the price cluster around the 1206-1207 level. This comes from a the fibonacci 76.4 level and the 61.8 % price square extension from the 2nd Dec to 31st Dec range. Extending the Speed lines from the previous decline we get a crossover around the 21st Feb., although if this market is really heading south then I would expect this level to be reached much faster than that.

Looking ahead, I am expecting some essence of strength to appear in the form of a counter trend rally extending perhaps 1-3 days. A strong push upward would be an indicator of underlying strength whereas a simple but shallow 1-2 day rally would have me in short with my ears pinned back.

It is worth noting ( as we all know) that in the markets anything is possible'. Its just that when there is a war involved in the picture, this effect is exponentially amplified and as such a very close eye must be maintained on all open positions.

DJIA See Chart

S&P 500 See Chart

NASDAQ See Chart