Summary for Week Ending 31st May 2003

Another interesting week in the markets with the push upwards on Tuesday day just as spectacular as the slide the previous week, As with the previous week, once the movement was in, the rest of the week was spent consolidating the movement and there was little else to talk about.

Looking at the week that was, we started with a terrific rally on Tuesday following from the Monday holiday. Action following this was fairly weak and ineffectual and could be considered as the slower punters jumping on after hearing the news, and the more astute offloading partially to claim some small profits. In reality it is impossible to really know, however it can be seen as conventional wisdom as this is one of the drivers below consolidations. From a time perspective I was looking at the 27/28th as a possible COT date and the run forwards certainly appeared to be setting up for it. Thursday spat out a small outside reversal on good volume and Friday was the chance to provide some sort of confirmation. A move sharply lower would have been good, but any new high would have cancelled everything. As it happened, Friday saw a Jump early to a new high, thus trashing the COT expectation,and it spent the rest of the day in the doldrums. Also it should be pointed out , on good volume.

If we take the slump the previous week into account, an assumption can be made that what we saw was an initial fracture in the current pattern and we are closer to the end than the beginning of the current trend. Balancing against this is the current swing upwards which is currently at 54 points which exceed the previous upswings by a good margin and the volume has also been supportive of this direction. From a technical perspective we are also right on the resistance levels that have been on the radar for some time. These are certainly obvious levels and for my mind, always suspect when they are this obvious as they represent a juicy place for larger players to trigger off all the stops just sitting above them, thus generating what could well form a false breakout. As an aside about false breakouts, there are far more of them in recent years that one would get say 10-15 years ago. I would attribute this to more technical player in the market who follow what is considered the accepted wisdom of buying ( selling ) on a breakout When looking at it from this perspective, the psychology of the false breakout becomes easily apparent.


This week I again only have the S&P 500 chart as this is the one where the activity is most apparent. I have highlighted the obvious parallel channels and also marked off the largest swing upwards of 61 points. the current swing upwards is 54 points and when we add 61 points to the May 20 low we get to the 50% retracement level (~973 points). On its own this can be considered as a point for strong resistance and its also above the previous highs and so fits in well with the false breakout theory ( theories are just that ...theories !!). We have in the past when the market react off the 144 day square so I have placed this back on the chart (pink) which indicates June 6th as the next point of the revolution. As always time and price will tell.