Summary for Week Ending 5th June 2004

In a week shortened by the Monday holiday, activity has been choppy and the corrective/consolidation behavior I was expecting has come in. Although the market made it to a new high on Wednesday and again on Friday we would have required some follow through on Thursday to catch my attention and the pattern or shape of the market is still fairly weak. Volume has settled down again to what could be described as average levels so participation is normalised as well. There are plenty of external influences on the markets at present, but from my perspective, the one that has the opportunity to make the biggest impact is the price of oil, as this eventually translates across the entire economy. he basic economic theory goes as follows : If prices remain high ie around the 35-40 USD a barrel hen this will see a rise in higher manufacturing and transportation expenses and thus increases at the retail end, so the effect is end-point inflationary which puts pressure on company profits which in turn affects the underlying stock price.

Looking closer at the week as it unfolded, we had a very quiet day the previous Friday which saw the market open on Tuesday with a little nervousness which could have been put down to oil jitters and terrorist attacks, but by the end of the day, this nervous behavior had been shrugged off and things started to look positive. Last week I mentioned that we were looking at corrective behavior this week as the market had gone a long way forward without a breather so it was due. Wednesday Thursday and Friday we saw the market just dance around almost in tune with positive and negative international events. Taking a look at the DJIA chart this week, we can see that we have hit the 50% retracement level, and can expect some resistance at this point, so this may translate over to the S&P 500 and we may see further corrective behavior.

Looking ahead, we can see the S&P is correcting but is still angling upwards, so this consolidation may explode briefly to the upside. This is of course tempered by the Oil situation, but any weakness in this commodity would translate to a healthier economic outlook for the rest of us.

Charts

S&P 500 See Chart

DJIA See Chart