Summary for Week Ending 9th January 2004

Welcome to the 2004 market outlook reports. In the past three weeks, we have witnessed the most impressive 'santa' rally and 'January effect' rally that we have seen in some years. As of writing the market has risen every week for the past 7 weeks (something we will get to shortly) and anyone who as long has made good money. Volume appears to have returned to normal levels after the usual drop off of the xmas period, so we can look forward to a level playing field from here on in.

Looking at the past three weeks, what is most notable is the lack of a sizable correction. In the S&P 500 we had our first red bar (down day) since the 10th Dec low. The last decent correction that we have seen was the Nov 21 low, and since then the market has simply gone from strength to strength. Taking a Gann look at things, we are now 7 weeks into this rally, a time frame considered important from Gann's perspective as a time frame that could be seem to end a run. Since we have not seen any correction, we also know that the market cannot go on for ever like this for ever, so this run which has lasted 48 days should be watched with care.

Last year I mentioned that we were coming up to a 50% in time/50% retracement in the S&P 500. This is still on the cards as well, although it does collide with the previously mentioned 7 week zone. If we do get a final run up this coming week then there are levels which should be considered. The 50% retracement level of 1160 is first on the list followed by the 1153 level which is the 50% price square off the October 2002 low. Below that is the 1140 level which is the 100% range square from the Oct 2002 low to the Dec 2002 high.

Looking at the DJIA, the recent strong rally has carried the market into the range of the 2002 highs, and as such can be expected to offer some resistance. Again, this is in line with a 7 week final run, so we may have already seen the highs. Looking at some of the principal stocks there are some that have rallied out of site and others that are showing signs of rolling over. Again with this king of analysis the only verification that is possible is simply waiting it out and waiting for the market to signal its intentions. A constant reminder is always that when looking at time, we are simply looking at possibilities, the same way that we treat support and resistance levels as possibilities. Looking at the swing patterns in individual stocks I am still getting bullish patterns so I am not looking at the short side just yet.

In summary, this past week has signaled a possible Gann 'death number' of 7 weeks an the coming week is giving up a possible price time square in the S&P 500 (50% price/time).

Charts


S&P 500 See Chart

DJIA See Chart