Summary for Week Ending 15th May 2004

A far more interesting week this week with the market starting with a slide and then really getting on with it. In last weeks chart I highlighted a number of possible range equality points of support as well as some basic range retracement levels. The most interesting was the 40 point range equality level which placed the market at or near the previous low of 24 March. Of notice here, the market blasted through this level of support like a hot knife thru butter which led us to the next level of support, the major range of 76 points which took us to the 1075-6 area as a possible point of support. The market hit this range on Wednesday and then dutifully bounced to finish the day higher. If this is to be a bottom for the range, then I would be looking for specific markers. The obvious being Volume and a spike in activity would be a strong signal that there has been capitulation by the longs. Interestingly the Volume on Wednesday was about the same as Monday, but not to a level that I would call as extraordinary (this is a personal assessment, there are no real metrics in this approach) Another marker would be a strong upwards movement on the Thursday and also perhaps Friday, as this would increase the probability that the low was indeed in. In reality, this is NOT what we got. After the strong recovery on Wednesday afternoon, the market essentially went to sleep on Thursday and started down again on Friday.

Looking at the S&P chart chart we can see that we have experienced a fairly savage decline so far. If we look at the rallies against the trend in the past 2 weeks they have been few and generally weak. The point of resistance to the upside should be the 1107 level of the April low. If the rally against the Wednesday low fails to reach this level, and quickly, then we will have an air gap in the swings which technically should point to a down and down strongly. The Psychology behind this is simple, in that if the rally fails to pass beyond the previous level of support, then the path of least resistance is in the direction of the trend, that is , Down. and as well all know, when the market is heading south, logic flies out the window, and the worse it becomes, the greater the degree of panic, which further exacerbates the drive. Greed may be good to the Upside, but panic in financial markets is certainly a spectator sport.

So where to for the coming week? As I mentioned above, I would be looking to see if the market rally beyond 3days AND make it back to beyond the 1107 level, thus tightening the swing pattern. Any failure to do so, would be strong signal that the bulls have certainly left the arena and are sweating on the sidelines looking for a strong recovery. At some point, they will have to throw in their hands and take the beating and this would be evidenced in a Spike type capitulation drive to the downside, with the accompanying volume as a primary marker. If the market continues to vacillate at the current levels I would not view this as bullish unless the market managed to put in a strong retest of the Wednesday low and recovered strongly.

As like last week..the coming week should be interesting

Charts

S&P 500 See Chart