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Summary for Week Ending 20th March 2004
Following on from last weeks decline we had a little bit of overflow early in the week and then some consolidation, which was not unexpected. After the strength of the previous weeks decline, I'm sure that long investors would have been a little nervous as to if we would maintain the downwards rage. Wednesday and THursday, offered an opportunity for any nervous longs to exit, although it would be a fair bet that most would have taken heart on Thursdays rise to perhaps stay in a little longer and seek out a better price.
Looking at the S&P chart, we can see that the market appears to have fallen off a cliff. This is a rare pattern and if you were caught by this, then you can consider yourself hit by a bus ( its just bad luck ). We had plenty of warning that the market was running out of steam but no warning whatsoever that it was just simply giving up. From a technical perspective, looking at the action later in the week, we can see that we had an inside day on Wednesday which could have been signaling just a rest before continuing and left me on the sidelines watching. Thursday we saw an up day, an so we started the counter trend movement. There are a number of levels of resistance related to the downwards swing ( retracement levels ) but I was more concerned to how the move forwards related to the previous 2 decline levels : 29 Jan and 24 Feb. I would have expected the market to hit problems at the 29 Jan level, and if it failed to hit the 24 Feb level, then we would have an 'air gap', that is, the market does not have enough strength to make it to the last period of resistance. In this case, Friday saw the market down again, and as such provided a good place to go short as we air gapped the Feb low and the market also provided a very tight stop loss.
Looking at this weeks chart we can see the air gap and the retracement off the decline. Also we can see that the decline was 60 points, which by the way is in excess of the largest decline of the bullish phase (54 points). If we subtract 60 points from the Thursdays high (range equality), we can see that we end up close to the area of the 25% retracement level, so this can represent a marker for possible future support. Also from an Elliot perspective, the initial decline can be described as simple and following the rule of alternation, then the next wave should be complex ( or even more simple), but it should not be expected that the time frame for the decline will be similar.
Looking at the NASDAQ, we have a similar chart to last week, highlighting how the market has hit up against the lower boundary of the parallel channel. Also there is a small air gap in the downside run, which may be a portent of things to come. As it stands, both markets only managed a one day rally prior to continuing with the decline, so on this information, things are still bearish.
Please Note.. There will be no report next weekend as I will be away.
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