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Summary for Week Ending 24th April 2004
In what has been a very volatile week, we have seen a day which produced a severe slide to the downside as well as an impressive recovery day whereby the market has finished the week virtually unchanged. Last week I was looking at the timings of the previous swings as well as speculating upon the various possibilities of counter trend rallies. The assumption was that the 7 day correction was enough, but this was fazed by the activity on Monday where the S&P failed to do anything but simply travel within the range of the previous Friday.
If the market is to head upwards this is not the kind of behavior you expect to see to start the week off. By Tuesday, the market had decided to attempt to go forwards, but this failed about midday and we saw a savage decline into the close, deep enough to take us to new lows. For my mind, this appeared a little over-done and this was confirmed on Wednesday were there was an opportunity to continue with it, but on the open it was briefly lower only to begin the inexorable rise, giving us a weak technical change of trend signal. There was also plenty of volume around, so we might have been seeing a short term regime shift. On Thursday, the buyers were back with a vengeance and all of the declines were swallowed in a day, giving the appearance that Wednesday was a false break to the downside. Friday offered an opportunity to prove this with a higher swing high, but unfortunately the market decided to do nothing but simply rest a little.
Looking at the above a little closer, we have a possibility of a false break on Wednesday, leading to the possibility that we may now have a final rally to get us out of the doldrums. Also, the beginning of a trend may also lessen the amount of high bandwidth churning volatility that we are seeing, which must also be taking its toll on index future traders. Again this week I am assuming a run to the upside, although time is certainly running out. The longer this compression continues, the more forceful should the upwards response be, should it arrive. Again I still favor the idea of a short breakout to the upside, forming a false break, prior to an extended period of bearishness. This follows with what I wrote last week regarding how the rally initially began back in Oct 2002.
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