Summary for Week Ending 30th January 2004

This past week we have finally seen some intent on the downside. The market poked its head just above the 50% Price Range square level before falling away very swiftly. Last week I mentioned that we would be looking for an external shock to perhaps knock the market out of its current mood. This came from the direction of the FED and its wishy washy statement regarding interest rates. Considering where they currently lie, even a movement on 1% would still have rates at historically low levels, but it is the the subliminal message of that being that the opinion may have now changed from a down/neutral position to a position of raising rates.In the long term this would have some impact, but it was enough to send the S&P off a cliff during the day on Wednesday.

Last week I said that the first retracement level to watch was the 32 point mark which we last saw in Nov 2003. As of Friday, we have a decline of 33 points with Fridays action being a tight inside range day. Volume has been of little or no use at all, with nothing out of the ordinary to talk about, so all concentration is on the level of the decline.

Looking at this weeks chart we can see the S&P has hit the area between the two remaining levels of resistance. Also by placing trend/support lines on the chart we can see that at this point in time there are 4 separate level of accumulation, and from a technical perspective, the 4th is supposedly the fastest and the indicator of a final run. As with most things technical, this is always apparent 'after' the event, but we can always try to apply to a chart.

The DJIA is not as dramatic, but it does display a hard hit against an obvious point of resistance, that being, the 2002 highs. It is close to a Price Square division, but this is of little relevance at this point in time.

Looking at the coming week, I will be looking for confirmation of the decline. This can appear in a number of ways, a continuance beyond the 55 point level in the S&P or a solid foundation of a lower swing high. If we get a rally back towards new highs within a 2-3 day period, then I'll be deferring the short side until the smoke clears, remembering that the danger is always a false break to the upside. This is of course the bus that hits all of us occasionally, not matter how hard we look for it and try to avoid it. This is where picking Tops and Bottoms proves to be an exercise at its maddening worst.

Charts
DJIA See Chart

S&P 500 See Chart