Rock 'n Roll
For the Trading Week Beginning September 7, 2003

Rock 'n Roll

Just in time for the busy season, the Markets have finally given use a decent breakout, particularly for the S&P500, which as many of you already know by now, has been gripped by a tight trading range for almost 14 weeks. While this period is merely a small moment in time for the market, it has been painfully long for us mortals. The breakout is a welcome relief. Back to business, as the busy season is upon us.

Let’s take a look at exactly how the recent breakout fits into the larger picture, as we now need to update at least two of our foundation charts:

• The Weekly log chart of the Nasdaq-100 above addresses all time frames

• The chart illustrates the geometric structure of Nasdaq’s decline since its grand all-time high in 2000. 

• This is a parallel channel divided by a bisect. As you can see, the lines have been useful in identifying important turning points in this market.

• At the moment, the Nasdaq is carrying enough momentum to challenge the upper boundary of the channel, where it is likely to find some resistance.

• Although the ultra short-term looks very promising, the overall action still falls within a proven declining geometric structure. I see a lot of Bullish outlook in the media and in the public lately. Sure enough this is from a lot of late comers, and sadly most of these blundering harlequins were nowhere to be found at the lows or even early on in this year’s uptrend. With due respect, there are exceptions, of course. 

• At this point however, a bullish intermediate-term outlook would be either late or premature, or both, depending. Either way, it’s just not ideal to hold on to those beliefs. All the market has done in 2003 is give us a rather sad bounce in comparison to what has happened in the grander scheme of things.

• The intermediate-term outlook would be Neutral at best, if not just plain Bearish. This is again because nothing has changed the technical structure of the grand decline.

• The weekly chart of the S&P500 above addresses all time frames. I discovered this chart a couple years ago, and it has since served as a foundation chart in my work.

• The horizontal Fibonacci Lines (red) and the Trendlines (Blue) are anchored at the major low in the Fall of 1996. The market’s relation to these lines have been very useful of the last couple of years. 

• Just like any other Technical analysis, I don’t know how long the useful life of this chart will last, but I will continue to use it so long as it reliably serves its purpose.

• The Fibonacci relationships are particularly fascinating, even before the all time high was established.

• Over the short-term the S&P500 is carrying enough momentum to challenge the lower-most Trendline, as well as the 50% Fib line overhead.

• The crossing of the 50% line and the lower blue Trendline is particularly interesting. These cross sometime in October. This is the basis for my Variation 2, outlined in detail in last week’s Weekly Review. 

• My most preferred outcome labeled and outlined in detail as Variation 1 last week, suggests that the S&P500 will undershoot the Blue Trendline and the 50% retracement on this chart, and find resistance at the 1021 to 1034 areas. Those are based upon other technicals discussed in prior Weekly Reviews. 

• Only a daily close above 1034 will kick into play Variation 2, which allows for a greater move up to 1062 to 1072 areas by mid- October of this year, where it is likely to find overwhelming resistance, just as the chart above suggests.

Interestingly the market is once again challenging key areas of our foundation charts at the same time. This cross-reference across different markets and different schools of TA is a powerful signal that a major shift in behavior is upon us once again. I wonder what alibi the market will use to follow-through on what it is suggesting to us in a technical sense. Either way, I look forward to the challenge, and you should too!

Until next week: Good Luck!