Market Analysis for Mar 19th, 2004

Today's action is fascinating if for no other reason than the indexes and Qs remain trapped in a range that started about nine sessions ago and which in the last 2-3 days has narrowed into a shorter-range area. So, for instance, in the E-mini June S&P the nine-day range is 1125-26 on the high side and 1101 or so on the low side -- basically a 25- or 26-point range the E-mini June S&P has been in since March 10.

In the last few days the price action has shifted from traversing the entire range to traversing the top part of the range. So now we're in a range in the E-mini June S&P from 1125-26 on the high side to 1111-12 on the low side. Right now as we speak we're at 1116 after failing to get through the high side earlier this morning at 1126 or so.

Right now, with two hours or so to go, the market is fairly listless. This was a quadruple witching expiration of the March contract. It's now down to double expiration into the closing few minutes. Whether anything strange or volatile will happen we don't know. One thing for sure is that the last few days have been very volatile, especially yesterday when you had stories out that Bin Laden was surrounded. It turns out, perhaps, that his Number 2 man is surrounded. But still there's no confirmation of that and apparently there's a big fight going on on the Afghan-Pakistani border.

Barring some sort of news that comes out on that, triple witching in and of itself may not produce enough volatility to break the E-mini June S&P out of its range.

What will be critical is a break under 1111 or a break above 1127. In either case, the breakout should accelerate in that appropriate direction and take the index either to a retest of 1101 or to new recovery highs, which project to 1132-34 initially.

If we look out intermediate-term on the E-mini June S&P this trading range becomes very important because it's already nine days into duration and it's occurring after a decline from 1162.75, which occurred on March 5. So you had a downleg from 1162.75 to 1101 and now the market has been going sideways for nine days. From a larger perspective, this nine-day range could be just a rest period before the dominant near-term downtrend from early March continues, and that is what we have to watch out for so carefully.

A failure on the downside and a penetration of 1101 will trigger additional, maybe acute weakness that is targeted initially at 1080 but more likely 1050 in the upcoming days and weeks.

With regard to the QQQs, the Qs are trading as always as a derivative of the Nasdaq 100 and they, too, have been stuck in a range for nine days between 35.60 on one side and basically 34.80-.60 on the low side. Whichever side of the range is taken out should accelerate the price structure in the direction of the breakout.

So if for argument's sake today the Qs can rally above 35.45, chances are they will test 35.62, which is the high for the last nine days, and then continue higher to the 35.90-36 target.

On the other hand, if the Qs break 34.97, which is yesterday's low, then probably we're going to head for a test of the low range at 34.80-.60. If the low side of the range is taken out at 34.63, which was Tuesday's low, then the Qs can move considerably lower, and my suspicion is the Qs will go to somewhere around 33.80 to 34 initially on a break below 34.63.

Right now the Qs are sitting at 35.17, which is right in the middle of the range, so there's no high-confidence trade here -- although my inclination is to think that as long as 34.97 holds as support from Thursday the Qs are in a cautiously bullish position to move higher.

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