Market Analysis for Apr 20th, 2004

Awaiting Greenspan (and Possible Increased Competition from Bond Market)
By Mike Paulenoff,

Right now it's about a half hour before Greenspan takes to the microphone on Capital Hill before the Senate Banking Committee. Of course, all of us are wondering if he'll provide clues about the next interest rate policy adjustment by the Fed. None of us thinks that the policy adjustment will be a downward rate adjustment. Everyone is pretty sure it will be up. The only question is when. That is what the market has to determine.

Long rates have backed up quite a bit from 3.80 to 4.55 in the last month or so, and so the bond market is on the verge of becoming a very important factor for the determination of allocation of funds into equities. It is on the verge of becoming real competition, and Greenspan could make that more of a reality this afternoon if he says "the right things."

Even though our need to know will be satisfied, what will it translate to in terms of the market?

From an intermediate-term perspective you know that my work says we're building some sort of rounded lumbering top formation in the indexes off of the Jan-Feb highs and then again the secondary highs in April. So, if in fact, for instance, the E-mini June Nasdaq does roll over again based on a reaction to Greenspan, if we break down below 1462 on our way to test last Friday's lows at 1442, that will be a fairly dramatic test for the index. A break of 1440 will take us directly toward a second test of the 200-day moving average, which right now is at 1409. Usually the second test of the 200-day moving average is not as successful in supporting the market as the first test was.

So a very important situation could develop on the downside if Greenspan says things that cause a negative reaction.

On the other hand, if Greenspan comes out and says that the economic data and inflation and deflation and that debate argue against having a rate hike sooner rather than later, then perhaps the market will think it has more breathing room and will actually take off.

To use the E-Mini June Nasdaq, the key level we're dealing with initially is 1482-88. If that area is taken out, then we're sure to continue higher and test the April highs above 1500 into the 1508-11 area.

At that point, things get very interesting indeed and considerably more bullish than they are.

(NOTE: QQQ traders, please see my most recent post at 1:30 in the QQQ Trading Charts for key levels.)

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