Market Analysis for Aug 6th, 2003

After Tuesday's sell-off, have we seen downside follow-through in today's session? The answer is yes and no. The yes part of it is that all the indices made new lows this morning, but just marginal new lows, and then they rallied sharply.

Since the July 31 high of 1004 on the E-Mini S&P 500, though, the index has fallen to today's low of 958.50. That action since July 31 has created a down-channel that has really traversed the entire range created by all the indices between June and July. In the case of the S&P, you're talking about 1015 down 960.

Yesterday and this morning the indices broke the lower side of the trading range that's been in existence for almost three months. But the indexes have not followed through to the downside. So there's a battle going on at the bottom of the three-month trading range right now in the S&P, the winner of which will have control of the intermediate-term direction of this market. That means probably for the next 1-3 months.

My sense is from my work is that after this little pause down towards the bottom of the channel, we'll break through the bottom of the channel and the trading range, which will trigger new downside objectives in the S&P into the 920 and 900 area over the next 1-3 months.