Market Analysis for Dec 18th, 2003

Holding Up Extremely Well
By Mike Paulenoff,

Yesterday the E-mini March S&P gyrated between 1070 and 1073, and in the last hour took off and went up to 1078-79. In the E-mini March Nasdaq you had the same sort of gyrating intraday movement, but the swings were larger. Nonetheless, in the last hour we saw a move from 1395 up to 1406 or so.

This morning in overnight trading you had sideways action which preserved the late-session advance from yesterday, and sure enough early this morning you had a spike to the upside continuation of the recovery rally off of Tuesday's post Saddam price reversal.

That spike coincided with much better-than-expected initial jobless claims. The jobless claims went down much more than people expected, which shows growth in the labor market, and in addition to that we had the Philadelphia Fed Index that came out mid-session and showed much greater manufacturing activity in the Philadelphia area than people were expecting.

So you have bullish economic data, you have a lack of selling pressure in general, particularly this time of year from fund managers, and you have the two-day, Tuesday-Thursday trend, which is up. While I think it's a recovery that has another downleg that will be attached to the Saddam decline, for now the markets are holding up extremely well.

In particular, if we look at the E-mini S&P initially, it's consolidating at 1080-81. It looks to me we'll have another pop into the 1084-86 area before we get a peak. Above 1086 we have to wonder if this thing is just going to keep going and have a full-fledged test of Monday's Saddam capture high at 1088.75.

As far as what could occur on the opposite side, 1080 would be the key level. If it does pop to the new highs and comes back, a break of 1080 will suggest that this particular leg from 1065.50 on Monday morning is complete and that there'll be a period of decline. That decline, depending on what it looks like and how it unfolds, will tell us whether or not we're having another significant downleg that is part of a larger correction off of the Saddam-capture high at 1088.75, or we're just having a minor pullback and we're going to be off to the races again.

We'll be able to determine that after the pivot reversal and some action to see what the charts look like.

As far as the E-mini Nasdaq goes, you have a similar situation where we're consolidating at 1426. 1420 was my initial objective off of Tuesday's low at 1387 on the recovery rally. We've consolidated above that at 1426 and it looks like we'll have another pop to a measured target of 1430-32. From there, I think, we should get have a reversal on profit taking initially that could ultimately represent the beginning of another downleg that extends the downleg from the December 15 Saddam Hussein high at 1456 in the March Nasdaq E-mini.

A reversal from 1430-32 or anywhere around there would have to break below 1420 to get anything going on the downside and for us to confirm signals that we have seen an intraday peak to today's upside as well as all the upside action from Tuesday's low at 1387. In that case, a break below 1420 would take us immediately down to a test of the upside breakout area from this morning, which is 1409-10.

As for the QQQs, which are trading like the Nasdaq, my initial target was 35.15-.20. It took that out and went up to 35.40, where it's consolidating. It looks to me like we're going to 35.50-.55, before my works tells me that the Qs are vulnerable to a peak.

If that should occur at that level, then you need a move back below 35.25 to confirm we've had a peak. That 25 cents I understand is a big chunk of territory. But without it you just won't know if the Qs are confirming you've established a peak at 35.50-.55. If you do get a peak and a decline below 35.25, then our initial target would be a test of the breakout point from this morning at 35.

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