Market Analysis for Feb 23rd, 2004

Significant Trendline Breaks
By Mike Paulenoff,

Today's action is an extension of the early weakness on Friday. Even though late Friday there was a rebound, the indices really didn't hold up much beyond the first 15 minutes of trading this morning, and have been heading due south ever since.

The most salient feature of today's technicals is the major break on a daily chart basis of significant trendlines. In the E-mini March S&P the trendline from mid-November was broken at 1143, and we've been consolidating beneath that. In fact, now we're basically retesting the lows at 1136 or so.

This trendline breakdown is significant, and my work suggests we have triggered additional downside targets in the vicinity of 1125 to 1120 in the E-mini March S&P before this particular leg approaches an area where new buying will come in.

Keep in mind the 54-day moving average is at 1116, almost 1117. So somewhere in the 1120-24 area is where the price structure should converge with the rising moving average in the next couple days. That should provide a lot of support to the March S&P, at least at that particular point, for a recovery rally.

Similar to the S&P, the E-mini March Nasdaq, which is the weakest of all three E-mini indices (Dow, S&P and Nasdaq), broke the trendline. This wasn't the trendline not from November but the one that goes all the way back to August 15 and runs through mid-December. It cut across the price axis today at 1468. That level was broken earlier in the day, and right now we're trading at 1457.

That's a key breakdown, and it triggers additional downside targets into our next objective area, which is 1420-30. This all could happen very quickly because this correction has been long in the making.

The 50-day moving average in the E-mini Nasdaq was broken also at 1486, so now we're almost 40-points below the 50-day moving average. So you can see the Nasdaq is beginning to accelerate, and it wouldn't surprise me if we were at 1420-30 tomorrow or early Wednesday.

As far as the QQQs go, the Qs, similar to the Nasdaq, broke important intermediate-term support today in the area of both the 54-day moving average, which is at 36.75, and the trendline from the August 6 low, which cut through at 36.57.

Right now we're trading at about 36.24, so we're below both the moving average and the trendline. This triggered new downside targets in the area of 35.40 to 35.30 in the QQQs, and again it wouldn't surprise me if we're there by sometime Wednesday.

For more of Mike Paulenoff, sign up for a FREE 30-Day Trial to his E-Mini/Index Futures diary at. Or try his QQQ Trading Diary.

  • Action-Oriented Trade Set-Ups in Stocks & ETFs
  • Macro Analysis of the Broader Markets
  • Detailed Technical Guidance for each Trading Idea
  • Live Interaction w/ Mike & Our Member Community
  • And Much, Much More!
Join Now! - Special Offer!
Veteran Wall Street analyst and financial author, Mike provides detailed and timely analysis and trade set-ups on a range of markets. Read more...

Have Mike's “Out Front” morning analysis delivered FREE to your email inbox twice weekly!