Market Analysis for Jan 5th, 2004

Consolidating for One More Thrust?
By Mike Paulenoff,

As of around noon Eastern the indices actually are acting extremely well, especially on the Nasdaq side, with the tech stocks leading the way. The Nasdaq actually recovered all of its declines from late Friday afternoon, when it fell from 1483 down to 1460 ,. It retraced and then popped to new highs, and so far the high of the day is 1489. It looks like the Nasdaq is consolidating at a high level for one more thrust to about 1490-95. That's where I think that the upleg from Friday afternoon's low of 1460 , on the E-mini March Nasdaq will end and need to take a breather.

If that turns out to be correct and there's a pullback from there, the nature of that pullback will tell us an awful lot about the current market -- that is to say, whether or not the rally from early December 10 remains intact or if the rally from early December is actually peaking for more than just a minor pullback.

In any case, the most critical level right now on the hourly charts is 1460 ,, which is Friday's spike and pullback low. As long as that remains intact, for the most part the bulls will remain in control of price direction.

The QQQs, trading similarly to the Nasdaq, in fact did exactly the same thing as the E-mini March Nasdaq. They pivoted off of Friday's low at 36.22, took off, retraced the entire upmove, took out Friday's at 36.79 and continued higher to 36.95, a new recovery high. That is a new post-March 2003 high as well.

Right now the Qs are consolidating in and around the 36.85-.90. It looks to me as though the Qs are consolidating for one more thrust to the upside in the 37.05-.20 target zone, after which they'll need a pullback or a rest. Just like we mentioned in the E-mini March Nasdaq, the quality and strength of any pullback off of new highs later this afternoon will tell us a lot about the underlying power of the market -- that is, whether or not it's just another minor correction that could go from, say, 37 down to 36.40 before buyers come in again, or if there's more to it and it's indicative of a significant peak to the upmove that began on December 10 at 34.13.

Keep in mind that 3-3 , weeks ago we hit a pullback low of 34.13, and now we're nearly at 37. So it would not be unusual at this point to see the Qs pullback and look and act tired and need more of a pullback. But similar to the situation in the E-mini March Nasdaq, where 1460 , is critical, in the Qs 36.22 is critical. As long as that holds the bulls will remain in the driver's seat.

If 36.22 breaks, then the Qs will go for a ride to the downside and will be in the midst of a significant correction off of the current highs.

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