Market Analysis for Jan 7th, 2004

Pushing Important Channel Resistance Line
By Mike Paulenoff,

In overnight action pre-opening all the indices pulled back, and that's the second consecutive evening that the indices sold off, not dramatically but nonetheless pulled back into negative territory. We were down 6 points or so in the E-mini Nasdaq and 3-4 points in the E-mini S&P. But that didn't last very long -- just well into the first hour.

It did look for a moment like the bears were getting a little bit of steam as the indices tested or neared very important prior intraday pivot reversals -- that is, pivot points that provided support from yesterday. In the March E-mini S&P that area is 1115, and in the E-mini March Nasdaq that area was 1489. Both indices weakened this morning into the first hour into those areas. But as so often has been the case since mid-December when this massive upmove started, the pullback did not amount to much at all and in fact failed to get through its prior pullback low.

So 1115 in the E-min S&P held, as did 1489, which is the key level in the E-mini Nasdaq. The indices held there and pivoted to the upside and rocketed to new, recovery, post-March 2003 bull-market highs.

Specifically in the E-mini S&P, you had a marginal new high. Nonetheless, it went to 1124, just clearing the prior highs at 1123 , from yesterday. The E-mini Nasdaq rocketed well above yesterday afternoon's high at 1508, up to 1513 ,.

In the case of the E-mini Nasdaq, the channel that's contained the entire upmove from December cuts across the price action today at 1514 up to about 1516. So right now with the indices right at 1513 in the E-mini Nasdaq and at 1123 in the E-mini S&P, the Nasdaq index is pushing right against the channel resistance line from mid-December.

The reason that's important is because in the last two sessions that channel resistance line has thwarted continuation to the upside. The question is, What will happen today? Right now it looks like the indices still want to move higher, and my suspicion is in both cases they will move higher.

In the E-mini Nasdaq, I think there'll be a burst of strength that takes out the channel resistance line at 1514-16 and moves to about 1520-222. The question is, Will it hold up there? My work is telling me to expect it not hold up there, not to be sustained, and that sellers and profit-taking will come in at that point and pull the index back into the channel as the action has done in the past few days as well.

In the E-mini S&P, the upside target is 1125-27. So far the E-mini March S&P is down to 1124, so we're looking for a marginal new high there and also for sellers to come in not to reverse the move but to thwart the continuation to the upside, or in fact to contain a move above the top of the channel.

With regard to the QQQs, the Qs have similar channels to the March Nasdaq -- at 37.55-.60 at the top of the channel, which is channel resistance line you see in the chart. We expect a move above that channel, perhaps to 37.70, a marginal new high, before the current upmove is complete.

At that point, based on our analysis, sellers should come in -- profit-taking should come in -- and pull the Qs back beneath the top channel line. Which means that the new high will be followed by a sell-off that takes the Qs back below 37.55 and perhaps to the 37.40-.30 area before the end of the day.

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