Market Analysis for Jan 8th, 2004

Bears Can't Take Out Pullback Low
By Mike Paulenoff,

It's been a pretty interesting day for the indices and the Qs largely because you had two-way volatility this morning. Although we came in short this morning, yesterday's strong close certainly gave us and anyone who followed us the feeling it was ill-timed, and, as it turned out, ill-fated. The indices pretty much got stopped out near the highs this morning, then came down, adding insult to injury. Nonetheless, as has so often been the case since January 1, every pullback has failed to generate sell signals or do any damage to the micro- or near-term chart formation.

For example, the E-mini Nasdaq took a swoon this morning from the high at 1529 or so all the way down to critical support at 1515. It held right there at 1515 , and now with two hours left in the session is at 1528 ,. The overnight pullback low was associated with very little volume, and the downmove this morning from 1529 to 1515 , was associated with considerably more volume, yet the bears still couldn't get it through 1515. So you just know that if the market can't take out that overnight pullback low the downside or the bearish scenario is just not ripe yet.

The question is, How much of the bull scenario is in the cards now?

In our mid-day or late morning updates of the E-mini Nasdaq, the charts showed our new projection of 1540 as the target for the current move. We're at 1528 now. Tomorrow when the unemployment data comes out, the market's expecting 150,000 added to payrolls. Suppose it comes in at 225,000. We all know the market is going to take off, and that is setting up conditions for a spike high. As far as our projections go, 1540 is just 12 points above where we are at now, and it seems a bit shallow as a projection if you get a better than expected number on the payrolls. Nonetheless, that's the next target and maybe there's an overshoot and it goes to 1560.

What I'm suggesting is that after a huge move -- and in this particular case in the E-mini Nasdaq, from the December 10 low into what will be one-month later, from 1375 to what could be 1540-60 -- it is conceivable to me that we're in the blow-off stages of this move. Secondly, the unemployment data could very well be the trigger mechanism that first blows off the price and then brings in the profit-takers who in the first few days of the month have had windfall profits in a new year.

So, it seems to me that the market is pretty well set up to go higher. The question is, How much higher, and what is the sustainability of the advance?

On the E-mini S&P, the next projection is to 1135. But if you get some wicked move on the upside that moves vertically, it probably can go to 1140-42. As long as micro support at 1123.75 in the E-mini S&P and 1515 in the E-mini Nasdaq contain any weakness in the next few hours, the bulls will control the micro and near-term trend direction.

With regard to the QQQs, we were stopped out of our Q position this morning right at the high. But even though it came back to 37.60 from 37.93, right now several hours later we're at 37.94. The bears just could not press the Qs through any meaningful support levels, which would have been 37.36.

Down near even 37.50 would at least have given the bulls pause, but the Q's, after swooning in the first hour of trading, stopped on a dime and took off -- that is, reversed -- at 37.60.

So it seems that we're headed for new highs, and the new projection based on our swing measurements from the December 10 low takes the Qs to a target zone of 38.20-.40. As long as 37.60 remains intact as the pullback low, our next target is 38.20-.40, and that could be generated this afternoon and taken out tomorrow morning with the unemployment numbers, or it could just take off tomorrow morning with the release of the numbers.

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