Market Analysis for Mar 16th, 2004

Rally Reverses
By Mike Paulenoff,

It's a fascinating day so far. The rally that we thought would occur late yesterday, in fact, did not occur until this morning. The rally was a fairly potent one, but as fate would have it the rallies in both the E-mini June S&P and E-mini June Nasdaq climbed right to critical areas, right at the point where they needed to accelerate to the upside to confirm that a meaningful low was put in place.

By that, we're talking about 1112-13 in the June S&P. If it had accelerated above 1113, then I think we were looking at 1120-24. In the E-mini June Nasdaq, we were talking about 1418-19. In fact, it got up to 1421, but looked around up there and got high altitude sickness. Both indices reversed in a big way right back towards critical support levels within the patterns that have developed since last Friday.

Those patterns have taken the shape of coils, a series of lower highs on each rally and a series of horizontal or rising lows on each decline. The symmetrical triangle, the one with the higher lows on each decline, is exhibited by the E-mini June S&P. Right now the two coordinates of most importance that when broken should accelerate a move in the direction of the breakout are 1113 on the high side and 1104 on the downside. Whichever one is broken, our work suggests there will be a fairly potent follow-through.

On the upside we're looking for 1120, and on the downside we're looking for a break of the 1101 lows from Friday and Monday to new low territory whose next target is at 1090-85 in the June E-mini S&P.

As far as the E-mini Nasdaq goes, that pattern is a triangle or a coil as well. But rather than rising lows you basically have horizontal lows all bunched around 1401-03.

If the index breaks down below 1403, I think it will plunge to 1390-85. On the other hand, if it manages to rally above the intraday high so far at 1421, I think it will extend up to test critical lows from Friday at 1435 and if broken 1443.

At 2:15 Eastern time, the Fed's announcement about interest rates comes out, and although no one thinks the rate will change the question is whether the wording of the statement will change. If the Fed doesn't make any changes and does not change the wording or the rate, then I think the reaction will be low interest rates for that much longer, and probably the bond market will rally and it'll be interesting to see if the E-mini indices catch a bid on that and rally through the intraday highs.

My suspicion is that from mid-January in the E-mini Nasdaq and from March 5 in the E-mini June S&P, we're in a pretty vicious downtrend that is dominant and will press the indices to new lows before we break any significant prior rally highs.

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