Market Analysis for Mar 17th, 2004

Bullish Structures in Overbought Rally
By Mike Paulenoff,

The markets took off this morning on a gap-up and never looked back. All the indices are pushing against very important resistance levels, above which our work will give signals that we have a pretty significant near-term low in the E-mini S&P at the triple-bottom lows of 1101 and in the E-mini June Nasdaq on yesterday's spike to a new low at 1395.50.

The action from the middle of last week into the middle of this week shows in both cases a rounded type of congestion area. If the indices can get through the rally peaks within those congestion areas, then we'll have a basis for calling the last week's worth of action a meaningful low.

In the E-mini June S&P, the key resistance band is between 1120 and 1125. Right now we're trading at 1121.75 with two hours left in the day. My work shows that although the index is overbought, the overbought condition is confirmed by the price action, which is not a negative.

However, the two day rally from 1101 to 1122 amidst an even more overbought condition probably will mean an upside break above 1125 into the 1127-1128 area before it runs out of gas. So anybody long the E-mini June S&P should probably look to take profits into a top above 1125 towards 1130.

In the E-mini Nasdaq, we have a similar pattern, and the key resistance level is 1430-35. A top above 1435 should take the index to 1443-46, which, given the overbought condition, should be the area where the index probably runs out of gas to take a breather after its run-up from 1395 yesterday.

So, the rallies off of yesterday's low have bullish structures, and even if we see a peak, for argument's sake, at 1129 in the E-mini S&P and 1443 in the E-mini Nasdaq, a pullback should be used to establish long positions.

The pullback could be fairly deep, so we will have to watch the action unfold before we decide where the appropriate window is for establishing those next long positions.

Regarding the QQQs, the Qs are consolidating above 35.35 and at the very high end of their two-day range. Yesterday's low was 34.63 and today's high is 35.55, so it's rallied nearly $1, and it looks like there's another pop in it to the upside.

The key resistance level is 35.60. If we get through 35.60, I think we go to 35.73-.78, in that area, before the overbought condition is so glaring that probably it will take a rest.

However, a move above 36 even will probably accelerate the upmove towards our next target, which is 36.40-.50.

At this point, only a move below 35.25 will argue that the Qs are already in need of a rest and are involved in a minor pullback before the next upmove.

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