Market Analysis for Mar 24th, 2004

Slingshot Reversal
By Mike Paulenoff,

So far we've had a fascinating day largely because we've had a news event that's seen a geopolitical event risk creep into the market. Suddenly, before noon today, we learned that a train in France was detected to have been carrying bombs with detonators that could potentially have been a disaster similar to the bombing in Madrid.

The market's reaction to that news event was very interesting. You had the June E-mini S&P actually pivot and tank to new lows for the decline that began in February, down to 1084.75.

But at the same it was making marginal new lows (with yesterday's lows being 1087.50), it did not follow-through further to the downside. So you've had two days -- Tuesday's and Wednesday's trading so far -- where you've tested the lows and there was no downside follow-through.

At the same time that happened the June E-mini Nasdaq declined as well, but it declined to a higher low than was seen in this morning's pre-market. The pre-market low in the E-mini June Nasdaq was 1365.50, and today's low after the terrorist news item was 1369.75.

So you can see that was a stepped up low, whereas the June S&P was a new low. In neither case was there downside follow-through, and in both cases the indices pivoted to the upside and rocketed. This caught a lot of people short and getting shorter while, as we warned in our open remarks this morning, the momentum oscillators were going the other way.

That is to say, despite the price action making a series of marginal new lows, our momentum data was telling us that the rate of price pressure was dissipating fast, and was building in a sling-shot reversal to it.

Little did we know that that slingshot reversal could come on a news item, but that's a classic case where the market reacts violently to a news item and the selling actually dries up, leaving a bear trap in its place.

So, for the hours since the news item came out, both indices have been rallying and fairly impressively.

The lead indicator on this and the reason we've chosen to use the E-mini Nasdaq as the vehicle for trading is for that reason. It has had better technicals and a more recognizable turning pattern than did the E-mini June S&P at the same time this morning.

So the E-mini June Nasdaq took off and went from 1365.50 in overnight trading to 1395.50 after the bear trap was laid by the French terrorism news.

We are right now at 1393 , at 2 o'clock and the key level is 1395-96 into 1400. Our work suggests another pop to the upside within the last two hours of trading today, and that our next target is 1403 to 1408, where holders of some long positions should look to take some profits.

Although a move above 1400 in the E-mini June Nasdaq will confirm we have a significant minor low, only a real surge to the upside that takes out 1436, last week's highs, will argue that we have a near-term bottom in place rather than just a micro bottom in place.

The E-mini June S&P has to take out 1100 on the upside to trigger micro buy signals and behind that it has to take out 1127-28, last week's highs, to trigger even more impressive signals that a significant low is in place, but right now 1100 on the E-mini June S&P is where it has to move.

The Nasdaq pattern clearly is much more buoyant, much more robust and much more powerful in my work than is the June S&P pattern at this point.

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