Market Analysis for May 10th, 2004

Bulls Really on the Defensive
By Mike Paulenoff,

Today certainly did some technical damage to both the E-mini S&P and the E-mini Nasdaq as both indices followed through to downside sharply from Friday's poor close. Looking at the E-mini June S&P, the interesting aspect of that chart is that the decline down to a low of 1078 got very near to a test of the 200-day moving average, which is at 1074 ,. Usually, the first time that average is tested the market holds, and true to form today we had rallied to around 1090 after it hit 1078.

However, we're coming into the last few minutes of trading, and it's 1085 now, so you can see that we're 7 points off the low. We're 13 points off the high as we speak, so you can see that the bounce off the 200 day moving average is not exactly a rip-roaring rally that's turning into an upside reversal. If anything, it looks to me as though it's another relief bounce within the dominant downtrend, and there's more selling pressure yet to come, another probe or two of the 200-day,perhaps a break of the 200-day. The fact that the E-mini June S&P broke the March 24 low today at 1084.75 is very significant technically. That's right where we're flirting right now with just a few minutes left in the day's trading. Many oscillators are still pointed straight down on an intermediate-term basis, and while oversold, we all know that from a very oversold condition, if you cannot seem to get a bounce that has some teeth to it, you get to an ever greater oversold condition, which can mean considerably more downside.

So right now, support for the next 24 hours will be at 1074 or so, which is right around the 200-day moving average. Resistance is at 1089. So whichever side of that range breaks will determine whether or not we have a viable low in place or we have a just a sideways bounce occurring that will lead to another downleg.

For now the bears still have control of the ball, and until otherwise specify, the bulls are really on the defensive.

The QQQs did some damage to their intermediate technical condition today as well. The interesting part about today's action in the Qs is number 1 it closed for a second day below its 200-day moving average, which is at 35.15. Number 2 it closed at its lowest level since its March 23 low at 33.97. Off of that March 23 low it gapped up, and it filled the gap today from that blast-off in late March.

So it satisfied a lot of downside targets today. However, the rally off the low today did not do enough upside work to suggest you have a meaningful low.

So if tomorrow morning there's no upside move and no upside follow-through we expect the Qs to roll over and make new lows below 34.41 and in fact we'll probably test our next downside target at 34.20 to 34.

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