Market Analysis for May 26th, 2004

Looking for One More Rally to Complete the Up-Move
By Mike Paulenoff,

NOTE: This is our last Mid-Day Minute of the week. We wish all of you a safe and restful Memorial Day holiday weekend!

It's turned out to be a very interesting day. For some, maybe because the market has exhibited very little movement in terms of the averages, it may be boring. But the indices have given back none of yesterday's gains, and in fact are up on the day. In addition, the relationship between oil prices rising and stocks declining looks like it ended yesterday in a general sense. In a more direct sense, though, today's action suggests that with oil slightly under pressure intraday you can notice that the indices catch a bid whenever the oil moves under $41.

Right now oil is just under $41. If it moves back down to $40.50, where the low of the day is, then I think you'll see more impetus for buying action in the indices.

As far as the indices themselves, it's very interesting that the E-mini June S&P has gotten to 1115. For those of you who saw our intermediate-term chart work from this morning, you'll see that the chart we posted, which is the daily E-mini June S&P, shows the declining 50-day moving average this morning declining right into the 1115 level.

So it's no coincidence that the 1115 level will provide some resistance to the rising price structure. In addition, if you look at the last downleg of the E-mini June S&P, from the April 8 high to the May 12 low, the 50% retracement recovery area comes in today at 1115.25. So there's another 1115 price coordinate that shows some serious resistance.

So you have two reasons why the market may struggle to get through 1115. But if it should get through, I think you'll go to 1118-20 fairly rapidly.

The fact that it's held up so well right around 1115, and right now it's at 1114 1/4, suggests that there isn't a lot of selling pressure, if any at all. As we approach the last hour of trading we may very well get the final pop to this particular rally that started yesterday down at 1094. Once again the target would be somewhere around 1117-20.

The scenario that would be the most bullish from here would be if the market was to take off in the last hour. However, we would not be surprised to see it pull back to the 1108-04 target zone first before it takes off again. So in general we're looking for one more rally to complete this upmove.

Moving over to the QQQs, the Qs are acting like the rest of the averages -- holding up extremely well. We're starting to get minor non-confirmation of the strength every time it gets above 36.10 into the 36.15 area. However, the pattern itself argues that the Q move is not over and that it somehow in the next 2-3 sessions, if not today, will find its way to the 36.60-.70 area. That would be our next major target zone, which should put a lid the current rally, which started yesterday at 34.94.

So, barring a move below 35.35, our upside target and our work tells us that before this Q move is over, it will hit somewhere in the vicinity of 36.60, if not slightly higher.

From right here it looks like the Qs are acting extremely well. They have given back very little if any of their gains from yesterday at any point to today, and right now are trading at 36.12, up on the day. So we could be getting in the final two hours of trading that next upleg to 36.60.

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