Market Analysis for Nov 25th, 2003

Moving Sideways
By Mike Paulenoff,

This morning you had some fireworks in the economic data. GDP blew everybody's estimates out of the water. It came out at 8.2% for the third quarter. Previous estimate for 3rd quarter growth was 7.2%.

So everything's humming, and obviously we're all wondering: Well, if you can grow 8.2% for one quarter and have all that stimulus that the Fed has pumped into the system hit up (and perhaps it all hit up at the same time in the third quarter of 2003), what can we expect for the fourth quarter of 2003 and the first quarter of 2004? Is the growth that we've seen for the third quarter taking growth away from the quarters ahead?

We don't know yet, but the market as a thermometer of what it thinks of future growth, I suspect, is telling us that it's not so sure we have all that much growth ahead, certainly not in the 8% range, maybe not even in the 4% range.

Basically, we're up 3 points in each of the E-mini indices. After two days of rallies -- that is, since Friday afternoon's low using the E-mini Nasdaq, for instance, at 1359 and change, this morning's high was 1429. So we've gone up substantially, and it looks to me as though we have the makings of an exhausted market here that is biding its time.

The question is: Will it bide its time by pulling back, or will it bide its time by going sideways and then take off after the oversold condition is worked off?

Right now we don't know the answer to that. My own feeling based on my work is that we are moving sideways and we'll roll over to see if there is any selling pressure. Right now at 1419, we'll roll over into the 1410 area, and see if there's any pressure at all.

If there's no pressure, then that will be the next pullback to buy, and the next upside target, then, would be against the trendline across the November peaks, which cuts across the price axis today at 1435 or so.

As for the QQQs, they are trading very similar to the E-mini Nasdaq, which we've just reviewed. The rally has gone from last Friday's low of 33.73 into today's high of 35.55. We're right now trading at 35.25 or so, give or take a few cents, and it looks to me like we've built a sideways, slightly bearish flag pattern that should break to the downside and test micro support at 35 to 34.90. If that's broken, then I think we'll go down to 34.70, and then it becomes a much different-looking situation from Friday into Tuesday.

However, if the pullback holds 35 even, give or take a few cents, and then loops around to the upside, then I think we can get a test of the 35.60-.70 area, which represents the trendline across the November highs.

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