Market Analysis for Sep 22nd, 2003

Rally Expiration?
By Mike Paulenoff, (

The technicals have been rolling over in recent market days as I've been writing about, yet the price action itself has been very resistant to the downside. Late last week, that was probably because of quadruple options expiration.

Today, with options expiration finished, we see some adjustment to the downside. That's been made even stronger from reaction to the foreign currency statements that came out of the G7 meeting over the weekend. Those statements have basically weakened the dollar against the euro and the yen.

At issue from the weekend meeting is whose currency is going to go up. Everybody wants a lower currency, but everybody can't have one, and somebody's currency is going to have to go up. How China, Japan, the U.S., and the European Common Market are going to cooperate on this is a question. The Bush Administration, of course, in a reversal from the Bob Rubin policies of the Clinton Administration, wants the U.S. dollar to go down. For two years now, Greenspan has been trying to get the economy to perk up. The fact that he's now going after the currency suggests he really hasn't had the results he'd like (and that he's helping to try to get Bush re-elected).

So you have a lot of crosscurrents here. How are the equity markets reacting to it? So far, very poorly. Not only are you overbought from the March-September 2003 rally, you're overbought in the last two weeks, from the September 11-12 lows into last Friday's highs. So there's potentially huge downside here that could unravel or unfold.

The key level for anybody looking for intermediate-term sell signals is the September 12 low in the S&P E-Mini at 1000.25. If that low is broken, that will be confirmation of an intermediate term peak in the market.

As far as the Nasdaq goes, the key level in the E-Mini Nasdaq December contract is the September 12 low at 1330. If that breaks, you get an equally strong sell signal on an intermediate-term basis in the Nasdaq.

For now, though, we've retraced half the rally between September 12 and 19. So later this afternoon in the final hour of trading, if the market rolls over then I think we're going to head faster than anybody thinks to the September 12 lows.

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