Market Analysis for Sep 30th, 2003

Downside Retracement
By Mike Paulenoff,

Yesterday you had very powerful up-day, with everything reversing to the upside. Coming into today the markets pulled back overnight, a normal pullback of about 20-25% of yesterday's up-move, and most everyone figured that given a little more weakness, it would be a buying opportunity to capitalize on the upside follow-through from yesterday's positive reversals.

In fact, at 10 o'clock Eastern this morning, the Conference Board released its consumer sentiment data for September, and it came in much worse than expected. That is, a lack of confidence rather than a boost in confidence, which suggests the economy and the labor markets may not be in a position to expand later in the year. It took about 6 seconds for the indices to plummet to new lows, reversing all of yesterday's upside and taking out yesterday's lows.

In the E-Mini S&P 500, yesterday's low at 992.75 was taken out. The low went to 987.75, whereas in the Nasdaq E-Mini the low from Monday morning at 1306.50 was taken out, and the index went to 1303 even. So since that time this morning, all the indices have recovered about half of their losses for the day.

The key will be the final hour of trading when what my work suggests is a countertrend rally this afternoon will fizzle out and the sellers will once again re-emerge to drive the indices back down towards the lows if not make new lows altogether.

This kind of a day after yesterday's upside reversal -- today's downside retracement of the entire action from yesterday -- reinforces the idea that since mid-September the indices and the QQQs have been in a dominant near-term downtrend.

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