Market Analysis for Sep 8th, 2003

Traders Continue to Overlook Bad News
By Mike Paulenoff, (

It's been a very interesting morning so far. Over the weekend you had bad news come out, which actually started on Friday with unemployment. Then you had more bad news over the weekend, with President Bush telling us it's going to cost us a lot more to keep the peace in the aftermath of Iraq, the costs of which could be staggering, which implies the deficit will be increased. And then you had the resignation of the head of the Palestinians, who was negotiating with Israel, setting that situation back.

So basically on a lot of fronts you had a lot of bad news to absorb over the weekend, and and guess what, the market couldn't care less. This morning before the opening the stock indexes were slightly lower, and right after the opening bell they took off. Traders and investors didn't really care about the bad news. So you have another case of lack of selling pressure, which we've seen for the last 3-6 months almost, and another case of investors overlooking bad news.

Not only did they ignore bad news, they took the market up, and they took out Friday's recovery market highs. The E-Mini Nasdaq got up to 1388 ,, and the e-Mini S&P 500 got up to 1031.75. Our intermediate-term targets for these rallies were somewhere around the 1034-38 area on the S&P, so we came up very close to that, within 2-4 points. On Nasdaq we've been looking for 1390-1410, which is a wide window, but what our work points to. We got up to 1388 ,, so we're very close to those target windows.

To the extent my work is accurate, the holders of long positions are now going to incur a lot more risk than they did at any time in the last six months. So I urge a lot of caution on the long side. Use very tight protective stops. I think we're heading into a two-way market very soon, within a matter of probably hours if not in the next day or so, at which time there'll be some serious profit-taking on the S&P and Nasdaq.

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