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The Morning Cup of Jo

By

Should I just take a seat?

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Good morning from Ollie's Diner. For those of you who are net-long managers - ya better make it a double espresso this morning because I don't have good news. However, before getting started I would like to thank Toddo, the Critters and all the Minyans for the warm celebration for my birthday over the weekend. You are all, beyond any doubt, true family. Thank you for all the kind words and acknowledgements.

Onto business and the market. Over the last few months, myself, along with a few others - like Snoop - have been some of the few supporting Hoofy and his bullish case for the remainder of the year. Whether it was supported by the positive action in the Dow Transports and the Utility Index, the washed-out semiconductors, the positive action by some of the broker/dealers and telecoms, or just simply the technical action in the markets; it is now time to change my stance and take a seat next to Boo.

After reading the mass e-mails this weekend, I realize many of you are already fully aware of what I'm about to cover. This morning's topic of discussion is concerning the 4th time the SPX has attempted to bust-a-move above resistance, but to no avail. In my last Jo I talked about a possible stochastic divergent top and consequent undercut of the neckline.

The stochastic divergent double top's neckline was broken on a closing basis on Friday of last week. This technical formation and ensuing break has left Boo in charge of the store - at least in the interim. Let's take a look...

WONDA Copyright 2004 William O'Neil+Co., Inc.  All rights reserved.

From the graph above you can plainly see the SD Double Top. The question we need to be asking ourselves is, "What's next?" I believe; if the downward sloping support level holds true, we could easily see 1050 on the SPX over the next month. This is not meant to say the market is going straight down - like Toddo and I always try and remind the Minyans, "What was once the floor now becomes the ceiling." Therefore, it is highly probable the market will retest the 1100 level. If this happens, on light volume, it will show true confirmation 1050 is next.

Another confirmation will come if and when the Nasdaq follow suit on this latest break.

WONDA Copyright 2004 William O'Neil+Co., Inc.  All rights reserved.

Here you can see another SD top and upward sloping ST support which corresponds to the 50 DMA at 1885. If this level is broken on the Nasdaq I don't see anything stringent holding it up until 1750. There may be a stop at 1850 - the last relative low in September - and following retest of the ST trend break, but 1750 looks more likely.

As we all have seen over the last 10-months, while being stuck in the massive trading range, not all stocks go up in an advancing market and not all stocks turn down in a declining market. Watch your portfolio carefully and don't just exit long positions because of the market. Hence, be aware of more possible potholes in the road ahead and hedge accordingly.

I hope this helped!

Until next time...

The KAT

No positions in stocks mentioned.

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