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The Morning Cup of Jo


Eh Tu Brute'?


Yesterday, after Hoofy finished his work at First Bank, he went over to see his gal Daisy, in hopes she could help console his sorrows. When he arrived, she decided to take him for a Tuesday 'Night on the Town' at Birdland. She knew Snapper would be playin' the blues. Needless to say, Boo was already there, tippin' the sauce, and talkin' to any critter who'd listen. "Here it comes boys - grab tight hold of your wallets cause they're comin' to pick your pockets" Boo exclaimed as Hoofy walked by. With Daisy holding his arm, Hoofy replied, "Careful what you're preachin' Boo, it's not over till Daisy's mom sings!"

Normally I don't pay heed to all the teletubbies talk about what their view is regarding the market, but yesterday I just couldn't help it. Bewilderment and complacency seem to be the song they're singin'. Well, as they say... "If you don't know what to do, don't do anything at all." However, I prefer to listen to my wife when she answers that question. "Who are 'They' and what do 'They' know anyways?"

Let's have a glimpse at 'Readin' the Lines' and see what the charts say...

I'll start with the SPX since it's one of the sole survivors in the "above 50-DMA" crowd - but could soon be debarred. The first thing you should notice, after realizing it did test the 50-DMA and hold, is the volume on the NYSE increased substantially from the prior 4-days, although still not above its 50-DMA (1.5 Bill.). Next you may want to look at the divergence with the MACD since the last week in January. The last 2 RH's (Relative Highs) in price couldn't muster a MACD crossover. I have also shown the RSI, which is showing a divergence since January as well.

WONDA Copyright 2003 William O'Neil + Co. All rights Reserved

Now on to the Dow; the latest casualty in the "above 50-DMA" club. As you can see the MACD and RSI are showing similar divergences as the SPX, however I have included the Stochastic. This shows an excellent example of higher price action and lower momentum since the beginning of the year. But let's not stop here and let Boo have all the fun. As Hoofy would say, "There's always a bull market somewhere." So keep on scrolling...

WONDA Copyright 2004 William O'Neil + Co., Inc. All Rights Reserved

With all the action in the price of metals I thought I'd throw Hoofy a bone. He still likes the Nikkei, but needs more choices of investments if the other indices follow suit with the Nasdaq. There must be Gold in them there hills!!!

Before reviewing the next 3 charts I want to remind all the readers that the PHLX Gold/Silver Index is based on equities representing the gold and silver mining industry and not the actual price of the metals - for that you need to refer to Minyan's Professor McGuirk from down under (when he gets back from fishing in NZ).

In the daily scheme, the index is not very telling. However, there is a triangle formation which is not, as a rule, a strong technical formation, but breaking to the upside will bring the index back above the 50-DMA and probably the Comparative Relative Strength above its downtrend. Also you may want to notice the MACD has recently turned positive.

Weekly doesn't exactly stand your hair on end either, but it does show a good consolidation onto the 200-DMA and a decent retracement since its September Breakout. Another positive note is the Stochastic crossover that took place last week.

Looking on to the Monthly chart becomes much more impressive. After a massive 8-year Head & Shoulder bottom the index finally broke out. As you can see the index has already consolidated back to retest the Floors & Ceilings. If the index can muster enough steam to blow through the latest RH, you could see a retest of the 1995 highs. That would be impressive.

Many times when you have a breakout, followed by a retest of the same level, in an index; this presents a good opportunity to search for new positions. One reason this is a good chance to prospect is because the first run up usually raises all ships. But, on the other hand, a second stage move normally separates the Men from the Boys and you can see more clearly the strongest equities. So keep your eyes peeled for fundamentally and technically strong equities in this group.

WONDA Copyright 2004 William O'Neil + Co., Inc. All Rights Reserved

Until next time...


No positions in stocks mentioned.

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