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The Morning Cup of Jo


Let's be logical


Good morning. Today I'm not going to take much of your time, only because there hasn't been much of a technical change since last week. However, I am going to put out multiple graphs that may give you some further insight into the general conditions. As you all know the technical environment has been worsening across the board. It seems as if the Dow and SPX have finally surrendered to the pressure the Nasdaq has been dishing out. However, the Dow and the SPX are both still trading above their respective IT Trends, which they tested on Friday.

This being the case, it wouldn't surprise me in the least if over the next week or so we saw a retest of the 50-DMA in all 3 major markets. I believe, how this happens will be the telltale sign of what's to come - Volume!!! Let's take a look...

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

As you can plainly see this is the worst perpetrator of all 3 majors. Since the latter part of January you have mainly seen distribution and destruction. Even so, nothing goes straight down and we could potentially see a retest of the Floors & Ceilings shown above.

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

Once again, The Dow shows serious price destruction but it's still managing to hold onto the 11-month IT Trend.

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

When looking at the SPX you get a similar view. This is why I felt it necessary to look at some longer-term graphs. (Below)

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

This graph gives a little more clarity to the situation. You can plainly see the probable support and resistance areas. If the market is to break through the highs set back in the end of 2001 and the beginning of 2002, this consolidation, in my opinion, is necessary to bolster up enough steam to make it through.

How far the markets consolidate, to accomplish this goal, is what we're all asking ourselves. I've shown the next 2 most probable technical locations the market could drop to if we break the current level of support. The first is the 200-DMA and the next is the top of the last major base, which was broken out of last Labor Day.

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

This last chart gives, what I believe to be, a great long-term picture of what has transpired over the last 7-years. As you can see the bottom support line I've drawn crosses at about 1000. If the market has a .382 retracement of the move from the October 31st, 2002 low of 768, that would put the SPX at 1020. Interesting.

I'll leave you with this last thought. None of this material is offered as advice, only education. As a Techy I'm only looking to assist you in realizing the possibilities of what may lie ahead. All of this may be a moot point and the market will head straight back up from here. However, if you're ill-informed about ALL the possibilities, you won't be properly prepared if and when they happen.

Until next time...


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No positions in stocks mentioned.

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