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The Morning Cup of Jo

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We Love Road Trips!

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Since all the critters are on a road trip with Todd, I thought it apropos to take the rest of the Minyans on a trip around the world. As mentioned in yesterday's 'Jo,' the 11-month IT upward trend in the SPX was clearly broken on Monday of this week. This action makes it essential that investors start looking at all the relevant circumstances and begin examining some of the longer-term market indicators.

With the escalation of world trading partners, of technology, and given the current geopolitical environment, the foreign stock markets are now in much greater harmony with ours than ever before. This is precisely why the interdependence between foreign markets is a very valuable longer-term indicator when analyzing the longer-term trends in the U.S. stock markets. Over the years I have found this to be very beneficial and use 8 different international markets when doing this type of research.

First, we should get a look at the SPX on the daily and weekly graphs to see clearly where the market is and what kind of carnage it has dished out over the last 2 ½ weeks. On the daily graph you'll notice many different indicators I've pointed out in 'Jo's' past.

After diverging with price since late January, the MACD is now showing negative (ST MA below LT MA). The Stochastic has also been decreasing during this time and is now showing a new low since March of last year. The RSI has also been diverging and is now at a low since January of '03 (not seen on graph) and the 10-day average new highs are approaching a 7-month low. Last, but certainly not least, you'll notice the volume over the last 2 months, as the SPX was making new highs, has been decreasing (decreasing accumulation) until it broke the ST Trend and 50-DMA, where we have seen an increase in distribution. Remember, just because the momentum indicators are showing extremes, doesn't mean the markets are at a bottom - refer to yesterday's 'Jo' for further explanation.

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

The weekly SPX graph is not as horrid. However the question still remains, "Will the 200-DMA hold up and is a 10% correction enough, or is the Market just preparing for the following leg down (15% @ 960 - last major support/resistance point)?"

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

Here is where international analysis can help us further our knowledge on the overall world's condition.

First we'll stay on the North American Continent.

S&P/TSX Canadian Industrials Index
(S&P/TSX Composite Index stocks)

As you can see below the Canadian Industrials have broken a large wedge pattern and are headed for the next support at the 200 DMA. Also notice the Stochastic. It is at an extreme, indicating a drastic change in trend.

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

AMEX Mexico Index
(10 Large Cap. Mexican stocks)

The Mexico market is still holding up on the 50-DMA, but showing a topping pattern - Double Top with Handle. However, it has already broken its ST Trend since December.

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

DJ Euro Stocks 50
(50 Blue-chip Market-cap weighted issues, which include Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain)

This needs no explanation. You can see clearly the break and small consolidation before a possible continuation of trend.

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

FTSE 100 Index
(100 of the largest U.K. domestic stocks that account for 70% of the total market capitalization)

On to London. This pattern is called Andrew's Pitchfork. (A center trend line, with a parallel support and resistance above and below.) You can see the stochastic divergence that occurred in early March, but has yet to break the bottom side of the pitchfork.

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

Frankfurt DAX
(30 German companies on the Frankfurt Stock Exchange)

The DAX looks very similar to the DJ Euro Stocks Index - for good reason, it includes some German companies.

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

EAFE Index -- Europe, Australia and Far East
(Represents 20 of 48 countries in the Morgan Stanley Universe that correspond to the developed world outside of North America)

The EAFE just recently broke its IT trend and is currently retesting the Floors & Ceilings.

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

AMEX 30 Hong Kong Index
(30 stocks representing integral components of major sectors in the Hong Kong economy)

This one doesn't look so good. Notice how once it broke the IT trend, retested the Floors & Ceilings; it fell off the proverbial cliff.

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

Japan-Nikkei Index
(Comprised of major equity securities that trade on the first section of the Tokyo exchange)

Last, but once again certainly not least, the one who still continues to shine. In this graph you'll notice a great reversal pattern called a Head & Shoulders Bottom. It has retested the BO twice. The key here is to see if it was just a Bull Trap or a real breakout. Only time will tell.

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

Out of all the markets I've shown you, including ours (9), there are only 3 still holding support. {3/9 = 33.3%} Out of those, only one has a healthy pattern (The Nikkei). The other 2 (The Mexico Index and The FTSE 100 Index) are just barely holding support. World Health Meter => (1/9 = 11.1%)

Many of the Minyan's have asked me to come to some sort of conclusion after giving my analysis in the "Jo." Therefore, in conclusion, "There is no conclusion!" These articles written by the Minyanville Professors are to help educate our readers on what we, as professionals, use as tools to help us make our daily investment decisions. However, I hope by explaining how these indicators are used and some of the misinterpretations of use, you'll be able to come to your own conclusions more wisely.

Thanks for reading and all your comments. I hope this helps !

Until next time...

The KAT

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