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The Morning Cup of Jo

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Which way do they go??

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As the other critters remain patient, Boo and Hoofy are getting very anxious. They both want to make a direction call, but still remain confused.

There's an old saying about the Stock Market, "The markets are designed to take the most amount of money from the most amount of people in the shortest amount of time." The theory being, most investors (whether institutions or individuals) are wrong, more often than not, when the markets are reaching extremes. Another term to describe this is 'Straight-Line Thinkin'.' When things are going up, people tend to believe they will continue to go up and vice-versa.

Given the amount of Road Signs showing a possible correction in the market, the overall resiliency never ceases to amaze me. With the negative non-farm payroll number and the news on Intel Corp. (INTC:NASD) the markets managed to close almost unchanged for the day. Nonetheless, the divergence between the S&P 500 and the Nasdaq is becoming more and more pronounced.

Is it possible there are too many Bears out of the woods for the markets to breakdown right now? With every day that passes, the markets are getting closer and closer to technically determining what the next move will be. However, the price action on Friday still leaves us questioning the ST direction. All three markets closed the day with a Doji.

A Doji is a pattern used in candlestick charting representing a close at the same price as the open. It signifies a point of indecision and suggests a very ST trend reversal. The Dow and SPX had a small positive bias, while the Nasdaq showed a small negative bias.

On Friday the Nasdaq, once again, retested the bottom side of its 50-day MA and 11-month up trend break. What once was a Floor is now a Ceiling. However, some indicators are becoming more positive. The MACD is attempting to cross to the upside and the ST Stochastic has now crossed back over the LT Stochastic.

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

As for the SPX, it also attempted to breakout into new ground but couldn't muster enough energy to stay above resistance. Nonetheless, this chart also shows the MACD and Stochastic looking positive.

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

The Dow on the other hand - shown below the graph of 10-D MA of New Highs on the NYSE - is not so lucky. It held its 50-Day MA but the MACD and Stochastic still remain negative.

How many times can the markets press the line without breaking in either direction? It's enough to wear a man thin. Just remember back to when the market was in its last leg of the Bear and many of the indicators were showing a possible turn. The markets continued to go down until most of the Bulls gave up. Then, and only then, the market bottomed.

The contrarian view - If the majority of investors believe the market is going to correct - it won't. It'll wait 'till most of the bears go back in their caves before making a major move.

One more thing - if the markets do make a move to the upside this week, which is extremely possible, WATCH THE VOLUME!!! This will be the telltale sign of whether or not the move can be sustained.

On a side note...

I would like to say congratulations to UCF (Univ. Central Florida) for making it to the Big Dance. Good Luck Knights!!!

Until next time...

KAT


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No positions in stocks mentioned.

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