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The Morning POT of Jo

By

Break it down for me KAT!

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Good morning and welcome to the Friday edition of "The Morning Cup of Jo;" except today, it's more like a Pot. I'm not going to do a lot of writing; ya know that whole, picture's worth a thousand words thing. But if that's the case, this is gonna be longer than "War and Peace." However, I do believe the information contained within could be invaluable to investors trying to form an opinion about what the next leg in the market will bring.

"So sit right back and you'll hear a tail, a tail of a faithful trip, which started from this little 'Ville', aboard this tiny ship... The weather started getting rough, the tiny 'Ville' was tossed. If not for the courage of the fearless group the village would be lost. The village would be lost."

Trademark Pending


In the March 11th 'Jo' I talked about the Crazy 8 - the 8 secondary indices still trading above their respective 50DMA's. This article pointed out how once the Majors (Dow, SPX, NDX) started breaking down, and/or presented 'Road Signs' indicating they may be getting close to breaking down, investors should revisit the secondary market indices to get a clearer picture. Today is not much different, except longer. I've compiled graphs of 15 different indices I believe may help cleanup some ST (short term) smoke. So hold onto your hats and refresh your 'Jo' before getting started; this could take a while.

Many times, when getting caught up in trading the daily action, investors can lose track of the bigger picture, which in turn, could lead to adding unnecessary risk to their portfolios. This is why reviewing the longer term trends of the secondary indices can provide a clearer picture of the market's overall health and therefore assist in making better informed decisions.

There's a couple of housekeeping comments before getting started. The indices assembled below are not in any particular order of importance, nor should they be construed to be the only indices of substance. I've chosen these because of their proximity to trend lines and clarity of action. (In other words, I had to pair down the list from 35 and pulled these out of the hat first - just kidding.) Also I've changed the graphs today to line graphs, instead of the traditional (High, Low, Close). Hopefully, because of the length of time covered, this will allow you to view them better. One last note... All the indices are NOT on the same time scale based on the width of the graph. Many are reduced from longer periods of time to help view the full IT (intermediate term) trends.

Okay, let's get on with it...

AMEX Finiancial Index (XFI)

Once this index broke its ST (short term) trend and the 50 DMA last week, it pretty much fell off the perverbial cliff. Right now it's sitting on the 150DMA and its IT (intermediate term) trend. A break here could potentially drop the index below the 200DMA.

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

AMEX Broker/Dealer (XBD)

Still holding onto the IT trend, but notice how the MACD was showing divergence throughout the first quarter and 3 days ago it crossed back through its MA (moving average). Not a technically positive sign. Careful and watch closely.

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

PHLX Bank Index (BKX)

This one's definitely an ugly duckling. It has broken its 50DMA, the IT trend and a Head & Shoulder Top. Also, notice the Stochastic Divergence warning sign as the index was hitting new highs.

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

PHLX Housing Index (HGX)

Still holding on and has some good support right here. However, if she breaks, it could be a long fall from grace.

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

AMEX REIT Index (RMS)

Do I even need to say anything? Could bounce off the 200DMA -- but wouldn't count on it.

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

AMEX Pharmaceutical Index (DRG)

Shorter-term investors were looking for a potential bottom on this one. What is important in this chart is the bottom side retest of the IT trend and the downturn in the 200DMA. Don't get your hopes up unless it can bust through the 50DMA.

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

AMEX Biotechnology Index (BTK)

This one, and maybe Professer Miller can confirm, looks decent. Good Support in this area, hasn't broken down, and a possible Cup & Handle base. However, history shows us, when this index breaks -- it really breaks.

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

PHLX Semiconductor Index (SOX)

This index is, to me, the most perplexing of them all. It's giving potential signals both ways. It has a possible Head & Shoulders bottom (positive) and a light volume retest of its IT trend (negative). A lower level break could spell disaster, but that scenario is a long way off. (Has a lot of support at the 200DMA)

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

AMEX Internet Index (IIX)

Another index somewhat healthy. However (why is there always a however?) I don't like the possible divergence setup in momentum.

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

AMEX Telecom Index (XTC)

Okay for now. Watch for the 2-Headed Monster (a head & shoulder top with 2-heads) and again, I don't like the momentum action with the recent divergence -- keep a close eye.

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

S&P Retail Index (RLX)

Setting up more momentum divergence, but holding IT trend and plenty of support underneath.

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

Dow Transport Index (TRAN)

In a trading range for now. Positive MACD momentum signal.

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

Dow Utility Index (UTIL)

Not as bad as it looks ST. If it does decide to break -- has quite a bit of support at 200DMA.

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

PHLX Gold/Silver Index (XAU)

Careful, careful, careful -- watch where you walk and don't break the egg. Sitting on support, but below the 200DMA.

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

Gold (Price)

Also sitting on IT trend, gonna bounce?????

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

Understanding the secondary markets, I believe, is essential to getting a clear perceptive on the action within the Majors. I hope this helps investors get a better picture of just what the Intermediate Term looks like.

Have A Great Weekend and Be Successful Today.

Until next time...

The KAT

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No positions in stocks mentioned.

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