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The Morning Cup of Jo


It's all comin' together Tickles!


Trademark Pending

Good morning and welcome back to Ollie's Diner for a brief ST (short-term) outlook of the market. As most of you already know, I normally don't break the markets down on such a micro view. Nevertheless, over the last week my quant screens are producing a reduced number of short opportunities and an increased number of long opportunities. This, at times and among other technical indications, can be indicative of the markets being at a critical inflection point; hence, today's topic.

Let's take a look...

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

As you can see, last week the SPX bounced off the conjoining downward sloping and horizontal support at 1160 and bounced back up just below resistance at 1105-1110. On the Buzz and Banter August 6th I talked about a possible "Good" outcome of the markets breaking the 1080 support when the non-farm payroll numbers came in - or should I say missed by a smidgen (expected 240K, actual 32K).

Yesterday I pointed this out again on the Buzz - a stochastic and RSI momentum divergence in all three sisters. This is the first positive "Road Sign" the market has given in quite some time. Another positive that unveiled itself is the decline in distribution volume. As you all are aware, volume is used as a confirming indicator to the potential looming technical patterns. When the second bottom was put in 10-days ago, the selling volume receded. This was another positive sign. Anytime the market goes to lower lows it's important to see the sellers subside, that is if you're Hoofy.

So, what's next? I believe there are two possible ST (short-term) outcomes that will help us determine the IT (intermediate-term) direction. First would be another small drop that retraces back to the 1080 level, followed by a bounce back to 1105-1110. This would produce a small, yet very meaningful, Head & Shoulders bottom. If the neckline - which corresponds to the 50 & 200 DMA - is broken with decent accumulation volume the SPX should head back to the top of this 7-month trading range (1150).

However, if 1080 is not held and the distribution volume increases, the probability of a 1060 retest and potential break is more likely. Which, in my opinion, sets the stage for the remainder of the year.

One last note for the Dow Theorist among us... Watch the Transportation Index for an additional "Road Sign." If the Trannies can bust upwards through this ST downtrend there is a much better probability the SPX will follow.

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

I hope this helped!

Until next time...


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No positions in stocks mentioned.

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