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The Morning Cup of Jo

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Good morning from Ollie's Diner for another rendition of the 'Jo.' It's good to be back writing again. Before getting started on the technical outlook of the markets I would like to take this opportunity to thank each and every Minyan who has written concerned about us down here in Florida. I appreciate your thoughts and concerns. All is fine with our families, and us; which is more than I could say for other areas of Florida - much flooding to contend with. I sure hope Ivan "The Terrible" doesn't compound the problems.

It's amazing how taxing this can be on your daily life. At dinner last night my 5-year old son, Dellin, asked me, "Dad, I thought all the storms were gone. Why do they keep on coming? Did we do something bad and is God mad at us?" I truly didn't know how to answer. So I told him sometimes people are tested on just how much the human sprit can withstand. That's why you should never give up and never let it get you down. As they say, "What doesn't kill you only makes you stronger."

Onto the Markets...

Yesterday Collins put out an afternoon article "Chart Check: SPX." I'd like to expand on his thoughts.

As we all know, and have been told numerous times, the SPX is still in its 10-month trading range and below its downward sloping trend. There are many pundits on Boo's side telling you this is the time to get out and that the market should resume its downward trend. I on the other hand believe, technically, it's still too early to tell and here's why...

Let's take a look at the SPX and what exactly is going on.

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

As you can see this is the 4th time the SPX has tested its downward trend and the more times a level is tested, the more important it becomes. In addition, all of the prior attempts have yielded a second attempt. This is my reasoning why it's still too early to tell what is going to transpire. Don't get me wrong; I do believe the market is due for a ST pullback from these levels. However, I also believe there will be a retest of this downward trend (1130) and this is where the rubber meets the road.

As previously stated, the 3 prior attempts have each shown a second effort, which succumbs to less momentum each time. The first and third gave a SD (Stochastic Divergence) top, while the second did not because there wasn't a higher price peak. Nonetheless, all assisted the technical landscape readings and indicated lower lows. As the fight between Hoofy and Boo continues - and the probable ST pullback - once again, a second attempt of the 1130 level will help turn the murky waters clear. If or when this occurs we'll be able to better determine the IT trend of the market. Watch the momentum indicators for a "Tell."

Another quick point of contention, for Hoofy, is the SD at the last market bottom. These are somewhat rare and provide a good technical indicator of true market bottoms. You also might want to take note of the New Highs on the NYSE and Nasdaq; they are both at 4-month highs. Or, for that matter, take a look at the A/D lines. They're at new 2-year highs as well.

I hoped this helped!

Until next time...

The KAT

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No positions in stocks mentioned.

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