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Bulls Ask, Is It 2003 All Over Again?


Are we surging into a July peak?

Editor's Note: The following is a free edition of Jeff Cooper's Daily Market Report. For a FREE 2-week trial, click here.

Come out upon my seas,
Cursed missed opportunities
Am I a part of the cure
Or am I part of the disease

-Clocks (Coldplay)

The bullish argument: It's 2003 all over again.

However, the daily chart from the spring of 2002 through 2003 shows some conspicuous differences in the pattern between then and now.

While it's possible to connect the dots between 2 drives to a low into the undercut low of October 2002 (an undercut of the July low), the market hasn't yet traced out a test of a test Pattern, such as the one that occurred in March 2003. It's only when the first significant correction after the first advance off a low overbalances the prior legs down in time, price, and percentages that there can be any kind of confirmation of a new bull market.

So, while we may have a W formation in, we don't have a W, V bottoming pattern. Moreover, there's a distinct difference between the marginal undercut low in October 2002 with the substantially lower low this March below the prior November 2008 low. In addition, it's noteworthy that the S&P rallied to below its 200-DMA following the October 2002 low before successfully attacking it in 2003. In fact, on the heels of the October 2002 low, there were 2 failed attempts to successfully convert the 200-DMA.

In my experience, when a stock or an index rises up to below its 200-DMA, it's mustering strength for an eventual successful recapture of the moving average. This, as opposed to an immediate spike over the 200-DMA, which grabs the stops of the shorts and serves to weaken the market. The current advance shows the S&P has rallied above its 200-DMA, and bullish expectation are that now the 200-DMA will be supportive on any retreat. This is one of the technical factors in Thursday's anticipated snapper.

Another factor in yesterday's rally is option expiration today and the crushing of the premium in both puts and calls. The majority of SPY calls will expire worthless with the S&P below 920, while the majority of puts will expire worthless with the S&P above 900. The market appears poised to flatten out into this 920 level into the weekend. At the same time, the Weekly Swing Pivot (where the weekly chart turned down) is at 926.44.

A test of that level may play out.
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No positions in stocks mentioned.

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