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Index Wrap

Pause That Refreshes\?

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      11-21-2001          High     Low     Volume Advance/Decline
DJIA     9834.68 - 66.70  9894.19  9796.41 1.02 bln   1260/1813
NASDAQ   1875.05 -  5.46  1884.49  1853.67 1.54 bln   1717/1772
S&P 100   586.36 -  3.67   590.03   581.93   Totals   2977/3585
S&P 500  1137.03 -  5.63  1142.66  1129.78             
RUS 2000  452.31 -  1.59   453.90   449.95
DJ TRANS 2485.60 -  3.80  2491.34  2468.90
VIX        25.32 -  0.81    26.75    24.77 
VXN        52.68 +  1.27    54.33    52.51
TRIN        1.38 
Put/Call    0.60

Pause That Refreshes?
Austin Passamonte

Three straight days I've spent in the woods, practically from "cain't see 'ta cain't see" as an old codger I once knew used to say. It also goes without saying I've not seen a live chart screen all week and have no plans to break that streak anytime soon.

Have I missed the market's (in)action? Not much. Every once in awhile as I'm shivering in my treestand at dawn or wringing with perspiration after walking miles of steep hills or tangled river bottom by the afternoon do I wonder what the markets are doing without me. You know something? I bet they don't even know I'm alive!

This has been the first three-day stretch I've taken apart from live markets since my honeymoon in August 1999 (Wendy & I "dated" for nine years before that... pretty long engagement) and it is refreshing. Gives one a new outlook upon returning, of which I look forward to doing. But breaks are vital to sustain a streak and market action is no exception.

Market bulls never want any breaks in a rally of course and would prefer green screens every day forever. But trees do not grow to the sky and reality is a long ways from 1999's not to be repeated continual surge. Many stocks up +100% to +300% we far ahead of themselves and practically assured to go sideways at best with down more apt as well. This backing & filling of various price points is healthy and necessary for a rally to sustain. "V" shape charts are fun to ride when we're long the symbol but that is a weak foundation certain to tip over if not collapse before long. "U" shaped bases or stair-stepped rallies are the only ones that can ever last.

Speaking of bases, do we see any in the charts?

(Daily Charts: Dow & NDX)

Sort of. A quick peek at similar regression channels from last weekend's Wrap shows near-term resistance held while support gave way in some cases. Daily-chart stochastic values are bearish and price action looks to continue lower until at least the red lines of support. A break & close below there could signal bigger things afoot, but I wouldn't expect that quite yet myself.

(60/30 Minute Charts: QQQ)

The Qs like all major indexes are wedging up in consolidations near recent lows. A consolidation coil usually breaks out in the same direction price action was headed before the pause, said wedge being a continuation pattern. The fact that we see these coils wedging near recent lows together with bearish daily stochastic values suggest price action may move sideways to lower for a bit going forward. In the case of Qs I'd look for a few more intraday bounces within these wedges but odds are they break down and continue the same direction from here.

(60/30 Minute Charts: SPX)

Same for the S&Ps. The hourly chart (left) isn't wide enough to show it, but trendlines connecting recent lows and recent highs over the past couple of weeks form an ascending pennant formation that usually breaks off to the downside as well. This in addition to wedges coiling near recent lows in 30-minute charts, too. These are intraday charts but weaker dailies to correlate tell us the euphoric upside party may need recharging soon.

A great many readers have told me they are idle this week as well, enjoying family & friends for the holiday. Good choice in my opinion. There will be plenty of action the last few weeks of 2001 and first few months of 2002 and beyond. I fully expect the recent rally to pause, although buying dips will not be out of vogue. Market pros who bought the recent bottom have been selling into last week's rally to book profits. We've also noted numerous times that all those big-cap leaders ramped so far in two month's time have been rising on falling volume. These are things to look for in tired markets in dire need of refreshing pause.

For those who celebrate the event, happiest of Thanksgiving holidays tomorrow. Surround yourself with family, friends and loved ones if you can, and revel in it. Those are the people we work so hard to spend more time with. Life is precious and fleeting: live it up.

Eat too much & enjoy... we can work it off later!

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