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Index Wrap

Another week, another turn

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The market rebounded on forward movement by our troops to the outskirts of Baghdad by week's end. Saddam airport is now Baghdad International at the wish of the almost-in-charge U.S. Administration. The fear in the prior week was that the troops were bogged down. However, the market is hesitating again as the toughest fight for control of a big urban area is still ahead. Wish I had a quarter for every talking head that said Mogadishu and "Black Hawk down" in the same breath, but urban warfare is a tough nut. Still, another week, another story. It doesn't pay to get to "micro" (as in embedded) in a big-picture conflict.

Once again the S&P is stalled at its 200-day moving average and its tough to move the chains across that benchmark. The institutional set has got to have confidence to bid stocks through this area, at 885 in SPX currently and 8382 in the Dow. Technically, the recent pattern could be a small bull flag or just congestion - no prediction on which direction on the next move. I lean to a view for sideways to lower this week based on the faltering Nasdaq, which has been leading the rally. And, because the military advance may slow as the Iraqi's dig in and this will dampen bullish hopes for a while.

The indices ended mixed at week's end as traders and investors watched news from Iraq and squared up positions ahead of the weekend. The S&P 500 (SPX) was up 2.4 points to 878.8, the Dow by 37 points to 8277 on light volume - NYSE had 1.23 billion shares change hands versus an average of late of 1.4 billion. The Nasdaq Composite (COMPX) fell 13 points to 1383 as PeopleSoft warned on its software earnings.

Videos of Saddam Hussein making references to events occurred a few days after the first night attack provided some convincing evidence that he was alive and well enough to get around. Maybe he's had too many crispy cream donuts or the Iraqi equivalent, but he was not on his deathbed. An alive and kicking Saddam may account for the stiffer than expected resistance at various times and dampens the hope for a shorter conflict. Every week that goes by with this thing dragging on is another week that the economy can slow or where spending doesn't pick up.

Ample evidence of a lackluster and weak economy was provided by the Labor Department as they reported that U.S. Payrolls dropped by a larger than expected 108,000 in March. This followed a decline of 357,000 in February. The unemployment rate did hold steady at 5.8%, which seems to be an effect of the sizable number of jobless who have stopped looking for work. I don't blame em! - I would rather go fishing and wait a while for a more encouraging jobs picture. Hey, its salmon season in California! And the East and Midwest may see some spring any day now after the winter from hell.

The job losses are exactly in the areas that you would expect - the ones affected by the war or by the dip in consumer spending, and things that are travel related: department stores, restaurants and hotels - and the airlines, forgetaboutit! Well, except for government handouts that is. The Airline Index (XAL) rallied some 3% as Congress approved $3 billion in aid to the industry. American (AMR) was a standout performer in the group, as it rebounded some 9%.

The average work week was up slightly however. The economy is not coming apart at the seams. Imagine what could happen if there were relatively peaceful times for a year. We might all go to Disneyworld this year - hopefully, not all at the same time like they do in France. Oh, those French, they're so much trouble!

Oil prices backed off some, dropping a bit further under $30 a barrel, to $28.40. Gold was steady at $324. Gold's pattern looks like a further fall is ahead however, which is mildly bullish (or, at least not bearish) for stocks.

The Dow would have been up substantially more, but Altria (MO) dropped nearly 5% after the Illinois Senate rejected a proposal that would have put a cap on the size of an appeals bond facing its Philip Morris US group. The court has ordered a $12 billion dollar bond. The one industry that I have greater nightmares about working for than the big airlines is big tobacco - or little tobacco for that matter.

I mentioned PeopleSoft (PSFT) raining on the Nasdaq parade - the stock fell 9% after the big software maker and tech darling cut its earnings and revenue estimates. The company noted lackluster business spending, the weak economy and the war in Iraq as all combining to hurt its business. Other tech stocks suffered in the wake of it - Texas Instruments (TXN) was off nearly 5%, Computer Associates (CA) down 5% and Intel (INTC), which shaved 3% off its Thursday close.

And, last but not least - according to a report I saw on CBS/Marketwatch, who I also write for from time to time, my old Wall Street firm, Merrill Lynch, along with Credit Suisse First Boston, could be accused of fraud when regulators take the wraps off the final details of a $1.5 billion (yes, billion with a "b") settlement to change forever the way research is done on the Street of Dreams. However, this is not likely to have an impact on any civil litigation. And, we all know "they" are (or WERE) a bunch of crooks anyway. Well, maybe a TAD bit greedy at least!

Bonds fell slightly on profit taking it seemed given the strength of prior days and the dollar was up against the euro. The euro changed hands at 1.0713 at week's end. I think they ought to just peg it equal to a dollar. Then we can go to our coalition of the willing (they cheer us on but don't send troops) partner Spain and know what's what dinner at 10 euros is costing in good oh yankee dollars. I'm making a trip there this month - I'll send back a report!

GOLD is at a crucial juncture and this market is important in terms of a sort of reverse indicator for equities. If gold looked like it was going to keep going up, look for stocks to retreat. Both the weekly charts of the Philly Gold & Silver stock index (XAU) and the nearby futures contract have retreated to important technical supports. They may hold these areas and rebound some, but gold futures look bearish in that the continuous contract has broken its 40-week (equivalent to the 200-day) moving average and both have downward momentum as seen by using the MACD Indicator on the XAU -


Well, first something a bit different than usual - a couple of important S&P bellwether stocks are acting like they could go higher. A bellwether stock is one that tends to lead the market or at least should be performing "in line" with the index of which its part. GE and IBM have charts that are worth looking in this context -

GE - A decisive upside penetration of the prior high in the $28 area will bode well for the S&P index as does the fact that, unlike SPX or OEX, GE is trading above its 200-day moving average. Of course, it is an institutional darling - nevertheless GE appears to be under steady accumulation and this bodes well for the market. Bullish technicals include the solid double bottom low and the steadily rising OBV (On Balance Volume) line that is what indicates the ongoing accumulation or buying of the stock.

IBM is the other stock that is worth noting here as a harbinger for the market. Its pattern is also bullish. The fact that the company's earnings are now broadly based in computer services suggests that there may be some recovery going on in business spending.

Back to some of the shorter-term outlooks that is our bread in butter in trading the indices.

S&P 500 Index (SPX) - Daily & Hourly charts:

If GE is an indication, the breakout will be the upside, above resistance implied by the 200-day moving average but we have to wait to see if it does it. If there is a decisive upside penetration of 880, then the measuring implication of the bull flag pattern suggests a next move to around 910 - a move through 900 would likely induce short-covering type buying in the key S&P stocks. 930 is major resistance.

Key near support is at 860 in SPX, then at 845. SPX must hold above 860 to keep a bullish chart pattern intact.

The 10-day Arms Index (TRIN) is showing substantial selling over this timeframe - enough so to be mildly bullish as a contrary indicator. A high level of TRIN indicates a high level of selling of course and a high level of buying is seen in a low reading. Unlike our other indicators and as suggested by the green (downward pointing) arrows on the TRIN chart (left above), the upper line could be thought of as suggesting an "oversold" market.

On the bearish side of things technically, is the downward momentum suggested by the hourly and daily stochastic indicators. Its not usually the case to that there is a sustained rally without the oscillators reaching more oversold, or at least neutral/midrange, readings. However, if the battlefront news is perceived as good - i.e., short-war scenario - then this trumps all other considerations.

S&P 100 Index (OEX) - Daily & Hourly charts:

450 is the key near resistance, then 457. An hourly close over 457 is bullish, but better would be confirmation by a daily close above this level.

430 is key near support. OEX could drop back to this area and still maintain a bullish chart - but not so a break of 428, especially on a closing basis.

Nasdaq Composite Index (COMPX) - Daily & Hourly:

The pattern where an index or a stock "gaps" lower, then "gaps" higher such that there is a bar or a few bars in an isolated position (either on the downside or upside) is called an "island" formation. In this case it looks like a possible island bottom in the Composite. This pattern is not very common in equities, more so in commodities, but it does happen so I take note of it. It comes about due to a volatile situation in the markets, which is certainly true here.

The most bullish outlook would come from an ability for COMPX to hold at and above 1366, the top end of the 1356-1366 gap. Support should also be found at the low end of this gap, at 1356. A bullish outlook exists if the COMP doesn't pierce 1356, although 1340 is important also as the 200-day moving average level and the more or less top end of the prior trading range.

Key overhead resistance in the Composite is 1420. So far the overall chart pattern remains consistent with a bear market trend, as there is this pattern of lower rally highs. This pattern needs to be broken with a higher high to suggest that the intermediate trend might be turning around.

QQQ charts - Daily & Hourly:

The Q's have a similar pattern to the Composite, being part of the same group of stocks of course. The difference is that the Nasdaq 100 shows more of this triangle shape on the daily chart that suggests a symmetrical triangle - which, in turn, indicates that buying and selling are pretty much in balance.

However, the potential exists for buying or selling to overwhelm the other. There is a tendency for a good-sized move when there is a decisive penetration of the descending line or, conversely, a break of the rising up trendline. Stay tuned!

Key near-resistance looks to be 27-27.4 in the Q's. Support is indicated in the 24.6 - 25.3 price zone. I anticipate some follow through in the direction of a breakout through either of these areas.

I continue to want to keep my trading commitments light given the unknowns ahead. No doubt I've said before that I would rather trade off from other factors than the fog of war. The "normal" fog of the market is enough for me!

My Trader's Corner article last week went into how the technical Patterns-Indicators-Sentiment of the week before were helpful or predictive in judging the potential and price points for the rally that developed this past week found at - http://www.OptionInvestor.com/traderscorner/tc_040303_2.asp

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