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Index Wrap

Triple Witch Monday

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Buyers seemed to just disappear late Friday, and were hard to find today as three major geopolitical developments turned out to be a negative post-Triple Witch Monday.

Any positive news on the geopolitical front faded over the weekend as Pakistani officials said that al-Qaida's second in command may have escaped last week's fierce battle through underground tunnels, while in Taiwan, stocks fell a sharp 6.7% as opposition leader Lien Chen demanded a recount of this weekend's hotly contested presidential election, which gave incumbent Chen Shui-bian a narrow victory.

Fears of further terrorist strikes on a global basis were fueled after Israel's killing of sheikh Ahmed Yassin, the spiritual head of Palestinian militant group Hamas, sparked unrest and calls for revenge against Israel and the United States.

Market Snapshot / Internals - 03/22/04 Close

Market internals were decidedly negative in today's trade, and NH/NL breadth at the NASDAQ was close to even as if a sock is being turned inside-out. All equity-based sectors I follow in my QCharts U.S. Market Watch table finished in negative territory, with the Natural Gas Index (XNG.X) 221.12 -0.73%, S&P Banks Index (BIX.X) 343.26 -0.79%, AMEX Gold Bugs ($HUI.X) 226.67 -0.80%, Semiconductor Index (SOX.X) 458.90 -0.96% and Dow Jones Home Construction Index (DJUSHB) 655.38 -0.99% as relative strength winners, while Airlines (XAL.X) 50.32 -3.21%, Internet (INX.X) 170.05 -2.98%, Biotechnology (BTK.X) 509.71 -2.9%, Disk Drive (DDX.X) 118.42 -2.67% and Broker/Dealer's (XBD.X) 672.71 -2.39% paced broader-market declines.

Pivot Analysis Matrix -

The SPX, SPY, OEX, NDX and BIX.X didn't take their time in trading their weekly S2s in today's trade, but did manage to find buyers at those levels. An intra-day study of the SPX shows that once the SPX broke below its WEEKLY S1 of 1,099.67, a subsequent bounce from 1,903.42 in the morning, found immediate selling to a new session low when the SPX traded back above its WEEKLY S1 and trade of 1,100.71.

Dow Industrials ($INDU) PnF Chart - 50-point box (conventional)

Today's trade at INDU 10,050 is a second-consecutive double- bottom sell signal on the INDU's point and figure chart. While I'm limited by horizontal width, this would be the first time we've seen the INDU give two consecutive sell signals since the strong rebound from the March lows. Other double-bottom sell signals and bearish vertical counts were negated by a "buy signal," which I've circled in GREEN. Bears will most likely be aggressive with a short/put on any bounce back near 10,300- 10,400.

Dow Industrials (INDU) Chart - Daily Intervals

This is an updated chart of the INDU, where conventional (PINK) retracement and fitted retracement (BLUE with RED 38.2%) was used in the March 12, 2004 09:00 AM EST morning update, after the INDU had broken below our MONTHLY S2 of 10,271.78. With the SPX, OEX and NDX having traded their WEEKLY S2's in today's session, a break below the psychological 10,000 level and WEEKLY S2 of 9,966.25 would have INDU 9,902 and DAILY S2 of 9,913 the more technical level where we might look for a near-term oversold bounce. The PINK retracement shown on the INDU is conventional retracement taken from the October lows to recent highs, where the 38.2% retracement ties in nicely with the INDU's point and figure chart bearish vertical count, where 9,400 would be a minimum downside level of bullish risk.

S&P 500 Index (SPX.X) Chart - Daily Intervals

Friday's "no bid" for stocks just after 02:00 PM EST and some of the option action noted in the QQQ, which was addressed in this weekend's "Ask the Analyst" column suggests that bulls weren't willing to take possession of stocks at the quarterly expiration (see this weekend's Ask the Analyst). While the major indices all look deeply oversold on a short-term basis, this weekend's geopolitical developments seems to have buyers looking for lower levels of trade before stocks become "cheap enough" to start firming.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

The QQQ found its intra-day low just when Microsoft (NASDAQ:MSFT) $24.50 -0.52% found its intra-day low of $24.01, when news reports began circulating that the software giant will reportedly be fined $613 million by the European Commission, for unfair trade practices. Right now it seems crazy to think the QQQ might muster any type of rebound above the $36.00 level, but the closer to a downward trend a bear can look to short the QQQ, the better. First sign of any rebound, where we might see some short covering is above the WEEKLY S1.

Jeff Bailey

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