Reply #1: WrapUp by Ike Iossif - weekly charts [View All]

[ozymandius]

"Weekly Charts"

Last week (2-6-04) I said: "We did get the additional 2% loss in NASDAQ, but the SP held above the critical 1122 level, while all indicators got near the bottom of their range. Last week's action was identical to the action that we have seen over and over since March of last year. We got a sharp internal correction, while giving up very little in terms of price, suggesting that the bull is alive and well. The only element of difference in this latest corrective episode was the total absence of concern, or bearishness on behalf of market participants, no increase in the assets of the Rydex Bear Index funds, no spike in the put/call ratios. Strictly speaking from a technical point of view, since the SP held above trend-line support at 1122, and given the strong breadth that accompanied Friday's rally (over 2000 net advancing issues), in combination with the rising Thrust Oscillators, the odds favoring continuation are better than even! Consequently, as I said last week, we ought to trade on the long side with a stop loss at the support levels indicated in the table below. We got two concerns going forward, one is the lack of total concern among market participants, the other is the fact that the McClellan Oscillator got to the -200 zone for the NYSE. Usually when it gets to that level, we get a rally up to the zero line, and then it turns back down again. In summary, the technicals and the price action are telling us to be bullish. At the same time, the action by the McClellan Oscillator, and the lack of bearishness on behalf of market participants also suggest that we need to keep trailing stops on long positions."

(Current for week of 2-17-04) The indices did rally as I had expected--even though NASDAQ lagged badly--and as soon as the McClellan Oscillators got back up to the zero line, the markets, and the Oscillators turned down. Does this action mean that the rally has failed, or does it mean that the indices are simply consolidating and they will continue higher? Given that all indicators are near their respective zero lines, it means that as of Friday's close the overall technical condition of the markets is NEUTRAL, and for the short term, the odds are almost even between a rally failure, and a continuation. So, what are the signs that will tell us which way the balance is shifting?

<cut>If the markets rally over the next 4-5 days, then these ratios will be back where they were 2 weeks ago, which means in all likelihood the markets will stall again. Therefore, do not get too enamored with long positions.


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