Use this chart pattern as your short-term roadmap

September 12, 2005
Chris Curran

The major indexes were able to put together another
impressive week of gains during the
holiday-shortened week. These gains came despite widespread
skepticism over the economy and earnings in the quarter ahead. However, most
market players seemed more focused on the possibility of the Fed pausing and the
possible bullish implications of the rebuilding of hurricane damage. The
overall tone for the week was pretty bullish, as every bit of weakness was used
as an opportunity to buy stocks. Energy and Technology shares were the
strongest groups, while Transportation shares lagged. Volume wasn’t as heavy as
I would have liked to have seen to confirm the gains, but it wasn’t too low
either in light of the holiday-shortened week.

The
December SP 500 futures finished the week with a gain of +22.50 points, while
the Dow futures posted a similar gain of +219 points. On a weekly basis, the ES
closed at new multi-year high and continues to form a rising wedge. The YM
closed at its highest since March ’05 and is trying to break its symmetrical
triangle pattern. Looking at the daily charts, both contracts paused from their
Gartley reversals, and posted a market structure high. On an intraday basis,
the 60-min charts have become a bit extended and are trying to break rising
wedge patterns. For you daily 3-Line Break followers, the ES remains long with
a new Break Price of 1216.50, while the YM is long with a new Break Price of
10480.

While the
major indexes are close to breaking out to new highs for the year, I believe the
recent gains are pricing in the possibility of the Fed stopping their rate hikes
later this year. This could lead to further near-term gains, but it could also
be setting the stage for a “sell the news” reaction when the FOMC meeting does
take place on September 20. Also, if the economy is going to be as strong as
many believe, because of the rebuilding of the hurricane damage, the Fed may
have little choice but to become more aggressive in its tightening several
months from now.