It’s Only A Matter Of TIme

• March 7, 2005
• Chris Curran

The equity markets were able to put together another
constructive week of trading as the theme of outperformance in
Energy, Cyclical, and Healthcare names continued, and allowed both the Dow and
SP 500 to post new closing highs for the year.  Meanwhile, Technology shares
struggled to make much upside progress all week, despite numerous analyst
upgrades.  Profit warnings were a major reason for Tech’s underperformance, as
evidence continued to mount showing deteriorating business conditions.  Overall
breadth continues to improve, after extreme weakness in the first 5 weeks of the
year.

The March
SP 500 futures closed out the week with a gain of +12.25 points, while the Dow
surged 121 points, with both hitting their best levels in nearly 4-yrs.  Given
the breakout to almost a 4-year high, the SPX looks ready to test its 62% Fib
retracement of the bear market, which sits near 1250.  Looking at the weekly and
daily charts, the ES is forming a rising wedge, with Stochs divergence, on both
time frames, with an AB = CD pattern completion on the daily chart.  The YM
finally confirmed its weekly and daily Cup and Handle patterns, but still has
Stochs divergence on both time frames.  For you daily

3-Line Break followers, the ES and YM remain long with Break Prices of
1184.75 and 10618 respectively.

 

               

 

               

^next^

Despite the
breakouts by the Dow and SP 500, concern remains over the longer-term prospects
for both the economy and the equity markets.  The CRB Index, which is a basket
of more than 30 commodities, has posted pretty dramatic gains in recent weeks. 
And it’s not only Crude Oil that’s driving this index higher, as broad strength
has been seen in various raw materials.  The Fed also continues to raise
short-term rates with no signs of stopping.  And as we saw in 2000, Greenspan
and Co. have a habit of going too far when it comes to rate hikes.  While it may
not matter much today, it’s only a matter of time before these price increases
and higher short-term rates help inflation to re-emerge as a serious problem
down the road. 

 

Please feel free to email me with any questions
you might have, and have a great trading week!

Chris Curran