Here’s My Main Focus This Week

Stock index
futures lost more footing in what was one of the worst weeks of 2004 for the
equities markets.  Rather than any one specific catalyst to pin the declines on,
issues such as China slowing down, interest rates rising, inventory building in
the tech sector, and inflation picking up were among the

excuses used by the pundits. 
To top things off, “good” news on the earnings and economic fronts was sold.  By
and large, there was nowhere to run and nowhere to hide as the declines were
extremely broad-based across the board.  Technology shares were by far the worst
performing sector with the NASDAQ Composite losing roughly 6.3%.

The June SP
500 futures closed Friday’s session with a loss of —8.00 points, and finished
the week with a loss of —39.50 points.  Volume in the ES was estimated at
817,000 contracts, lighter than Thursday’s record-setting pace, but still above
the daily average.  On a weekly basis, the ES settled just below its 200-week MA
(the cash SPX settled right on its 200-week MA), but is still holding above the
March lows.  Looking at the daily chart, the ES is testing its lower channel
line and is possibly forming a bullish Gartley with a reversal target around the
1100 area. 


               

 

On an
intraday basis, the 60-min and 30-min channels held the fort, but with the
midday sideways trading, they’ve started to form bullish wedges with some
divergence thrown in.

               

^next^

June bonds
(ZB) posted a market structure low and bullish engulfing line on short-covering,
but the 10-yr yield was able to hold at 4.5%  The U.S. Dollar posted a weekly
market structure high and settled right on its broken weekly downtrend line
support.  The Banking Index (BKX) reversed off of the top end of its 2-week
trading range to post a gravestone, but managed to close above its 10-day MA
resistance.  The Semiconductor Index (SOX) broke its weekly head-and-shoulders
neckline, but settled right at its 38% Fib retracement of the 2/03-1/04 rally.

At the
close of trading on Friday, the key indexes were all down for 2004.  This result
stands in sharp contrast to what the majority thought would be another fantastic
year for stocks.  Any number of things can be blamed for the lackluster behavior
of equities, but the fact of the matter is that stocks are being sold into a
news backdrop that has largely been more positive than what we saw in 2003. 
This suggests that the stock market could very well be looking ahead to problems
that may be further down the road.

I don’t
want to make too much of what has transpired in recent weeks, simply because the
major indexes remain in the same trading range they have been in for much of
2004.  More to the point, some sort of consolidation phase was needed after the
sharp rally.  What really concerns me, however, is the obvious continued
deterioration in market internals.  Historically, when volume expands to the
degree it has on down days, it’s an extremely bearish sign.  And with the
exception of the Biotech sector, the market leaders from 2003, such as the
Semiconductors, are all breaking down.  Should the March lows be taken out with
authority, the running of the bulls may be over for awhile.

Looking
ahead this week, the main focus will be on Tuesday’s FOMC meeting.  Most Fed
watchers aren’t expecting a rate hike until August, but the wording of the
policy statement is bound to be dissected.  A busy week for economic reports
ends Friday with the April Unemployment report.  Last month’s payrolls number
was better-than-expected, with 308,000 jobs added, so market players will be
looking for other positive signs.  Forecasts are calling for an increase of
175,000 in payrolls.


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

Chris Curran