Near-Term, These Longer Term Issues Shouldn’t Cause Much Trouble

December 22, 2003
Chris Curran

Once again, it was the S&P 500 and the Dow turning in
impressive performances, while the tech-heavy Nasdaq lagged
significantly. The major indexes all looked ready to start the week in a very
strong fashion, thanks to news of Saddam Husseinâ€™s capture over the
weekend. However, the market did its best job of inflicting pain on the most
amount of players as the opening levels proved to be the highs for Monday’s
session. Nevertheless, there was no follow-through to the downside on Tuesday,
which seemed to give the bulls some confidence. From there, stocks and stock
futures rallied for the remainder of the week with Cyclical/Industrial names
paving the way higher. Overall breadth was solid, which is always nice to see
during strength.

The March S&P 500 futures
closed Friday’s session with a loss of -3.00 points, and finished out the week
with a gain of +12.50 points. Volume in the ES was estimated at 539,000
contracts, which was behind Thursday’s pace but just above the daily average. On
a weekly basis, the ES posted a dragonfly doji and is becoming extended above
its 10-week MA. Looking at the daily chart, the contract posted a market
structure high off of the top of its trading channel, and also has some room to
consolidate down to its 10-day MA in the 1,072 area. On an intraday basis, the
60-min, 30-min, and 13-min charts all confirmed the bearish Butterfly patterns,
but retraced some ahead of the weekend and settled on 60-min and 13-min
support.

Moving
forward, market conditions should be quiet over the next two weeks due to the
holidays. Since there really aren’t any foreseeable negative catalysts at the
moment, equities could continue to work their way higher in a slow manner. It
would not surprise me if technology and small-cap shares re-emerged as the
market leaders. Both the Nasdaq Composite and the Russell 2000 historically do
very well in January, so it may not be long before rotation back into these
shares gets underway.

Overall, I
continue to view the current environment as a pretty benign one. Market
fundamentals appear to still be solid, while the economic recovery still remains
in decent shape. There are still many longer-term concerns such as valuations,
debt, and the consumer. However, in the near-term, I don’t see these issues
causing much trouble for stocks, and the path of least resistance could continue
to be upward. That doesn’t mean that every single day will be up, up, and away.

My eyes
are starting to glaze over from all the top-pickers continually spamming me
every time we have a down day with â€œThis is it, sell your stocks! We have a
rare Wave 159 that is lining up with the orbit of Venus. This has only occurred
twice in the last 3,000 years blah blah blah blah blahâ€ If they followed their
own top-picking signals this past year, theyâ€™d all be living in cardboard
boxes. Who knows, maybe some are!