Take A Look At This Weekly Chart…

  • December 13, 2004
  • Chris Curran


The major indexes suffered modest losses, as
equities spent another week consolidating their recent rally.  Aside from a
sharp decline on Tuesday, the action was pretty quiet.  It was positive to see
little in the way of downside follow-through for the remainder of the week. 
Homebuilding shares were the strongest group, thanks to upbeat earnings and
guidance from Toll Brothers.  Meanwhile, Chip shares erased much of their gains
due to lackluster news from Xilinx and Altera.  Another key development was a
long overdue bounce in the U.S. Dollar, which triggered a very steep 5% decline
in Gold for the week. 

The
December SP 500 futures closed out the week with a gain of +2.50 of points,
while the Dow futures slipped -20 points.  On a weekly basis, the ES posted a
doji and still leaves its bearish Butterfly pattern unconfirmed.  Looking at the
daily chart, the ES posted a gravestone after failing to break and hold
Thursday’s high, and continues to form a possible right shoulder of a Head &
Shoulders pattern.  The YM posted a weekly market structure high and also weekly
and daily dojis after failing at the week’s high, and still leaves the
possibility of a daily Head & Shoulders pattern. 
For you daily 3-Line Break followers, the YM
and ES both remain long with Break Prices of 10451 and 1177.75 respectively. 
In the small caps,
the ER2 posted a weekly market structure high and hanging man, and a daily bear
flag into its 10-day MA resistance.


                   

 

The U.S.
Dollar posted a weekly market structure low and closed above its 20-day MA,
signaling that a short-term bottom has been posted.  The 10-yr note (ZN) posted
a market structure low as it reversed off of its weekly hammer, and consolidated
just under its 50-day MA.  The Semiconductor Index (SOX) reversed sharply at its
50% Fib retracement of this year’s slide, and looks ready to break its weekly
bear flag.


                   

The recent
action did little to change my mind that the markets are experiencing normal
seasonal behavior.  I say this because every decline continues to be shallow,
while there also seems to be a sense of fear by fund managers about being left
behind and not getting their fat bonuses.  It’s true, however, that the long
side of the market does appear crowded and investor sentiment is very bullish. 
Nonetheless, barring any unforeseen negative events, overall downside risk
appears limited through year-end.  This may change dramatically as we move into
2005, as many longer-term structural problems still remain in place. 

Looking
ahead this week, Greenspan and Co. meet on Tuesday and the Fed policymakers are
widely expected to raise short-term interest rates by another 25 bps.  Friday’s
report on the November Consumer Price Index , a broad measure of price
inflation, will give economists more to chew on.  October’s number was
higher-than-expected amid soaring energy costs.

 

 

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

Chris Curran