The Good And Bad News About Last Week’s Action

The major indexes posted their worst week in some time,
as the combination of worries over the Fed, lackluster earnings reports, and
mixed economic data all contributed to the declines.  After a mixed session on
Monday, the equity markets were able to put in a key reversal to the upside on
Tuesday on the heels of hope from the March FOMC meeting minutes.  However,
reality set in and that reversal proved to be a bull trap, as the following 3
sessions saw extreme selling.  Friday’s session was particularly ugly, with
equities being sold in a fashion reminiscent of what we saw in 2002.  Cyclical
shares saw the worst of the weakness, as the prior leaders of the bull market
were hit hard.  Healthcare was the only sector to relatively hold up, given the
sector’s ability to perform in most economic conditions.

The June
SP 500 futures closed out a miserable week with a loss of -40.00 points, while
the Dow futures closed with an equal relative loss of -392 points.  The ES broke
its 40-week and 200-day MAs and settled right on support marked by previously
broke multi-month resistance.  The YM also broke its 40-week MA and really has
no hard support down to its October ’04 lows.  For you daily 3-Line Break
followers, the ES and YM are still both short with Break Prices of 1195.25 and


The good
news about the week’s action was that we finally saw the much-needed panic
selling that usually transpires near the end of a move.  However, the bad news
is that the tail end of a broad-based decline can often be when the most severe
damage takes place.  I would think that the key indexes are not far from putting
in an intermediate-term low.  Sentiment by many measures has finally reached
levels that are often associated with market lows.  We are also finally starting
to see a pick up in volatility and volume, which are both usually needed to mark
a turning point.  Make no mistake, the market is still in trouble with regards
to longer-term structural issues, but the stage finally looks set for a decent
tradable rally.  However, remember that it’s important to wait for confirmation
that a turn is at hand, before trying to catch the falling knife that sliced a
lot of bottom-pickers last week. 


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

Chris Curran