This Will Be Key To Sustaining Bullishness

December 15, 2003
Chris Curran

The
March
SP 500 futures were able to post new closing highs for
2003 last week, thanks to benign comments from the FOMC with regard
to a possible tightening cycle. With interest rate-sensitive shares leading the
way higher, the S&P 500 and the Dow showed good relative strength, while the
Nasdaq underperformed for the 2nd straight week due to market players shying
away from higher beta stocks.

The March SP 500 futures closed
Friday’s session with a gain of +1.50 points, and finished the week with a gain
of +11.75 points. Volume was 518,000 contracts, which was behind Thursday’s
pace and the daily average.

Note: The market will be
trading on high emotion Monday morning so realize that your normal tools for
support and resistance may not work as well, if at all. On a weekly basis, the
contract continues to ride its uptrend with support trailing in the 1,050 area.
Looking at the daily chart, the contract still has room to test the top of its
trading channel in the 1,080 area. On an intraday basis, the 60-min down to the
3-min charts all closed with cups and handles.

Looking ahead this week,
obviously the big news will be the capture of Saddam Hussein. This will be a big
psychological event for the market, and it will closely be monitoring each and
every word that comes out of his mouth. The market most likely will give us a
big gap for the open, so don’t try to be a hero by blindly stepping in and
expecting to fade the emotion. The economic calendar gives us the NY Empire
State Index on Monday, the November CPI on Tuesday, and Leading Indicators and
Philly Fed on Thursday. This week is the only full week of trading out of the
next 3, and we also have options expiration on Friday.

Aside from
the Saddam news, I feel that
the key for any sustenance to the market’s bullishness is to see some sort of
re-emergence in technology shares. The rumors of inventory building in Asia
have started to become louder in recent weeks, which could present serious
problems early in 2004. Remember, if end-demand fails to live up to the very
high standards that tech companies (largely chip companies) have set for the
next few months, the potential for another technology bust, similar to
April-October of 2002, will increase. At the same time, the exploding demand
for U.S. tech products in China is something that has really not existed to the
current degree in the last several years. This is one aspect that the bears may
be overlooking, however, the Chinese government has been taking steps to try and
slow down their economy before inflation rears its ugly head.