This Would Be The Most Favorable Outcome

  • November 1, 2004
  • Chris Curran


The major indexes were able to post solid gains for the
week mainly due to the combination of a drop in the price of crude
oil and some resolution in Elliott Spitzer’s investigation into the Insurance
industry, with Financial and Technology names leading the way higher.  Both
volume and breadth were extremely bullish and went a long way towards confirming
the move.  At the same time, it’s important to remember that equities were
deeply short-term oversold coming into the week, so the bounce may turn out to
be nothing more than a rebound from oversold levels.

The
December SP 500 futures closed out the week with a gain of +34.25 points, while
the Dow futures surged +106 points.  On a weekly basis, the ES posted a market
structure low and bullish engulfing line off of its Feb. ‘03 uptrend line,
however, it couldn’t close above its March ‘04 downtrend line.  Looking at the
daily charts, the ES barreled through a lot of MA resistance to settle right at
its previous daily downtrend line.  The YM also posted a weekly market structure
low and bullish engulfing line, but the weekly downtrend is still intact.  For
the 3rd day in a row, the YM found support at its Daily Pivot, and
posted another spinning top at its 62% Fib retracement of its October down move
and its 20-day MA.  For you 3-Line Break followers, both the ES and YM break
prices moved up to 1096 and 9749 respectively.  In the small caps, the ER2
posted a weekly market structure low, but still remains pinned under its
previously broken 8/13-9/28 uptrend line.

               

Looking
ahead this week, all eyes will be on Tuesday’s Presidential Election.  Not only
will market players be reacting to who wins, but most will also be watching for
the likely legal challenges that will erupt (especially in the event of a very
close race).  The stage has been set for problems as thousands of lawyers have
already been hired by both sides to monitor the election.  A clear victory by
either candidate, without protest, could actually be the most favorable
outcome.  While the stock market clearly favors President Bush, the gridlock
that would result from a victory by Senator Kerry has also historically been
favorable for the economy. 

Currently,
the key indexes appear pretty neutral.  When looking at a combination of
technicals, fundamentals, economics, and sentiment, they all provide a very
mixed outlook.  While the technical outlook right now is very much up in the
air, it’s clear that both economic and corporate profit growth have slowed. 
However, it’s unclear as to whether they will continue to slow.  Sentiment,
according to most gauges, has recently turned extremely bullish, as most pundits
are anticipating the post-election and year-end rallies. 

 

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

Chris
Curran

 

 

 

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