Watch This Index For Clues

August 11, 2003
Chris Curran

The September S&P 500
futures (SPU and ESU) finished slightly lower in a mixed week for the
major indexes. The S&P 500 did break the lower end of its 7-week old trading
range. But, the break happened with little downside momentum, so it’s hard to
read too much into the move at this point. The more “worrisome” situation is the
one taking place with the Nasdaq Composite. The theme of blue chip outperformance
continued last week, with the tech-heavy Nasdaq losing ground all
five days last week, and having its worst week in some time. Keep in mind, the
Nasdaq was the leader of the current rally, and if we lose it here, it could
spell trouble for the rest of the indexes. In every previous bear market rally,
the Nasdaq was the leader on the upside, but also the first to roll over.

The September S&P 500 futures closed Friday’s
session with a gain of +3.50 points, and finished the week with a loss of -1.50
points. Volume in the September ES was estimated at 471,000 contracts, which
was short of Thursday’s pace and below average. Friday’s action could be looked
at two ways. To some, it would look like a normal tight range for a Friday. But
for us intraday traders, Friday morning’s action was like slow softball pitches
right over home plate.

Especially for those of you using the 3-Line Break
method (if you’re not, you need to click

here), some of the lines were so uniform it was almost spooky (see chart)!
On a daily basis, the contract got a boost from buy-side divergence and closed
back above the lower end of its previously broken trading, but has formed a bear
flag at its 10-day MA. The contract needs to close back above its 20-day and
50-day MAs in the 985-87 area to temper some of the bears.

Looking ahead this week, the economic calendar is
pretty healthy, highlighted by the FOMC meeting on Tuesday, Retail Sales on
Wednesday, the Producer Price Index on Thursday, and the Consumer Price Index on
Friday.