Currency and Pre-announcements and Oil – Oh My!

Thursday, September 25, 2003 | 03:19 PM

An unholy trinity of negatives is weighing on equities: From the G7 meeting, we got weak dollar to start off the week; Pre-announcements from firms across varied sectors – Level 3 Communications (LVLT), Verizon (VZ), Viacom (VIA.B), Dupont (DD), Kroger Co. (KR), and the New York Times Company (NYT) – added to the worries; Lastly, the surprise cut in oil output by OPECsent crude prices higher.

On top of all this, signs are now appearing that the consumer is starting to fatigue. That’s a very large potential danger to the broader recovery. The spendthrift consumer has been the backbone of the economy, while business spending has been AWOL during the past three years.

But why are these issues having resonance, and why now? These factors arise at the point in this rally where the markets have become ripe for consolidation. The pundits and gurus will pick whichever excuse they find to be most convenient to their models, and use them as justification for the recent sell off.

How the markets’ internals respond to these pressures will be more telling than these underlying issues actually are.

Technically, Monday was the first heavy volume breakdown in Price since this rally began. The bounce back on Tuesday was on light volume, setting up Wednesday’s heavy volume sell off. This suggests that we may be entering a distributive phase of the rally. While the longer term trend remains upwards (we have not violated that red trend line), internals are weakening somewhat as the Bulls tire.

There are other signs that the market needs to take a breather. The advance/decline ratio has weakened, as has the up/down volume. For the first time since March, Price is diverging from Momentum.

The bottom line is that corrective action is necessary for healthy market anyway. As the nearby chart reveals, what’s at risk presently is not the six month old rally, but rather, the more recent, fast-rising and frothy channel. In our opinion, this suggests a mild (5-10%) pullback from the peak towards recent breakout levels. On the Nasdaq, that’s 1760 or so; The psychologically important SPX 1000–1010 is the 1st level to watch; the next is 965 or so. On the Dow, 9310 is the zone to watch.


Chart of the Day
Intermediate term trend (red line) still very much intact; The breach of the recent move (green line) suggests a pullback to support in the 1760-1780 levels.

Nasdaq 6 Month Chart
trend break.gif

Source: RedWoodTechnimentals

Support levels are not far below present levels; Corrective activity should be limited to a 5-10%. Internal trends (and near level supports) suggest corrective activity should be shallow.


Random Items
Back to the bubble
New Tricks for the VIX
Iran Signals Readiness to Cooperate
In Key Swing State, Economic Gains Are Still Tenuous (WSJ Poll)
Upstart Labels See File Sharing as Ally, Not Foe
Geek Eye for the Luddite Guys

Quote: "Life is like a great big grinding wheel. Whether it wears you down or polishes you up depends on what you’re made of." -Author Unknown

Thursday, September 25, 2003 | 03:19 PM | Permalink | Comments (0) | TrackBack (0)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post

bn-image

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00d8350247e153ef

Listed below are links to weblogs that reference Currency and Pre-announcements and Oil – Oh My!:

Comments

The comments to this entry are closed.



Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      

Archives

Complete Archives List

Blogroll

Blogroll

Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:


Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites

FeedBurner


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo

Disclaimer

Disclaimer

Odds & Ends

Site by Moxie Design Studios™

FeedBurner