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Thursday, September 16, 2004
Market Recap
It was a fairly quiet day for most of the trading session as the volume was less than I expected a day before options expiration. The three major indexes got off to a good start this morning and stayed green the entire day. However, the up volume was weak and with two hours left in the session, the volume kicked in a bit and the volatility picked up as the markets managed to give away most of their intraday gains. Despite the increased activity in the last two hours, the volume was still below average. This should change tomorrow.
The DOW finished the day up +13 points, the S&P gained +3 points, and the NASDAQ finished higher by +7 points. One positive note today was that the NASDAQ did manage to close back above 1900. With the exception of the NASDAQ close above 1900, there are no changes to the charts of the major indexes.
Looking Ahead
I closed out a few more open positions today; I was stopped out of two shorts, and I sold two longs to reduce my open positions going into tomorrow. I am now prepared to react to the new short term direction in the market which I believe will be clear by tomorrow or by Monday at the latest. I believe the market is now rested after its nice, month long run-up starting in the middle of August. The bad news is that I am leaning towards the next move being lower, but I would not be willing to bet on it at this point. I do hope that I am wrong. Whatever the direction ends up being, we will be ready to tackle it with all of our tools.
Outlook
The charts will tell the final story, but I want to share with you my theory as to what will happen in the markets between now and the election in November. If you look at a daily chart of any of the three major indexes, you will see that each uptrend or downtrend within the trading range since January lasts about six weeks. Some lasted a bit longer and some shorter, but the average is around six weeks. Now, based on my current interpretation of the charts, I believe that we are headed back down to the bottom of that trading channel. If you continue the lower trend line on the three major indexes, that would put us at around 1750 on the NASDAQ, 9750 on the DOW, and around 1060 on the S&P. These numbers are all approximate. The election is about six weeks away, give or take a few days. If we indeed head lower for six weeks and we do get to the bottom of the trading channel, the markets will then have put in a double bottom right around election time. At that time I think we are either headed into a longer bear market, or we will rocket up with a nice rally into the end of the year.
This of course is simply a theory at this time and by no means should we rush out and short a ton of stocks. The charts will give us plenty of warning if we are headed lower or higher. So we will have plenty of time to enter long or short positions accordingly. I do hope my theory is wrong because we all prefer bull over bear.
Reminder: I urge you to use caution, and I do not recommend opening any new positions tomorrow unless you can watch the markets for the entire day. The volatility should be high making it very difficult not to get stopped out of your positions.
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