Target Practice - Morning Market SnapShot for Wednesday, August 18, 1999
The media hailed the slew of economic numbers released yesterday as ?benign?, with most news stories interpreting the numbers in a favorable light. Treasury Bonds rallied, causing interest rates to drop. Even the beleaguered Dow Jones Utilities Index made a reversal day on a Japanese candlestick named ?hammer?. To be sure, Treasury bonds are now considered to be inside a trading range, but still, it?s better than being down.
The Dow Jones Industrial average, laden with cyclical stocks, is the strongest index at the moment, moving back to the top of the trading range that has held since May. The NASDAQ 100 Index is trading above both the 20-day EMA and the 50-day MA. The CBOE Internet Index broke through the 20-day EMA today on the upside and is on its way to test the 50-day MA. On note of caution on the Internet stocks is that they have been rallying on contracting volume, typical of the classic Edwards and Magee bear flag ? a bounce in a downtrend. Internet stocks could be vulnerable on any hesitation. As an aside, the Gold and Silver Index (XAU) pulled back to the 20-day EMA over the past few days but bounced off to move higher yesterday. It is interesting to see gold move higher in this ?no inflation? scenario.
The S&P 500 Index, representing a much broader view of the overall market has reached an important juncture in this recovery bounce. Looking at the September S&P futures contract, we note that there is a gap from about 1360 to 1370. Naturally, traders will be looking to see if this gap can be closed successfully to the upside or if it finds sellers in this area. Of particular interest, the resistance zone is in an area between 50% to 60% recovery of the decline since the all-time high set in mid-July. Often, bounces in a downtrend will recover to this extent before finding resistance. On the 45-minute chart, we can see that at the open this morning, the September S&P will be set to test the high of the recovery bounce set yesterday morning. The uptrend line since the bottom last week has been nice and neat, almost a little too tidy to hold for much longer before a break comes.
For more information on Edwards and Magee patterns, please refer to John Magee?s book Analyzing Bar Charts for Profit amazon.com
For more information on Japanese Candlesticks, please refer to Steve Nison?s book Beyond Candlesticks amazon.com
For more information on The Trader Vic 1-2-3 test of top technique, please refer to Vic Sperandeo?s book Trader Vic-Methods of a Wall Street Master amazon.com
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