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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: Alex MG who wrote (17104)	5/8/2003 10:00:59 AM
From: Alex MG	Read Replies (3) \| Respond to of 19219

Thursday, May 08, Richard Rhodes This rally is at a breaking point The current rally in all of the major indices continues to trade within what I would consider to be a near picture-perfect bearish set-up. Prices will move lower in the near term as well as the intermediate term. To explain, the rally has now progressed to levels considered to be substantial overhead resistance -- I did not expect the rally to move this far, but it has. I would expect sellers to move into the market to establish short positions, and as the indices begin to fail, I would further expect traders and portfolio managers to begin selling. I expect modest selling at first, and then at an increased level as the indices move lower than many expect. If prices are able to break below the 200-day moving averages on the respective indices, then a major bullish technical tenet will be removed and selling will be the order of the day. However, as an alternative, if the indices do successfully test these moving averages over the course of several weeks, then it will be clearer a longer-term low has been established and long positions will be warranted. On Tuesday, the Federal Reserve's Open Market Committee announcment that it would leave interest rates unchanged was expected. But the panel further stated the risks were balanced not towards inflation, but deflation. This interesting yet frank statement is clear cause for concern if one is long the equity markets, for if the second-half recovery is alive and well there wouldn’t be any need for a bias such as this. They would have pointed to increased strength in underlying confidence, given that bond risk spreads have narrowed and that the fog of war has cleared. Or they could have simply stated it was still too early to determine the risks. But the statement was in my opinion an admission that the war's end wasn’t going to produce the required change in business sentiment or confidence sufficient to produce an increase in capital spending. The second-half recovery may occur, but it certainly will be far more muted than anyone expects. Thus, bond market yields are declining sharply while the U.S, dollar is in near-freefall. I believe it the latter circumstance that no one is picking up on. At some point, it becomes a problem for the U.S. bond and equity markets -- the real question is when. I'm not smart enough to determine that date, but it will become a problem when people perceive it to be a problem. Suffice to say that if the dollar continues to fall precipitously, this cannot be bullish for capital flows to the United States. The impact is clear in the bond market, and it shall become much clearer in the equity markets as this issue becomes front and center in the media.