Market Analysis for Feb 17th, 2004

The amazing thing about the markets today is that after a long weekend and a terrible Friday, in which the E-mini March S&P pivoted at 1157 roughly and plunged to 1142 -- the market is very much higher. It started inching higher late Friday, and was up 3-4 points on Monday (when the electronics were open), and then this morning and in pre-market it was up 6 points. Now the S&P is up 11 points. So it retraced the entire move from Friday. There is no selling pressure. It is remarkable to me that you could have a move like that Friday and then the selling pressure evaporates like it never existed. The markets just pick up and grind higher and higher.

Right now we've been consolidating between 1155 and 1157 for the last 2 , hours, and it appears, even though we're a bit overbought, as though there's one more blast to the upside in the E-mini March S&P that should take it to around 1160.

Having said that, if it turns out, as overbought as we are, that there is not much buying power left and the market drops below 1154 before it has a chance to take off to 1160 (which would be a new high since March 2003), then I'm going to get signals in the opposite direction that the index needs a rest. In effect, we have carved out from last Wednesday, February 11 another one of those wide ranges, from 1159 roughly on one side to somewhere in the vicinity of 1144 to 1142 on the low side. If we fail to make new highs today above the top of that range, today's high at 1157.75 or thereabouts will represent the next coordinate at the top of the range. Chances are, then, that we'll zig and zig and grind our way back down towards 1144 or so.

But we have no evidence that it's failed yet. So let's take the bullish case for the last two hours of trading and expect that we'll see 1160 -- 1161 perhaps -- at some point before the close today.

As for the QQQs, they have acted similarly to the E-mini indices in that Friday it pivoted to the downside from 37.58 to 36.76. In spite of that smack to the downside, it has recovered most of that entire move, getting as high as 37.51. Now a break above 37.58 would be near-term bullish, sending the Qs to test 37.70, which is the February 12 high.

A break above that February 12 high could be extraordinarily bullish and would rekindle that head-and-shoulders base pattern that we were looking at in the middle of last week. If that triggers upside acceleration based on a head-and-shoulders base pattern that started at the end of January, you could find yourself at 38.60-.80 in the Qs very fast once it takes out 37.70 on the upside.

But one step at a time. First it needs to take out 37.58. If that happens there will successive waves of bullishness above that, and we'll evaluate each as it unfolds. Conversely, if it can't get above 37.58, the Qs are still in a messy pattern, and will probably end up having to fill today's opening gap, which is down near 36.97, before it tries to make another attempt at the 37.58 level.

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