Market Analysis for Mar 18th, 2004

The day started off on the downside with overnight weakness, which was not a surprise since in the latter part of the last hour yesterday all the indices tried to get through key resistance in the E-mini June S&P at 1125 and in the E-mini June Nasdaq at 1435. Both touched those levels but failed to get through, came back a little bit before the close last night, and spent the entire overnight session zigzagging to the downside.

The weakness accelerated this morning. We had designated targets, for instance, in the E-mini June S&P between 1114 and 1110 for the most likely place where we thought the index would pull back to and show the ability to turn to the upside.

As it turned out the low was 1111.50, which was right in our target zone, but what happened after that is really classic. There was a rumor that Pakistani soldiers had trapped an Al Qaeda bigwig on the border. The market went from 1111.50 to 1125 very quickly until the news came out that it wasn't Bin Laden but the Number 2 guy.

Once the news came out it wasn't Bin Laden, the E-mini June came careening down from 1125 to 1118, which is where we are now. 1118 is pretty much right in the middle of the range, 7 points off the high and about 6-7 points off the low.

Basically, as I see it, as long as the 1111.50 low from this morning contains any weakness from here, our work will look at the pivot this morning as a secondary low and a correction to the upside that is incomplete.

If that proves to be correct, then at some point -- maybe 1117, maybe 1115 -- - as long as it's above 1111.50 the E-mini June S&P will pivot again to the upside and rocket through 1125.

The question is, How much more upside is there? On the intraday charts, you can make the case for 1138-40.

On the daily charts, though, there is so much pressure from the substantial moving averages at 1134-35 that it seems to me that any upmove here that breaks above 1125 and sustains and follows through to the upside will have real problems taking out 1135. So that's the target area I would use as the next objective in the E-mini June S&P.

With regard to the QQQs, the Qs have been having a wild session also, but our suspicion this morning into the lower opening was that the Qs would probably have a deep correction off their Tues-Wed upmove from 34.63 to 35.62, and that deep correction would probably fill the gap left behind yesterday at the opening. That was filled at 34.96. Today's low is 34.97. Right after it filled the gap and showed a little stability, you had the rumor mill start up about Bin Laden and it rocketed the Qs to an intraday high of 35.46.

But it has pulled back to 35.18 or so, where we sit now. As long as the low at 34.97 remains intact as the low for this move, then all roads continue to point higher to a full-fledged retest of yesterday's at 35.62. If that's taken out, the next target is 35.80-.90.

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