Market Analysis for Mar 25th, 2004

First of all today, there's just no selling pressure at all. Late yesterday when we had that story about the bombing on the French train, the market swooned but managed to spike off of that, and since yesterday afternoon the market's been grinding higher into today's action. We gapped up on the opening and have been grinding higher ever since.

For most of the day people's eyes have been focused on 1100 in the June E-mini S&P as critical near-term resistance from the last three days. Although it tried a few times and nearly looked like it was going to fail to get through, right after noon Eastern it did pop through 1100 and ended our preferred next target of 1104-06.

However, there is just no selling pressure. That's the bottom line, and so it wouldn't surprise me if the indices rested here for the next hour or so, maybe pulled back a little bit towards that 1101-1100 area, and then took off again towards 1106 and perhaps 1110.

Now 1110-11 is critical resistance that comes down off the March 5 trendline. It cuts across March 19, and the coordinate is 1110-1111. So if the E-mini June S&P can hurdle 1106 we should expect a confrontation between the price structure and the trendline at 1110. That will tell us a lot about just what kind of market we're in. If we can take out that trendline, then we'll have to revise our suspicion that this is a recovery rally and perhaps become a little more bullish in the overall pattern.

Nonetheless, in both the E-mini Nasdaq and E-mini June S&P, the levels that will determine whether or not this rally is a recovery rally or the beginning of a new leg in the March 2003-04 bull move are the following:

The 1128 level in the June E-mini S&P. If that's hurdled I think we will have very strong signals that a significant bottom is in place off of the first quarter decline, and in the E-mini Nasdaq we're looking at 1436. If that's taken out on the upside, I think there'll be follow-through there and we'll have to become much more bullish in general than so far we've become, largely because this has been just a corrective rally so far.

In the E-mini June Nasdaq, any pullbacks from the 1415-20 area should be contained in the 1405-1400 area. A break below 1396 would be problematic and suggest that we have witnessed a potent headfake rally and a resumption of the downtrend that has been in existence in the Nasdaq indices since January 20 highs.

With regard to the QQQs, they obviously have acted just like the Nasdaq, broke above the March 5 trendline in that index at 34.85, and continued to the 35.10-.15 area. That's pretty much no man's land, and while it is a bullish omen that the Qs broke above 34.80-.85, which was key resistance, and have followed through, the real important resistance that demarcates the Qs as either in a dominant bear move or a neutral-to-bullish move thereafter would be a break above last week's high to 35.62.

So right now the Qs have some work to do without a doubt, although they've made a big move in the last two days from roughly 34 even to 35.21. So on a recovery basis, they should be fairly exhausted, but on a larger basis the next pullback will tell us a lot, and as long as the 34.90-.80 contains any pullback weakness, the next rally should assault that critical resistance area at 35.60-.62

If that's broken then we have a new upleg in progress, and there's probably considerably more upside to go to recover a lot more of the January-March decline.

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