Market Analysis for May 20th, 2004

After yesterday's upside failure, after it broke out from a key level on the E-mini June S&P over 1103 and went to 1105.50, it didn't have another higher tick and failed miserably. To me that failure was the conclusion of the entire corrective process that started on the May 12 low at 1075 1/4.

If that's correct then the S&P has started a new downleg that began yesterday afternoon at 1105.75. The question is: Where are we now? We went from 1105.75 to 1084, which was hit yesterday afternoon, and had a brief rally this morning to 1092.75 and then we plunged to 1084 again. But that 1084 has held.

So it's conceivable we're still in a correction that could take out the 1092.75 area and go to 1098 or 1100. That's why the current market action is fairly tricky, especially since tomorrow is May options expiration.

So anything can happen here. The only thing my work tells me absolutely is that as long as 1092.75, the high from this morning, remains intact, the micro work will remain bearish.

But if that high this morning is taken out, then we'll probably extend the corrective portion of the move from 1084 up to perhaps even as high as 1100 before we roll over again into another steep decline.

The one thing my work is convinced of is that yesterday's high at 1105.50 is a very important high. As long as that remains intact, the near-term trend is down, regardless of what the micro trend does. So that's the key level.

From a micro perspective, though, 1092.75 is key, and that will suffice for today. If the S&P fails to get through 1092.75 and loops around to the downside again later today and takes out 1084, then I think we could have a plunge below 1080, perhaps even to test the 1075 level from last week.

Regarding the QQQs, the Qs at 1:30 Eastern are trading at 34.82, which is right in the middle of the range for today but also in the lower portion of the downmove that started yesterday at 35.50.

So the Qs basically have made no net upside progress for today in terms of the overall pattern from yesterday's high. That pattern has exhibited a bearish form and suggested we started a new downleg in the bear move that started in January.

If my work is correct and as long as 35.50 remains intact as yesterday's high, the Qs will remain bearish, and regardless of what they do intraday will work their way down to take out or test first the 34.11 low from last week.

As far as the intraday work goes, today's key level is the high at 35-35.02. If 35.02 is taken out at any rally intraday today, then you'll probably continue higher into the 35.30 area. Again, with options expiration coming tomorrow, anything can happen as we get closer and closer to today's close.

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