Market Analysis for May 24th, 2004

If people thought that the Saudi intervention in the oil markets was going to be a significant watershed event that would rocket equity prices, so far that factor has been a real big disappointment. Yes, the markets opened higher, but they basically traded higher only for the first hour and did not break above any significant resistance points.

For instance in the E-mini June S&P 1101.75 was the high. Key resistance resides between 1102 and 1106. So it really needs to get above 1105.75 to do some technical damage and to trigger some potential sharp upside action.

In the E-mini June Nasdaq, the market also got right up to resistance. It hit a high of 1426 ,, and the key resistance area is 1429-34 ,. So, as far as the technicals go, the fact that the market gapped up and ran out of gas, and the fact that oil prices opened lower but then took off and are up nearly $2 a barrel at the moment, approaching $42 -- both aspects are net negative for equities.

So, not only have the E-minis failed to get above key resistance, the factor that was supposed to have been the impetus for the rally -- oil prices -- has failed to follow-through on the downside, so now you have oil prices making new 10-year highs as we speak.

Right now, if equity prices rally, they will have to find another excuse, another reason, to take off. The question is, What, if any, impact will the President's speech have tonight?

My own feeling is that if the President doesn't come up with some new angle on how to win the war or extricate the U.S. involvement in Iraq, then investors will probably be disappointed.

So, oil prices are higher, the technical barriers to a real upside explosion have not been exceeded, and thirdly the President's speech probably won't be expected to change much.

Those three factors right now are net negative aspects to the E-minis. So, as long as the highs of the day stay intact, we're looking at the strength that we're having into the 2 o'clock hour Eastern as countertrend.

If that proves to be accurate then they'll roll over towards the latter part of the trading session and will revisit today's lows and may even make new lows.

As for the QQQs, the Qs gapped up today in the first couple hours, tried to get through key resistance at 35.50, but failed, and then plunged to fill the gap down to 35. Now we're at 35