Sunday, March 06, 2005

A Look at the Big Boys

Here, we are going to take a look at the big boys, which are the indicies that consume the investors' lives. We are hoping that we will be able to find some sense of what is going on within the current market conditions.

The new employment report sent the indicies higher on Friday. This one report seemed to add the extra oomph to the market that some participants were looking for to get involved. This one report made Bill Cara retract his previously bearish remarks and save them for another day.

Here is what the Bank Credit Analyst has to say about the employment prospects:

"The February U.S. employment report confirmed that business risk-taking is on the upswing and above-potential growth will persist." (Emphasis Theirs)

"Payrolls rose strongly and the unemployment rate should resume trending lower in the months ahead. Employment conditions have improved since 2003, but more slowly than the rebound in corporate profits would have suggested. The cautiousness in the business sector is fading, especially in recent months. Although the Fed has been lifting rates, corporate and consumer borrowing rates have not risen. Hiring surveys remain upbeat and solid job gains loom based on our Payroll Model. Moreover, total consumer income growth was recently revised higher and is up by more than 6% in the past year. Thus, solid household spending growth should persist and the Fed will continue hiking rates, putting the financial markets at risk."

The folks over at the Bank Credit Analyst are smart folks and should be listened to, but we should be wondering if the employment number is what the media is going to force us investors to focus on in the near term. We will find out soon.

Let's now take a look at those charts:

Click to Enlarge Weekly DJIA Posted by Hello

On Friday, the Dow Jones Industrial Average broke throught multi-year resistance levels to close at 10,940. I am scared to say that this is bullish, but it is. The DJIA broke out of a bullish flag pattern on 11/4/2004. Most consolidation levels are halfway points and that would mean that the DJIA is heading towards the 12,000 mark.

After breaking out of the bullish flag pattern, the DJIA met resistance at the downtrending line established in 2000. So, the bears still had some clout. Now this level has been taken out and I'm afraid the bears might be giving up. We will have to see.

Click to Enlarge Weekly DJT Posted by Hello

The Dow Jones Transports (DJT) traded above the resistance line, but ended up closing right on the line. That is not a break. Something smells fishy when the transports are heading skywards while the oil price is hitting constant higher highs. Oh well, the only person that is always right is the market in this game. There is still a solid uptrend line in place, and you can't really get bearish until this line is broken.

Click to Enlarge Weekly DJA Posted by Hello

The Dow Jones Composite Index (DJA) broke resistance as well on Friday due to the jobs report. The only thing I can really say on the bearish side of the equation is that the RSI and Stochastics didn't make higher highs along with the indicies. That is a bearish divergence, but these divergences can last longer then you can remain in the game (to paraphrase the famous quote).

Click to Enlarge Weekly IXIC Posted by Hello

The Nasdaq (IXIC) did not break out and isn't really that close to the breakout level. The figure to watch on the IXIC is 2,200. A break above that level would get me bullish. This is an index to watch as well, though. You can see the two red lines converging, which means that the IXIC has to make a decision soon. Will it follow the bullish or the bearish case?

Click to Enlarge Weekly NDX Posted by Hello

Here we have the Nasdaq 100 (NDX), which has already broken out and has now come down to test the new support line that used to be resistance. The NDX seems to have found support at the red support line and the 50-Week SMA. I have also placed the fibonnaci levels on this chart. The 33% level is at 2,338 and the 50% level is at 2,811. The NDX is at a pretty good point with regards to Risk/Reward. You should search through the NDX components to find some stocks that are looking as well as this index is looking.

Click to Enlarge Weekly S&P500 Posted by Hello

The S&P 500 (SPX) also formed a bullish flag and subsequently broke out on 11/3/2004. The chart is telling investors that the SPX could be heading toward the 1390 level.

I don't like being bullish at this juncture in the market cycle, but it is very difficult to not fall into the bullish camp with the recent action of the Dow Jones's and the S&P 500. The IXIC has a little more to prove before I get bullish on it, but no one is saying that the Nasdaq 100 isn't trying hard to convert me/us.

Best Regards,

The Soothsayer of Omaha


Anonymous Anonymous said...

I think you are brilliant and very insightful. Keep up the excellent work, Mr. Sooth!

1:19 AM  
Anonymous Soothsayer of Omaha said...


Thanks for the comment and I will try to keep writing quality work that I believe is helpful to the invstment masses.

Best Regards,

The Soothsayer of Omaha

6:02 AM  

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