The Chart du Jour
Yesterday, on an intraday update, we posted the charts below, suggesting that the DJIA would meet some substantive moving average resistance in the region just above 10,830. The market then promptly blew through this level when the Fed only raised rates by 25 basis points. Any excuse for a rally, we suppose.
Now by having performed so well, and having closed above both the daily 200-day moving average and the weekly 100-day moving average, the DJIA has clearly indicated that this is more than just a iv wave bounce in an ongoing 1-wave down, and instead a 2 wave rally is transpiring. The DJIA has also bought itself a bit of time. Although we remain longer term bearish, we would not be surprised to see the DJIA chop within a 10,700-11,100 range for awhile -- perhaps in a fashion somewhat akin to the daily chart below of Lucent which also burst through its 100-day and 200-day moving averages when it rebounded from the dead. Lucent has since spent a considerable number of days backing and filling, and retesting these averages. We expect the DJIA to now do something similar. We'll refer to it as "sloppy chop."
Overall, the volatility of the DJIA, S&P, and Nasdaq continues to amaze. In absolute price movement, every little piece of news is magnified several times over its true worth. When one takes a Series 3 or Series 7 NASD exam, one question that is almost invariably asked reads: "Does the existance of speculators dampen or exascerbate market volatility?" The correct answer they are looking for of course is "dampen." After seeing the S&P move from its lows for the year to the highs of the year in a little over 10 trading sessions, the NASD should pull that question. The speculative froth out there is unhealthy and dangerous, and worse still, it has now continued long enough (without dire consequences to date) that people are becoming overly accustomed to it. When a true crash starts to build, few will recognize it as such.
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