08.20.04 - Outlook

How High is High A quick update this week. Last week I called for a short-term rally of 200-300 pts off the 08.13 lows. As of Friday, the DJU4 booked 355 pts, a 3.6% move in one week. Barring a close above 10140 (see below), a short-term pullback to the 9975-10000 level is likely though there may be one more thrust higher to the 10175-10200 zone.

Last week's outlook specified a 9800-9875 support zone and 10025-10100 resistance area. This week's action revises the expected range to 9900-9975 and 10125-10200. A close back below 10015-10025 would be an early warning sign for the buyers with a close below 9965-9980 signaling a short-term top. Given that the major indices are now up against signficant resistance levels and the DJU4 has retraced roughly 50% of the 06.23 to 08.13 selloff, a short-term pullback is in the cards until the market can post a close above 10110-10140 to solidify the 9775 low.

While the equity markets have been ruled by sellers, the buyers have been in control of the interest rate instruments. The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower. Friday may have been a warning shot for the longs. The session closed at or near its lows on a range compression day. Monday (08.23.04) is setup for a range expansion. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.

As for crude oil, the rally continued with Oct crude, now the front month, tagging 48.37/bbl on Friday. Last week with the market at $46.02 on the close, I stated, "... CLV4 based in a 600 pts range for nearly 2-1/2 months before the breakout move. Therefore, the momentum is to the upside with a potential target of $48-50/bbl." Now support is at the mid-40s and though a short-term failure is possible at current levels, only a close below 4400 basis the Oct 04 contract would indicate a short-term top. Pullbacks to the 4400-4450 level must be considered a reaction to a major upmove. A close below at least 4100 is necessary to confirm a failed breakout.