08.24.04 - Nothing's Changed

Consolidation A quick update today. The outlook for both equities and bonds is unchanged from the prior two days' analyses.

As stated in Monday's report, barring a close above 10140 required to solidify the 9775 low, a short-term pullback to the 9975-10000 level is likely. 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. The expected short-term range is is now 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.

The buyers have been in control of the interest rate instruments. However, the US notes and bonds are at major resistance levels at the late-Mar 04 lows and breaking through this area will require substantial effort. Also the major players are showing signs that they believe a top is near. The US dollar also closed above 8935, reversing the damage from the 08.06.04 employment report. Friday and Monday may have been a warning shots for the longs with Tuesday consolidating to produce the third consecutive range compression day. Wednesday (08.25.04) is setup for a range expansion. For the 5-year notes, a break below 110'200 or above 110'300 will be an early warning sign for the impending move. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the first sign of a possible top with a close below 112 and 110 a sign of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and confirm the commercials positioning.

Note that crude oil retraced for the third day Tuesday into support at 4375-4475. The market is now set up for a retest to the 4800-5000 level.