08.25.04 - The Real Test

Key Tests for Markets No time for a detailed update tonight. Quick recap:

1. DJU4 broke out and as this is being written set a session high at 10196, 421 pts off the 08.13.04 low and above the 08.02.04 pivot high of 10188.
2. The expected short-term range was now 9900-9975 and 10125-10200 and in last Friday's Outlook I stated,"...the upside may be overdone in the short-term...one more thrust higher to the 10175-10200 zone."

This upside area is now being tested and the close above 10110-140 solidifies the 08.13.04 low at 9775. A close now above 10225-10235 maintains the upward momentum. A close back below 10095-10105 would be weak. The market broke out of a 3+day range consolidation with upside targets on the DJU4, NDU4 and SPU4 at 10225-10250, 1400-1410 and 1110-1115 respectively.

3. The US bonds and notes are nearing a possible reversal point. Wednesday they tried to breakout of a 3-4 day consolidation and potentially failed, completing yet another interday compresssion pattern. Thursday (08.26.04) is setup for a range expansion. For the 5-year notes, a break below 110'200 or above 111'030 will be an early warning sign for the impending move with a close above 111'060 strong and below 110'260 weak. In the longer-term, 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 a top.

The US dollar closed 8935 confirming a bottom in that market and also possible top in bonds. (see other data).

4. Crude oil retraced for the fourth day Tuesday into support. The market is now set up for a retest to the 4800-5000 level, though the close below 4400 is weak, a close below 4100 is necessary to confrim a short-term top.