09.01.04 - Window Dressing

Pre-Holiday The rally that began at roughly 1415et on Tuesday produced followthrough early Wednesday to DJU4 10210, 5 pts short of last week's high. In Wednesday's report I stated, "...(CLV4) continues to mark time as it is setup for a retest of the 4800-5000 level, again barring a close below 4100."

For the equity and bond markets, the wait begins for the Friday employment numbers. BTW, anyone shocked by the low volume in August - you shouldn't have been.

Going into Wednesday's API report numbers, crude oil had been down 8 consecutive days since setting the contract high of 4837 on 08.20.04. The past two days tested to the mid-4100 area and rebounded each session to close baove 4200. Wednesday opened essentially on the session low and rallied to 4440, 300 pts off Monday's low, before settling the day up over 170 pts. The next hurdle on the way to the 4800-5000 target is 4450-4460. A close above 4770 would be a strong signal with a close below 4100 setting the top.

For the DJU4, nothing has changed. After the range expansion on Tuesday's late session reversal higher, the market consolidated Wednesday. Most of the session's action was confined to the 10165-10185 zone after early extremes at 10145 and 10210 on the ISM news. Then at about 1305et fear gripped the markets on news of a "mass casualty incident" in Washington DC. The DJU4 dropped nearly 75 pts in less than 5 mins before reversing as the news was changed to a prank release of pepper spray. Just as quickly as it dropped, the market rebounded to the pre-news level of 10170-10175, settling into a 10140-10175 range for the balance of the session. Continued closes above the key 10110-10140 zone will support the market but now the buyers must produce a close above 10225-10235 to resume the upward momentum. A close below 10095-10105 would be weak.

The breakout move in US bonds and notes that began on Monday after a 4-5 day consolidation continued into opening trade Wednesday with the ISM report results producing a drop through the prior day's high close. Flight-to-quality bids on the DC scare pushed the market back to close above Tuesday's close. For the 5-year note, a close below 110'100 is necessary to stem the upward momentum while a close back below 109'300, basis the Dec 04 contract, would be a weak sign. A close below 109'200 would confrim at least a short-term top. In the longer-term, closes below 110'24 and 108'28 basis TYZ4 and USZ4 would be the first sign of a possible top. Closes below 110'00 and 107'24 are required to turn the momentum lower and confirm a top. A FVZ4 close above 111 sets up another leg to the upside

The US dollar consolidated Wednesday, again closing below the key level of 8935 as well as 8900. A close above 8950 is necessary to turn the short-term momentum higher while a close above 8995 will solidify at least a short-term low. A close below 8870 will signal a short-term top for the greenback.