T-9 Days and Counting - Reflex Rally Setup?

T-9 and New DJ 2004 Low Friday the sellers were out again, pusing the DJZ4 to new lows for the year while the broader SPZ4 and NDZ4 held up relatively well. The US bonds, notes and dollar continued their recetn trend moves as well with the interest-rate instruments testing or exceeding their intra-year highs.

This coming week is crucial for the US equity markets and I believe there are technical similarities now the the earlu-August 2004 time period. Recall at that point, on 08.15.04 I stated that the DJ was set up for a minimum 200-300 pts reflex rally. Once again the market is at or near a similar setup. Major support for DJZ4 is at the 9620-9720 area. Monday, 10.25.04, watch the tape for signs of decreased selling pressure (ticks, advance-decline, etc) as well as continued divergences with the NDZ4 and SPZ4. A break of Friday's 9741 low and reversal back through 9760 on improving tape action would be the first sign of stabilization.

Also, watch the US bonds/notes and US dollar for early signs of reversals. The positive action in the interest-rate instruments was rather muted Friday considering the performance of equities and the US dollar. The US dollar, with regards to a few currencies - especially the Euro - may be in a blow-off phase.

Bottom line, US equities are setup for at least a 200-300 pts reflex rally after setting a bottom that should occur in the next 2-5 days. The US dollar is also near an important short-to-intermediate term low and US bonds and notes, short-to-intermediate term highs.