Weekly Commentary for April 2, 2005

| April 2, 2005

Stocks continued to weaken across the board this week, and the topping patterns that have been forming since early 2004 are now very close to taking the next step in their development. Below are the weekly views of the Dow Jones Industrial and Transportation averages and the NASDAQ composite:

The Dow Jones Industrial average is now testing support at the January low in the 10,400 area, and deteriorating technical indicators such as money flow, momentum and oscillators coupled with the negative divergences that have been forming since early 2004 suggest that a break to new lows is likely.

The Dow Jones Transportation average sits just below its recent high and technical indicators remain neutral to slightly bullish, but any subsequent meaningful decline from here would quickly turn those indicators bearish and suggest that a test of the January low is likely.

While the Transportation average is still well above near-term support and the Industrial average is currently testing near-term support, the NASDAQ composite has already broken well below its January lows and technical indicators continue to deteriorate, both confirming a new intermediate-term downtrend from early January and predicting additional losses.

So we have three major indices all at different stages of long-term trend development. One is still near recent highs, one is testing near-term support, and one has broken through near-term support. Whenever we observe such notable divergences between the price movements of major market indices, it is an indication of turmoil and potential long-term trend change. The important question is: which index is leading and which is lagging? The on balance deterioration of long-term technical indicators would suggest that the NASDAQ composite index is, in fact, leading the way, so probabilities currently favor the eventual breakdown of the other major indices. Time will tell…

The secular score remains in the high -60s, continuing to indicate that we are in the early to middle stages of the current secular bear market from 2000.

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Category: Commentary, Market Update


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