(March 25, 2002) STOCK INDICES: The three major stock indices have charted different paths of recovery post 9/11, with the strongest performance to date put in by the Dow. A look at the weekly Dow chart shows that from the market peak in early 2000 to the lows of September 2001, the Index has pierced major Fibonacci retracement levels at 9471 and more recently at 10341. The Dow needs to remain above the 61.8% retracement level for the current bull market to continue to look sound. If the Index were to close beneath 10,341, I would anticipate a strong reaction lower. The course the Dow takes may very well be charted by the other indexes, which thus far have not performed nearly as well.
It is a reflection of the strength/ weakness of the indexes to note that while the Dow has retraced more than 61.8% of the last market sell off, the S&P cannot break above the 38.2% retracement level. The weekly S&P chart shows the market trading at Fibonacci confluence resistance at 1174.00, and so far not having much success in moving any higher. A weekly close above this resistance level would be a good indication that the other indexes are ready to move higher. However, the longer it takes the S&P to break above weekly resistance the more likely a failure at these levels becomes. If the S&P does fail at current levels and the trend turns bearish, Fibonacci expansion analysis points to a target price of 1011.00, which is very near a 61.8% retracement of the latest rally. This kind of market correction would likely drag the Dow down with it.
If you detect a note of pessimism with which direction I believe the market will take you are correct. The one index I haven't mentioned yet continues to weigh on all the indices and is clearly the sickest of them all, the NASDAQ. The weekly NASDAQ chart shows that prices are light years from any significant retracement level and unable to mount any kind of serious rally. At the risk of being redundant I repeat-this is a sick market. In the short term the Dow cannot extend it's rally if the other markets cannot follow through or (as is the case with the NASDAQ) continue to deteriorate. So we are at a cross roads and the S&Ps hold the key. All eyes should be focused on how the S&P performs in the next few weeks since it will likely mark the direction all the indexes take for the coming months.
