We’d like to get excited about today’s comeback, but the S&P (first chart below) ran straight into resistance at today’s high – the falling support that was broken yesterday – and then turned back down. That kind of action serves to reinforce the breakdown. If the index can clear that resistance at 821 tomorrow, it could head to 830 before hitting its main downtrend line. To the downside, 800-803 is first support, and 768-775 is below that. The Nasdaq (second chart) broke through the 1263-1275 support zone today before turning up. Below 1260, a gap down to 1220 beckons. Resistance is 1290-1300. The Dow (third chart) broke 7650 support today before recovering. Again, 7200-7500 appears to be a magnet for the Dow. Resistance is 7800-7850. The equity-only put-call ratio came in at 1.05 today, a plus, but once again the VIX, the options volatility index, was down. That combination wasn’t much help on Monday; will it work any better tomorrow? Finally, a word about the widespread belief that the market and the economy would be doing fine without the specter of war in Iraq. Whenever market participants agree on something, the truth usually lies elsewhere. It has been two years since the Fed began the most aggressive rate-cutting regime in its history, and yet the economy remains at stall speed. And don’t forget, the current decline began with sub-par earnings reports in mid-January. The market may well bounce once the Iraq situation is resolved, but we would expect it to resume its downtrend when that rally is over. Perhaps then we can finally generate enough capitulation to get a good cyclical bull market.
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