Indexes Close Change
DJI 10110.10 69.30
S&P 500 1098.35 7.12
S&P 100 536.04 2.94
NSDQ 100 1366.73 13.49
Nasdaq Comp 1838.00 18.20
XAU 95.82 1.80
Dollar IDX 88.09 0.30
Closing prices for 8/20/2004
Futures Close Change
SEP DJI 10110.00 67.00
SEP S&P 1098.70 7.40
SEP NSDQ 1367.50 12.00
SEP Bonds 111^03 -0^03
SEP Dollar 88.23 0.41
DEC Gold 415.50 6.20
SEP Silver 687.0 5.0
SEP Notes 112.72 -0.17
Closing prices for 8/20/2004


Update for Friday, August 20, 2004; 5:25 PM, Eastern.


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It was an up week across-the-board for stocks, as the major indexes closed up five out of the past six days. The NASDAQ led the charge, finishing up 4.6 percent for the week, followed by the S&P up 3.1 percent, while the Dow gained 2.9 percent. Of the wide-ranging indicators that we look at each day, the one glaring stat that jumps out at us is the markets volume. It remains anemic. Big Board volume was 1.2 billion shares traded today, 10 percent below the three-month daily average. NASDAQ volume was not much better, totaling 1.32 billion shares traded. A rally with little conviction in the form of volume places the advance firmly in the camp of a bear market rally, which is consistent with our interpretation of the Elliott wave pattern.

The question before us tonight is this: is the bear market rally over? Answer: not yet. My guess is that the major indexes are probably three quarters of the way through the rally, but based on our momentum work, there likely remains further upside potential before a top. First, lets take a look at the pattern.




Todays close of 10,110.10 in the [Dow Industrials] and 1098.35 in the [S&P 500], carries each index to the maximum retracement levels we cited in Monday and Wednesdays Update. Each level represents the 78.6% retracement of the decline from the August 2 high, as seen in the above chart of the Dow. The rally counts well as an upward correction, as each of the major waves since Fridays low has overlapped. And there is even a price relationship between each correction, which is sometimes seen in corrective waves. The pattern was a double zigzag up to
Yesterdays 10,083 high. Todays push above this high turns the pattern into a potential triple zigzag (see EWP, p. 42). Wave a of the third zigzag is nearing completion, which should lead to wave b down and then wave c back up to new recovery highs.




Could todays high be a top, after all prices stopped right at the maximum retracement allowed for? Sure it could, but the odds are not strong. Of the various momentum gauges we constantly examine, from smoothed averages to high-low data, to the percent of stocks above their averages, nearly all are still rising from oversold levels, which does not support a significant top right here. One of the easiest ways to illustrate this for you is to update the above chart from Wednesday showing a very simple Relative Strength index. The index is still rising, having just pushed above the 50% level. Moreover, as we noted at the top of these pages, the NASDAQ indexes led this weeks rally. Typically the higher-beta indexes will be laggards at or near the high, while the blue-chips charge ahead. So even though our maximum retracement levels have not been violated, odds favor that they will be and that a larger bounce is indeed unfolding.




S&P 500 only breadth was positive today, as was NYSE breadth, but as the chart shows, there is now a series of three declining breadth peaks against three higher price highs. Each big up day this week, Monday, Wednesday and Friday, occurred on slightly weaker upside breadth, a sign of a slowing uptrend. While this slowing is not fatal to the advance, it does suggest that a near-term pullback is approaching, likely sometime early next week (possibly after a brief rally Monday morning). It should last a day or so, which will likely coincide with a b wave decline, and lead to another push higher after it completes. Support in the Dow runs from 10,040 to 10,075, while support in the S&P is 1091-1095. As of todays close, the Dow would have to come under 9950 and the S&P under 1080 in order for the odds to significantly increase that the immediately rally is over and another leg down had begun.

The next area of resistance for the S&P is the confluence of the 50- and 200-day moving averages that congregate between Fibonacci resistance. This area is 1103-1113. The approximate equivalent area in the Dow is 10,180-10,250. Odds favor that these areas will be tested prior to a top.




The [NASDAQ] indexes are still a bit shy of their respective maximum retracement levels cited Wednesday, but they should hit them (and in all likelihood exceed them) before the near-term uptrend ends. For the 100 cash index this level is 1386 and for the Composite it is 1863. Similar to the Dows Relative Strength index, the NASDAQs too is still rising and beneath an area that we would expect a top to form. If the broad indexes pullback early next week, the 100 cash index has support in the 1355-1360 area, while the Composite has support at 1822-1830. It would take a close beneath 1335 in the 100 cash index and 1795 in the Composite to increase the odds to probable that the rally from last Friday is over and the near-term bear trend is back on track.

[Bottom Line]: The market remains in a bear market bounce, which does not appear complete. Some time early next week a pullback should develop, but that should be followed by another up leg to new recovery highs (above todays highs). The entire advance is probably three quarter or more complete, but the ultimate high does not appear at hand just yet.






[September Notes] and [September Bonds] remain stalled at their respective 50% and 61.8% retracement levels (see above chart). Bullish sentiment has now carried the 10-day DSI index for bonds to 81.5%, setting the market up for the near-term reversal that we are forecasting. Also note in our second chart displaying the upward momentum of the bond rally, the oscillator is one day away from declining into negative territory, which would be further evidence that a one-to-two point decline is at hand. In addition, commercial hedgers have been moving into a deeper net-short position at an aggressive clip. At the end of June hedgers held 82,350 net long contracts. As of last week they had moved to a net short position of 27,136 contracts, the largest net short position since the wave (2) high on March 24. If notes are able to come under 112^00 (4.32%) and bonds under 110^02 (5.09%), both basis the September contract, it would be a signal that the decline is underway. From a larger perspective, nearly all of the sub-indexes, GNMAs, Junk, Emerging debt, etc remain in short-term up trends, which suggests that there remains some support beneath the rise from the May-June lows. So we cannot say with certainty that our forecasted decline is the start of wave 3 of (3), but we will look for confirming signs as the near-term sell-off progresses.




Todays rally in the [U.S. Dollar Index] was enough to create a bullish weekly key reversal in the index, but just barely. A more forceful signal would have been registered with a wider range this week. Still, the bounce in prices occurred from a low of 87.66, which was just above the trendline support that we have been referencing all week. This trendline crosses through 87.57 on Monday. While it is far too soon to forecast with any degree of conviction that the dollar index is starting the next leg of advance, we can note that bullish sentiment continues to shrink, which is a net positive for our overall bullish view. In order for our conviction to move to the strong category that the next leg of rally has started, the index must rally in a clear impulse pattern that carries above 89.29. Doing so would be a solid bullish sign and indicate that a multi-week rally was underway. We will remain patient until then. The key level for the near-term bullish case remains the 87.00 low of July 19. The index should not come under this low or a more complicated pattern would be unfolding prior to the next leg up in Primary wave 2 (circle).




Since reaching a high of 1.2385 in the early hours of this week, the [Euro] has made no net progress, even pulling back to a low of 1.2281 this morning. Like the dollar, it is much too soon to say that a downward reversal has occurred here. Instead, we continue to remain patient and wait for a clear impulsive decline that draws prices beneath the 1.2178 low of August 13. Doing so would allow us to state with confidence that the next leg down in the larger downtrend was underway. As before, if the Euro pushes above the July 19 high (1.2463) then it means a more complex upward move is unfolding from the April 26 low (1.1761).




The [XAU] rallied above the 91.90 high of July 9, which negates the near-term wave patterns we were discussing. It appears that the advance from the May 10 low (76.79) is tracing out an A-triangle B-C upward correction, but it is not clear how this correction fits into the larger picture. Prices have pushed to a resistance level of 96.00, which may repel the advance. But there is an equal chance that the index will work its way up to the next cluster of resistance in the 98-100 area prior to topping. As soon as our confidence in the XAUs short-term potential returns, we will become more specific in our forecast.






Yesterday [December Gold] closed above $407.10, indicating that prices were on their way back to the $412.50 high of July 8, and just beyond. Todays rally carried the December contract to an intraday high of $416.80, with a close of $415.50. Tonight is a good time to review the scenery for gold so that we are all clear about our forecast. The most important piece of information we know is that the rally from the $375 low (May 10) is NOT an impulse wave. We have no doubts about this. Thus, even though the upward corrective pattern is complex and has carried back up, because it is not an impulse wave it must be completely retraced once it is complete. We know that bullish sentiment remains far closer to a top than a bottom. For instance, the 10-day Daily Sentiment index is at 71.9% bulls, whereas at the May 10 low it was at just 9.7% bulls. The April 1st peak was accompanied by a 10-day DSI of 80.4% and before that the January high occurred against a DSI of 88.3%. We know that commercial hedgers still hold a relatively large net-short position of 78,343 contracts. This is not as large as the record short 196,307 contracts held at the April high, but it is also far from the typical net-long positions held at significant lows. We know that various momentum oscillators are at or near overbought territory, but still rising (see above), which suggests there may be a bit more rally potential left over the coming days. Basis the December contract, the 78.6% retracement of wave (1) down is $423.40 and a chart gap was left at the close of trading on April 12 at $424.20. This range, $423.40-$424.20, is the next resistance cluster. Gold may top earlier, but the upward momentum of the rise suggests we should at least allow for a run toward this resistance cluster prior to a wave (2) top. Closing back under $400 would be the initial signal that the rally top was in.




[September Silver] remains in wave (2) up, which pushed to $7.01 on an intraday basis today. The upward correction is complex, with many various acceptable ways to interpret the near term subdivisions. One way considers the rise from the July 28 low of $6.11 as a fifth wave ending diagonal triangle (see EWP, p. 36). If so, prices should have one more down-up sequence ahead that carries silver closer toward $7.23-$7.26, which includes the 61.8% retracement of the wave (1) decline. The crucial level for this pattern is $6.46, the August 11 low. A break there would negate the ending diagonal and raise the odds considerably that wave (2) up was over.

Have a great weekend!

Next Update: Monday, August 23, 2004
Steven Hochberg, Editor.

That was a bit laaarge, moonie

may be long but he knows his stuff !!!!very professional :-)

its not my stuff mega ..but it saves you a subscription

this is my favorite ..usd sentiment is on the floor ..i really think the will break 181 this week then 175 is the next stop

http://www.elliottwave.com/chartfolder/stu/dxc0820.

still presented well though :-)

mooney am is quite good i think