DESPITE A WAR -- AND A LOT OF MEDIA NOISE -- THERE'S NO CHANGE IN THE MARKET'S TREND

MONTHLY TREND IS STILL DOWN... Judging from all the media noise about the war, you'd think a lot had happened in the stock market over the past month. It hasn't. To show how little has changed, we're starting our weekly roundup with a monthly chart of the S&P 500. Take a look at the last bar (representing the month of April). It's almost insignificant and certainly hasn't changed the market's trend, which is still down. The S&P is still under the "neckline" drawn under the 1998-2001 lows. The 20-month moving average (blue line) is still down. Prices would have to exceed both of those lines to signal a change in trend. The fact that the market hasn't built on the war's success may also carry an ominous message.

Chart 1

WEEKLY DOWN TRENDLINE IS STILL UNTOUCHED... Chart 2 shows the weekly bars for the S&P 500. A down trendline is drawn over the peaks forming during the fall of 2000 and the spring of 2001. Prices haven't even reached that bear line during the recent rebound. That's just another way of saying that the major trend is still down. One of the first things we usually look for in any change in trend is the break of a down trendline. We haven't seen that yet. If anything, this week's downside reversal suggests that the short-term trend is weakening.

Chart 2

S&P FAILS TO REACH TOP OF TRADING RANGE... The daily chart shows that the trend since last July has been sideways. A sideways trading range can mean different things. It's sometimes the initial part of a basing pattern. And sometimes it's nothing more than a "consolidation" in an ongoing downtrend. Unfortunately, it's difficult to tell which it is. All we can do is rely on the charts to help find the answers. If it's a true "trading range" it's normal to expect prices to move to the top of the price range, which would put the S&P 500 closer to 950. We thought that was going to happen. So far, however, the market rebound has retraced only two-thirds of the decline from the early December peak near 950 to the March low near 800. That makes this a pretty weak rebound. In addition, the S&P 500 (and most other major indexes) have failed again to get through their 200-day moving averages. That's another warning that the recent rebound may be running out of room.

Chart 3

200-DAY AVERAGE PROVING A STUBBORN BARRIER... Chart 4 shows the S&P 500 trend from its December peak. Two things are noteworthy. One is the fact that the (red) 200-day moving average is proving to be an extremely stubborn resistance barrier. A visual count shows that it's been "touched" seven times out of the last sixteen trading days and it has turned back each attempt. The second technical point is that the S&P 500 has only retraced 62%-66% of the decline from the December peak. If a rally is going to fail, that's a logical spot for it to happen. With this upside attempt apparently stalling, we're now watching to see if the S&P can stay over its (blue) 50-day moving average. That also coincides with possible chart support near 850. That may be the test we'll be watching next week.

Chart 4

WHY THIS WON'T BE A REPLAY OF 1990... We invite you to reread our Market Message of February 4 with the above headline. The point of that analysis was that market trends during this Iraq war are much different from those during the first war in the 1990-91 period. At that time, stocks were in a secular uptrend, while gold was in a secular downtrend. That's no longer the case. To quote from that update: "We do believe that a resolution of the Iraq situation will likely lead to a pullback in gold (maybe even a sharp one) and a good rally in stocks. We don't, however, agree that major trends will be reversed. In fact, we believe that a sharp correction in gold would probably represent another good buying opportunity. We think current trends in all four markets (the dollar, gold, bonds, and stocks) would be interrupted -- not not reversed." As a follow-up to that analysis, we also invite you to read this past Wedesday's Market Message entitled "Gold Stocks Stabilizing Near Chart Support". If the stock rally is stalling, this would be a logical spot for gold and gold stocks to start rising again.