:: Sunday, April 13, 2003 ::

6:13 PM
SUNDAY EVENING UPDATE... At this point there is no clear indication for near term price direction. This is because we have mixed signals/fears for the market for this coming week.

We have eliminated the uncertainty of the war. The near term worry is for earning's reports due out over the next week. We have been on hold with a sideways drift in prices in a tight range for the last 8 trading sessions, with the war premium tacking on over 1000 points since our call to buy stocks on Monday 3/10. We are due for a breather and still have a little gap left on the SP500 to close at 856.30. This one doesn't have to be filled, but I personally would like it to be before we move higher. We came down within 1 point of the high of that gap day last week, so that may be good enough. Commercials are buying stocks on pullbacks and you should be too. Its not too late, but it will be when the rest of the investing world beginst to catch up.

I gave you the next three stocks in the series on Friday. If you didn't get them for some reason you can go to the archive area in the left hand column and pick Friday's date. I will repeat below the report for AIG, one of our Financial services selections.
STOCK NUMBER 2... The second of our stock choices I will review was not on the original list I gave you back in early March . We need another stock besides CitiGroup to round out financial services, and AIG looks like a good choice. It has developed the flagpole and flag pattern I reviewed for you yesterday on DELL, but in addition has had a breakout from that first flag and the formation of a second, forming a stairstep type effect.. Remember, these are intermediate term positions at least 3 months in length, so don't look for instant gratification as you have been in short term trades. I have also prepared a special stock report on AIG at AIG REPORT
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Notice that the original flagpole started with a oned day capitulation on 13 March. These spike reversals occur when the shorts try to selloff the stock, but find buyers rushing in to capitalize on what they believe is a price move which has gone too far to fast. When the price for the day ends up at or near the open after one of these downdrafts it there is a very high percentage play for near term gains over the next period.
Once again we drew out Fibonacci lines from the last peak to the low and computed the values as we instructed in the DELL example yesterday. Look in the archive of yesterday if you need help.

The significant event here is the formation of the second flag and as long as price does not dip below the low point of the second flag we will have established a series of higher-highs and high-lows, the pattern we look for when rallies are launched. These stair step patterns are formed as supply and demand work their way through the markets. As prices peak there is profit-taking by those who have bought the stock at lower levels which adds more liquidity back into the market at lower prices. When prices get too low then a new round of buyers (or re-buyers if momentum players are in the mix) start bottom fishing and prices are driven higher again. The pattern repeats itself over and over again with price retreat points very near the 38% or 50% levels on each pullback.

If you compute the length of the flagpole from the low of March 12 to the high of March 21 you get a price difference of 11.86. Adding this to the last price before the breakout (49.86) of april 2nd, we get a first target of 61.72. That would just coincidentally close the gap left in January

Here is the weekly chart on AIG which is the one we use to make intermediate chart pattern determinations and projections for price
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The first thing to look at here are the Fibonaccis support and resistance lines that we have drawn here. We construct Fibonaccis by taking the distance in price from the most recent peak to the most recent low and putting lines 32% off the bottom, 50% of the way up and 68% of the distance...the same measurments would apply when constructing them for rising prices and fibonaccis can be drawn any time you observe a peak and trought on a chart of any timeframe. All chart programs will construct these lines for you...you don't have to do it yourself.

You will also notice that I have drawn an additional line above the peak that was chosen for this Fibonacci series. This is the 100% + 38%, the next in the series of natural order numbers. This is also a way of projecting longer term areas of price interest targets.

Fibonaccis can provide excellent targets for you ...not to be used as exact entrance and exit points but rather as areas where there will be a confluence of buyers and sellers and alert you to pay more attention to price action as they near these junctions.

This longer term look projects price out to the $77 range.

As I said, we can extrapolate on any time frame chart and the last one we will look at here is the monthly chart that allows us to look back 5 years. Draw your own chart and compute the Fibonaccis for this projection.
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Stay tuned to MarketWatch tomorrow as I give you the balance of the 10 stocks that I am buying. I too will also be adding to these positions if they pull back. So far Commercials are the only ones buying these markets...the general investing public is not participating. We are also accumulating the QQQ's both in equity and options for the long term at these. levels.

Resistance levels for the SP Futures have been keeping a lid on things with a band that runs from 887 to 911. The NASDAQ equivelent here is 1409 to 1451. Immediate support for the SP comes in at 853 to 861. Nasdaq is 1357 to 1336.
The DOW on a weekly basis has formed a nice double bottom pattern and is within the broad range counded by 7500 on the bottom and 9000 on the top.
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Watch for a break of 8300 to put on more gains or 8150 on the downside for some more consolidation before a new break to the upside.
:: Henry Ford ::

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