us overnight

  1. 2,063 Posts.
    On the face of it last nights after hours profit announcements appear to indicate positive signals. Motorola clearly beat profit forecasts for Q4 2002, excluding special items. On the downside, the company’s Q1 2003 predictions remain subdued. What will the US market make of this tomorrow? Firstly I expect last weeks disappointments from Microsoft will set the tone for the coming quarter, and overshadow some ordinary announcements to come over the next few days, including those of Motorola. Microsoft is the epitome of the American corporate dream and represents the corporate model on which much of the nations hopes are pinned. Also it represented much of the inflated expectations which fuelled the market during the 1990’s and in which the DOW is still lingering.

    Secondly in regards the war, what will the market make of flagging support from the UN Security Council for punishment of Saddam Hussien? Does this now mean that a battle in Iraq is less likely? The US administration has reiterated its determination to dethrone the Dictator, come hell or high water. Overnight statements indicate that an operation is inevitable. If they were to go into Iraq without the key support of the Security Council and others such as Turkey, the prospects of victory are far less certain. We all know that markets recoil from uncertainty, and my prediction is that a war without key ally backing is a fearful prospect for the DOW.

    The Head and Shoulders formation that I observed 2 weeks ago is now far clearer. Last night the DOW closed down to 8442, marking 5 consecutively lower trading days. If the DOW trades below 8214 the previous bottom, this will positively confirm the pattern with its target of 7360. The decline if it confirms will probably occupy most market activity until March at the earliest.

    Updated Indicators are:
    1.Left shoulder at 8841 on 6/11/02, Head at 9076 on 2/12/02 and Right shoulder at 8865 on 14/1/03
    2.Declining volume over the 3 month formation period
    3.Lower top following August’s 9129, confirming the primary trend
    4.Target of 7360

    The last Head & Shoulders pattern I wrote about in September beat my lower forecast by about 230 points, but going back through the figures the prediction should have been 7127. The 50-point difference suggests that Head & Shoulders are pretty reliable for back of envelope calculations.
    I should add that even though the bottom target is higher than the October low of 7177, this doesn’t predict a bear market bottom or preclude more negative activity following the completion in March.
 
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