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As featured on Eric Ward's URLwire
  Market Commentary                 
Which Way Will the Broom Fall?
May 24, 2001

by Charlie Miller, Analyst-at-Large, "Elliot Wave Guy"
Although the Dow and the Nasdaq Closed higher than the previous day's Closes, the bars were, as predicted by EWA (Elliot Wave Analysis), lower for both. The Dow slipped quickly down into the EWA Sez area, and closed just below the ceiling. The loss of upward pressure on the COMPX was evident, and the bar fell toward the floor area EWA predicted on 5/21/00. Volumes for the week have been declining - an unusual distribution.

Alan spoke this evening, but we have not been treated to the market's interpretation of what he said, or what he meant, or what we're supposed to think, or . . . whatever. The two line report I heard suggested that there's still downside risk to the economy. Words instead of preemptive actions - still way behind the curve in my estimation.

Chart A735-DJIA

I have pointed out on many occasions that, particularly on the Dow, EWA patterns can be quite ephemeral, but when caught, they can provide quite good long term predictions as much as 4 to 8 weeks into the future. This is part of the art of interpreting the varied statistical results EWA provides based upon various trading forces that have been working on prices, or indices, over past weeks or months. The rather elaborate rough graphic on the Dow chart is another of those examples. Here today, gone tomorrow. so to speak.

The EWA long term prediction on the COMPX similarly has suddenly again evaporated. This is not surprising to me, in that we have two very strong scenarios competing to drive the markets euphorically upward, and disappointingly downward. The latter scenario appears to be the more powerful at this watershed point, with both indices rolling over.

Chart A735-NASD

A physicist would define this situation as being in unstable equilibrium. Like balancing an inverted broom on it's handle, and two people blowing on it from opposite sides to try to keep it upright. Eventually, the broom is going to fall one way or the other. I expect that if we continue downward, the older EWA prediction for the COMPX, for example, will return, and we'll be looking at a floor level back at my 1,600 to 1,500 level as a target. If we head up, we probably will never see that trading area pattern for the Dow again.

I've not shown %R for the Dow, but shot downward through it's -20 level last Tue. It's no surprise, therefore, that the index continued to fall on Wednesday and Thursday, and %R is still headed downward.

- Charlie Miller - 5/24/01

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