OPENING POSITION
September 2004

As I write this, the Dow Jones Industrial Average (DJIA) is edging its way below 10,000, the Standard & Poor's 500 is maintaining its position below the 50-day moving average, and the Nasdaq...well, what can I say? The technology sector is continuing its downward movement. And all this is happening after Federal Reserve chairman Alan Greenspan gave his testimony in front of Congress stating that the hard times are behind us -- or maybe he said they are almost behind us.

Not surprisingly, the markets did rally after his statement, but that rally didn't last too long. So was that statement made to prepare us for further interest rate increases in the coming months and years? Even though economic data is weak, the value of the greenback is weak, and we have the twin US current account and budget deficits. The Fed is concerned about inflation. I have to wonder.

A glance at the benchmark indexes tells me that investor confidence is weak by quite a margin. Even though the US dollar has shown a slight rebound in the last few days, the consensus is that the dollar will fall over time. But how low will it go? Countries whose currencies trade against the dollar - and most do - would not like to see their currency appreciate too much, so they will do what they can to keep the dollar from sinking to much lower levels.

Intervention is one way of doing this, and to find out more, we spoke with Christopher Neely of the Federal Reserve Bank of St. Louis. His interview starts on page 70 and he makes an intriguing point on the relationship between technical analysis and central bank intervention. Neely has done extensive work on the foreign exchange market and technical analysis and discusses some of his findings in this, the STOCKS & COMMODITIES interview of the month.

One point Neely brings up in the interview is that currencies tend to trend more than equities. And you'll find out from Kenneth Agostino and Brian Dolan's article, "Make The Trend Your Friend In Forex," starting on page 14, how to capitalize on those trends. The foreign exchange market is dynamic and it doesn't hurt to keep an eye on them. At least you'll have a good idea on the state of the global economy.

So even though Greenspan may be concerned about inflation, the financial markets have to start showing some strength before I will be convinced that good times lie ahead. And as I take another peek at my screen, I notice that the DJIA has drifted back above 10,000, and all the other broader indexes have reversed ... oh, those pesky markets. I've got to wonder.
 

Jayanthi Gopalakrishnan,
Editor


Originally published in the September 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2004, Technical Analysis, Inc.



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