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WATCH OUT FOR A FIFTH WAVE
MONEY IS LEAVING EUROPE AND MOVING TO ASIA
THAT'S GOOD FOR THE SOX
John Murphy
NASDAQ COULD BE IN FIFTH WAVE ADVANCE... The recent downside correction in the Nasdaq market took place in three waves -- which qualifies that as an A-B-C correction. This week's move to new high ground signals the completion of that minor correction. While that's good news, there is still reason for some caution. That's due to the make-up of the rally that started during March. If we examine the waves closely, it appears that the Nasdaq has advanced in five waves. [A five-wave advance is comprised of three uplegs and two intervening corrections or consolidations]. My read of the wave structure is shown on the chart below. As a result, I find it hard to get overly enthusiastic about the latest move to new highs. If anything, it may just have brought us closer to completion of the upwave that started in March. That could set the stage for another correction or consolidation phase -- which could occur during the traditionally weak September-October period.


Chart 1

S&P 500 IS SHOWING NEGATIVE DIVERGENCE... When a market is in a fifth wave of an advance, short-term divergences become especially meaningful. As Chart 2 shows, the S&P 500 has yet to confirm the Nasdaq move to new highs. It may still do so; but it hasn't yet. Until it does, this week's move to the upside has to remain somewhat suspect.


Chart 2

GLOBAL MONEY FLOWS... The Euro has fallen to a four-month low against the dollar. In my view, this is primarily due to signs of economic weakess in the Euro-zone. The yen has been attracting new money lately as has been the Japanese stock market and the rest of Asia. It seems money has been leaving Europe and moving to Asia. The explains the recent relative strength in the whole Pacific Basis region.


Chart 3


Chart 4


August 28, 2003

John J. Murphy, CNBC-TV's technical analyst for many years, and Greg Morris offer money managment and market services at MURPHYMORRIS.COM , email address orders@murphymorris.com .

Editor's Note
StockChart.com has acqured MurphyMorris.com, and eventually Mr. Murphy's commentary will be rolled into StockCharts.com.

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