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Israel – the trigger event?

(March 31, 2002)

Overall, a pretty uneventful week last week. The Dow declined by 24 points while volatility sank to lower levels, with the VIX closing at 19.32 on Thursday, down from 19.62 a week ago. The VIX is at another 52-week low.

Both the Dow Industrials and the Dow Transports made lower lows last week, so we believe the downtrend is confirmed. In any event, the chance for both indices to make new highs is remote, at best. Moreover, both the Nasdaq and the S&P 500 hasn't made new highs in recent weeks. Another sign of exhaustion.

For the last ten days, we have maintained the market has topped, and all we need now is for a trigger-an event that will cause the market to accelerate on the downside.

We may have just gotten it over the weekend, as Israeli tanks entered Yasser Arafat's headquarters on Friday afternoon. Check out for in-depth coverage of the event. This is getting more serious by the day.

The S&P futures is down over 7 points and the Nasdaq 100 futures down over 20 points as we speak (12am CT). We believe for the downside to accelerate, the VIX will need to close over 20.50 at some point this week. Can this be achieved? We don't know for sure but judging from the technical setup and the gravity of the Middle East situation, it looks increasingly likely at this point.

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