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July 17, 2006

Stock Market: CNBC Report
by Bill McLaren

CNBC EUROPE

LET'S LOOK AT THE FTSE, as it is representative of the other larger European stock indexes.

Last week I set out the parameters for a secondary rally, which basically indicated a few weeks of distribution before resuming the downtrend. The Mideast conflict ended the distribution pattern early and the downtrend has resumed. The chart below is the range of the move down divided into 1/8 and 1/3 and extended down by 1/8th and 1/3rd. The low to this leg down should bottom at a price that is a geometric extension of this previous leg. The import levels of support are 1/8th and would be in relationship to the two previous lows. Then the normal ¼ extension that is the "normal" 5th leg extension. Then ½ at 5144 and is also a calculation from a previous larger range. There are a few things we know for sure. If this is trending the counter trend moves or the rallies against the downtrend should not exceed 4 days or a low of some sort importance could be in place. And there is a previous low that can be qualified as "OBVIOUS" support. A double bottom for a low would be highly unusual. So the price action around an "obvious" point on the chart can set up a significant opportunity.

LET'S LOOK AT THE S&P 500 INDEX CHART

This is the same circumstance with an "obvious" level of support. Remember, the direction of the trend determines the significance of the pattern. Double bottoms seldom end downtrends, double bottoms occur often while trending up but not in downtrends. And just like the FTSE, we will look for support at the 1/8 and ¼ extensions of the previous move down. Last week lots of stocks fell into capitulation or exhaustion style of moves down so we should see a temporary low soon as this group of retail and tech stocks exhaust. Then, if the downtrend continues another group will rotate into disfavor after a counter trend in the index.

NOW LET'S LOOK AT THE CRUDE OIL MARKET

This is a daily chart of Crude Oil and the last up trend divided into 1/8 and 1/3 and extended upward as we have done with the two previous indexes only downward. Since the correction had held 3/8 of the range upward it was in a strong position for this rally. The index came up to the OBVIOUS and corrected two days (first degree counter trend) indicating it was in a strong trend. The market would have a minimum objective of ¼ extension but more than likely could see the 3/8 extension up to 82.6 using this continuous contract.

CNBC ASIA

LET'S DO A QUICK LOOK AT THE OIL CHART

This is a continuous contract. You can see the low to the last consolidation held 3/8 of the range and as we've discussed on this show many times, this left the index in a strong position for this rally. Notice the "obvious" resistance of the previous high and how the index only corrected two days when it was stopped by the obvious, thus indicating a strong trend in progress. And we apply the same technique of analysis with all markets. Divide the range into 1/8 and 1/3 and extend that previous range with those same increments. A ¼ extension is a minimum movement and 3/8 is an objective at 82.6.

LET'S LOOK AT THE TOPIX WEEKLY CHART

As we do with all markets the range of the last leg up was broken into 1/8 and 1/3. You can see the low was at 50% of the last major range up. The rally was a 50% retracement or from ½ up to ¼ of the range. Since the low was at 50% if we extended that range down we would have the same levels of support and objectives for this leg down.

NOW LET'S LOOK AT THE DAILY CHART

Since we are assuming a resumption of the down trend we can apply trending criteria and assume the rallies or counter trend moves will not exceed 4 trading days as long as the fast trend is in effect, just as the index moved in the previous leg down. The price action at the "OBVIOUS" support will be very significant and a counter trend of only one or two days at the "obvious" could indicate a capitulation in progress. So for now we can assume this is in a fast trend down and will comply with trending criteria.

LET'S TAKE A QUICK LOOK AT THE AUSTRALIAN ALL ORDS INDEX

This index has extremely important support at 4815 and if one is bullish that needs to hold-I don't believe it will. And just as we do with all markets we are extending the range down in 1/8 and 1/3 and are assuming 4569 or a ¼ extension as the next reasonable objective. And just like all the stock indexes how this index plays out at the "OBVIOUS" support will be very enlightening.

Bill McLaren
McLaren Report

Disclaimer: This message is for educational purposes only and does not constitute trading advice nor an invitation to buy or sell securities. The views are the personal views of the author. Before acting on any of the ideas expressed, the reader should seek professional advice to determine the suitability in view of his or her personal circumstances.

Copyright © 2004-2008 Bill McLaren

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