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October 16, 2006

Stock Market: CNBC Report
by Bill McLaren

CNBC EUROPE

LET'S LOOK AT THE FTSE 100 DAILY CHART

Two weeks ago the index was up to the "obvious" resistance of the previous high. I indicated whenever a market moves against the "obvious" it creates an opportunity. If the index is going to hold the fast trend the move down from the "obvious" will only be one to three days and there will likely be a fast move up since this would indicate the previous weak trend up was accumulation.

You can see two weeks ago the index corrected only two days. The index is again up to an "obvious" resistance. So we are looking at the same circumstance-the index is now up to the "obvious" resistance and if it is going to trend above this level there should only be a counter trend move of one to four days.

LET'S LOOK AT THE S&P DAILY CHART

This chart is a beautiful example of a blowoff trend and is currently in the exhaustion phase of this trend. Last week we looked at how each correction or counter trend move down was less in price and time than the previous. You can also see the lows are not reaching the previously established trend lines. When you can see three ascending trendlines it almost always indicates the final thrust up. If you would look at the NASDAQ 100 or Comp the three ascending trendlines is very clear. Since this is an exhaustion phase of this trend any indication of weakness will start a consolidation or sideways pattern. The first indication this is occurring will be when the index breaks the previous swing high in this instance at 1354 in the S&P 500 Index. Again I don't anticipate a severe correction and could only correct 31 to 36 points but should take 30 or 45 days on the side before the next trend immerges. Right now it looks like there will be one more leg up after this consolidation occurs and that leg will complete the bull campaign.

LET'S TAKE A QUICK LOOK AT GOLD

Last week I thought Gold looked vulnerable to a spike down. Friday the market gapped up. If that gap up is not followed by a gap down or strong move down now, then the market is not vulnerable to a fast move down and my analysis was wrong. If it does leave that gap up on Friday as an "island reversal" by gapping down, it would indicate the gap up was an exhaustion of the bulls. But that is the only bearish resolution to this pattern I can see and that needs a large gap down to confirm a probability of moving down.

CNBC ASIA

LET'S LOOK AT THE HANG SENG DAILY CHART

We were looking for this index to accelerate up out of this pattern. In order for that to occur the price needed to stay on top of the previous swing high of September 25th. Unfortunately there was the North Korean news that brought in a temporary reaction down through that price level that needed to show support. The move down was destined to be temporary, as it had nothing to do with economic activity. Then two days later the index did successfully test that level but I don't know if we should ignore the reaction to news that broke that important level. Without that one day break of support this would be an extremely bullish pattern. There was also a large gap up on Friday that reversed back into the previous days range indicating possibly some kind of exhaustion. If it is going to trend up from this sideways consolidation it needs to do it now, today and eliminate the possibility of Friday being an important exhaustion.

LET'S LOOK AT TWO U.S. STOCK INDEXES

The S&P 500 is currently in an exhaustion phase of this trend. This is obvious because each correction is smaller than the previous correction and you can see three ascending trendlines, which is also a signature of an exhaustion move up or down. When this index breaks the price of a previous swing high at 1354, it will be giving evidence the trend is changing. That break should be followed by either a lower high or a marginal new high that fails to follow through. This evidence is critical to determining the validity of my forecast. In this instance that change in trend will be from a fast trend into a sideways pattern for about 30 or 45 days and the correction will be small at 31 to 36 points. At that juncture the trend will either resume for another 60 or 90 days and complete the bull campaign or there will be a quick failed rally and reversal.

The next chart is the NASDAQ and the three ascending trendlines are much more obvious. The point being this is not the start of a strong drive up but the start of the completion of a strong drive up and an exhaustion of the trend. I would expect the same resolution to this style of trend as I expect for the S&P 500 index.

Last week I thought gold may be vulnerable. If the index cannot gap down today and leave Friday's rally as an exhaustion, then the index will no longer be vulnerable to a fast decline. Now there is a false break low followed by a higher low and a gap up out of the higher low. Unless Friday can be proven to be an exhaustion move up the likelihood of a decline is small.

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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