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December 18, 2006

Stock Market: CNBC Report
by Bill McLaren

CNBC EUROPE

LET'S LOOK AT THE FTSE 100 INDEX

Back in early November the large European stock indexes appeared as though they had exhausted their trends and all that was necessary to change trends was a distribution pattern. The rebound from the last low was a lot stronger than I had anticipated. I doubted the ability of the FTSE to show another new leg up and the best would be a retest of the high. But this move up has been very strong with only a one bar counter trend since the low. The last few days across European stock indexes have been too fast and possibly exhaustive and will need to be consolidated. But then I was the fellow who said these moves up would be a struggle and they have been vertical. If the index corrects back more than four days the uptrend is over and the nature of the past three days does make a consolidation or correction likely. If that move down exceeds 4 trading days then the leg up is in jeopardy but for now they are smoking.

LET'S LOOK AT THE CAC 40 INDEX

Last week I indicated the CAC 40 would show a new high and that could develop into a broadening top. Broadening patterns are an example of extreme volatility and volatility is associated with most topping patterns that materialize after fast trends. This pattern develops from a high and low, followed by a higher high and then a lower low and a final drive to new highs and a "false break" pattern at the new high. I do not know if that will occur but the pattern of trend indicates it is possible.

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

You can see how the index just marginally broke above an overhead trendline. That price action either indicates the start of another vertical exhaustion move up that won't end until the week of January 15th. Or the index just exhausted this leg up. I thought the index would exhaust last week but there is nothing to indicate that scenario. If the index drops below the last high at 1418 it would be the first indication of a problem with the trend. I am still looking for a 56-point move down following the completion of this rally. I was looking for last week to end the rally but I was also looking for 1426 to hold back the rally and it went to 1431. If last week didn't exhaust the run then the next chance is mid January.

CNBC ASIA

LET'S LOOK AT THE TOPIX

The November low came in on the same cycles that have pointed to every high and low since the June low. The next occurrence is not until January 2nd. Last week I indicated the index needed to move past 11 trading days up to make a run into the first week in January probable. If it could manage to do that it would be a strong indication of an up trending market since it would have exceeded the time period for a second degree counter trend. This index has moved a bit too fast the past few days and is looking exhaustive. There will be likely be a reaction at the old high and will either be a first degree counter trend down of 1 to 4 days and resume the uptrend into the first week in January or distribute into the new year for a top. But for now it is a strong move and should reach the last high. Remember, fast trends come from "false breaks." If bullish you don't want to see another false break pattern the first week in January.

LET'S LOOK AT THE HANG SENG INDEX

Last week I indicated this was showing the characteristics of a bullish consolidation but there was no evidence of coming out of the consolidation yet. Now the pattern has hit critical mass; there are three tests of support, the previous rally was two days and it took 5 days to retrace the two-day move up, indicating a struggling move down (bullish). Friday showed a gap up to the previous lower high. If the index turns down from an exhaustion at that price level and approaches the lows it will look like a lower double top and a bearish distribution pattern. A day or two of continuing the move up should indicate an up trend and not a gap up exhaustion and run up a minimum of the number of points this consolidation moved down or easily above the 20200 level. Notice that is minimum pricing. This also looks like an Elliott 5th wave to this leg or the exhaustion leg to this up trend.

LET'S LOOK AT THE ALL ORDINARIES AUSTRALIAN STOCK INDEX

Last week the index closed on the low Friday and if it didn't go lower it would have represented a low of some sort and it didn't go lower. I was looking for a top last week from time cycles and brought on by weakness in the basic metals. I also didn't believe it should get much higher in price if topping and it did go much higher. If last week didn't exhaust the rally then 5622 and 5670 will be the next resistance levels and the price zone of 5670 to 5680 could complete the trend. This uptrend will appear complete if the index moves down more than 4 trading days or drops below 5580. If that occurs the next rally could produce a lower high. Without either of those two occurrences the next target is 5670 to 5680.

NEXT CNBC MESSAGE ON THE 2ND OF JANUARY, 2007

THANK YOU FOR YOUR SUPPORT DURING 2006. WISHING YOU A HAPPY HOLIDAY AND A PROSPEROUS NEW YEAR.

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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