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May 13, 2007

CNBC Report
by Bill McLaren

LET'S LOOK AT A WEEKLY CHART OF THE S&P 500 INDEX

About 20 years ago I discovered there were only three different styles of trends in all markets. If one could thoroughly understand each of those patterns of trending, then it would be possible to predict the future. Understanding there are no certainties, only probabilities. This would include knowing the probability when a trend could accelerate up or down. I've pointed out many times in the past several weeks this is the exhaustion leg of many bull campaigns around the world. And when this last leg is complete the bull campaigns will be also complete. Exhaustion legs all have similar characteristics. They are faster than the previous legs up and that has been occurring. They can last 60 days but a vast majority of the time they run 90 to 99 days. The normal advance in stock indexes is between 15% and 18%, except on very rare occasions like 1987 when the last legs range 22% to 25%. Or 1937 when the last leg ran only 79 days and showed a final 12% gain. But because of the nature of the trend and the fact that it has yet to do a 100% gain, which makes it one of the smallest 4 year bull campaigns in history it looks like a 15% to 18% advance in 90 calendar days is still a valid forecast. That gives a minimum run to the 1560's. Previously I had indicated the 1521 to 1529 level could stop the trend but history indicates higher and this current price level will likely just bring in a consolidation of some sort. The S&P is currently up 11%, leaving approximately 30 calendar days and 40 more points. The reason for the decline today was some disappointment in retail sales and therefore concern about consumer spending. A move down in oil could temporarily alleviate that concern. This move down in the S&P should not move much past 30 points down and not past 4 days.

NOW LET'S LOOK AT A DAILY CHART OF CRUDE OIL

I had previously indicated that Crude Oil was coming into a critical point on the chart. A move down to the "obvious" support of the previous low and the reaction at that level would tell us if crude has going to resume the downtrend. If the move up from that level was a first degree counter trend of 1 to 4 days and a new lows was hit following that weak rally the trend was likely to resume downward. If it could run up more than 4 days and move above the low of April 19, then it would retest the March high. If this does continue the downtrend it will do so with a vertical move down and not rally more than three days until it ends either June 11th or 28th. If it does hold this level and run back up that doesn't indicate an uptrend. Just a test of the March highs.

If oil does resume a downtrend, it would be a catalyst for the final spike up in stocks.

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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