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January 03, 2008

CNBC PowerLunch Europe
by Bill McLaren

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

The longer term cycles and decennial pattern call for the year of 2008 to be bullish and set up 2009 as the top to the bull campaign that started in 2002. I have been looking for the index to break the August low while in this "forecasted" sideways move to set up a strong rally or trend in 2008. That is still possible but the probabilities are not as strong as I had originally proposed.

You can see the large sideways pattern that has developed since the July high or actually the March low. This weekly chart shows a large sideways pattern with three tests of support and two tests of resistance. Another test of the low would still be part of the third test of support since it didn't reach a resistance level during this rally. This is important because the fourth test carries a probability of going through and the third test has some probability of holding and starting a trend. This is not the same strong probability as the fourth test of support or resistance going through the price level. Just as the three tests in 2002 and 2003 pattern to set up the low. The difference here is the direction of the trend going up into the sideways pattern. There are three weeks up and three week down from the high and still well above the low of the three week rally. So it is difficult to get real bearish from the pattern of this consolidation without further move down in the next few days.

How the index moves into the 9th of January is still the key to this sideways pattern. The odds are good there could be a directional movement or trend after that cycle expiration.

LET'S LOOK AT THE DAX MONTHLY CHART

There was an exhausted in June followed by a three week distributed. The index then fell into the August low. There was a chance for a lower or secondary high from the October high but the index held and is now testing that October high again. The index has been trading for 5 months below that June/July highs and the question becomes; is this congestion a weak rally below the highs and distribution for a further move down or is this a consolidation of the exhaustion and setting up for another thrust upward?

From the perspective of price analysis the move down held exactly the 3/8 retracement of the last range up and as we've discussed on many occasions that does leave the probability of keeping the uptrend intact. If the index cannot move out of this congestion by February 13th then we can assume a top but we should get evidence before that date from the pattern of movement. Today and the 9th are important cycles for reversing the direction. If there is another leg up the resistance is 9060 or 9387 that appears clear. But whether this move up is a struggling trend up since the August low is the key and I can't answer that important question yet. The first few weeks in January should clear that up. I do like the 9th as an important cycle and seems to coincide with other markets.

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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