Stock Market: CNBC Report

By: Bill McLaren | Mon, Oct 4, 2004
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Last week I laid out some parameters this market needed to comply with in order to hold this trend. I stated that my opinion was the index would hold those parameters. The index needed to not exceed four days down and hold the horizontal line I had drawn on the chart. The index held the horizontal line on the 4th day down so the strong up trend is still intact. Two week ago I also said the index would likely go down into the 45 day cycle for a low around the 30th, the low was on the 29th. The index has established a horizontal bottom and now needs to trend and test that high within the next 5 days or the trend will become suspect. The index should have just completed a consolidation of the previous strong up trend and should now be resuming the trend.


This is a picture of the first range of movement up from the May low. Keep this rule in mind - "All highs and lows are exact proportions of previous movements and those proportions are 1/8th and 1/3rds." You can see the first drive up (indicated by an arrow) retraced almost 50% of the first range up. So when the index exceeded the first range up, I took that range and extended it on top of the first range and gave 50% as the objective and that is what was hit. Now it needs to continue following the parameters of trending. The last low was also 3/8ths of the last drive up and that also keeps the trend intact. Those horizontal lines should continue to represent support and resistance, along with the normal retracement values.


Last week there was an identifiable pattern of distribution. Something I had tagged a three thrust pattern about 20 years ago. I noted when it is a small pattern like this one, it will result in a first degree counter trend or a counter trend of one to 4 days. So last week we expected a low on either the third or fourth day down and not much below the level established the previous week. The low was on the third day down and the fourth day down was an inside day which was a day of basing and indicated the counter trend down was complete. Since the move down was so small the move up has become a bit exhaustive and will likely bring about another small correction when it is complete. If the correction can move below the last high - represented by the horizontal line I've drawn on the chart, then the trend has its first sign of weakening. If it can hold that level, it will remain in a strong position for the next rally. If this is a one day counter trend it would indicate a very strong trend. It still looks like it is going up into November 14th for a top above 3660, All Ords Index, but we also need to watch October 15th and the "pattern of trend."



If you will recall, when this index moved above the 1112 price level, it indicated that any move down would not be the start or resumption of the downtrend. But would set up the probability that a move down would produce a higher low. That appears to be what has occurred. I anticipated the move down to be 4 days and hold the 3/8ths retracement at 1104. The low was on the opening of the 5th day down, which rallied and created a reversal day up. And the low price was 1101 or 3 points through the support level. During the week I showed how the July 1996 decline showed the same situation as last week and resumed the trend. The magnitude of Friday's move up was a surprise to me. But now that there is another identifiable pattern on the chart it will allow for some fine tuning. Friday's wide range day will likely need to be consolidated. This will need to be a small retracement in both price and time and still be able to hold this strong trend. Any move down should not exceed a first degree counter trend of one to four days, and should really be one to three days in this circumstance. We don't want to see a deep correction and a "struggle against a spike." The strongest probability remains for the index to go to a new high for this bull campaign. If this trend can continue and not do any damage this week. Next important time window is October 12th. And it still looks like top in Mid-November.


I've also said that if Crude Oil didn't find a high last week, there was a probability crude could continue up through October, at the same or increased momentum. There was little in the way of evidence of a top last week, so oil could still ruin the party in stocks. This week's trading should be helpful in seeing if that is still a probability.

You can see there are 4 ascending trendlines to this trend up. These ascending trendlines are a clear indication this is a blow off movement. A movement that will continue up with the same or accelerated momentum, until it is complete. The point being, don't ignore this market. If it resumes the trend from this "blow off pattern of trend", it will be news worthy and chill the advance in stocks.

I am still looking for evidence the cycles last week brought in a high but there is little evidence at this point. Remember, until this trend is complete it will continue to hold this momentum. Last months range was large enough to exhaust, but that is hardly enough evidence.


Bill McLaren

Author: Bill McLaren

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.

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