Stock Market: CNBC Report

By: Bill McLaren | Mon, Oct 11, 2004
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CNBC EUROPE

LET'S FIRST LOOK AT THE S&P DAILY CHART

Last week was a large disappointment for the bulls. The index broke to new highs, and broke above the obvious trendline. Wednesday closed on the high and Thursday closed on the low. When ever this index closes on the high or low for the day it can indicate a capitulation or exhaustion of the short term movement if there is no follow through the next day. So when Thursday did not follow through to the upside, it left the probability of a "false break" pattern. When Friday showed follow through to the downside, the index was in a correction mode.

So this drive up is complete. The question becomes, will there be another leg up or is the index going back to the lows. The pattern of trend since the March highs makes another test of the lows an unlikely scenario. In order to hold this up trend, the index needs to hold a correction to 4 days but it looks more like it may start to consolidate and show a choppy pattern, the trend line is not important but the last low is significant and we don't want to see that broken if the trend is to remain intact. The strong stocks look complete, so, for this market to continue it needs rotation into other groups of stocks.

Along with the price of oil the markets also don't like uncertainty. And that is what this election is bringing. If there was a clear winner, the market environment would be different - doesn't rally matter who - just getting rid of the uncertainty would be helpful.

SINCE CRUDE OIL APPEARS TO BE RUINING THE PARTY IN STOCKS - LET'S TAKE A LOOK AT CRUDE AGAIN.

Last week we discussed how this was a blowoff pattern of trend. Blowoff patterns exhaust into highs and reverse. Last week I said this index was in the process of exhausting. You can see on the chart the May breakout had a successful test but struggled upward, not the way a blowoff trend terminates. At the end of July the market, again, broke to new highs and showed a successful test and exhausted into a high with a vertical move. I though that may have been the end - all we needed was some indication it was trending down. But the reversal did little damage to the trend - fell 7 days very sharply. But this was followed by a higher double bottom and started of the exhaustion oil is currently running. As I said last week blowoff moves do not loose momentum, they continue at the same rate of advance until they blow themselves up. The time periods that can end blowoff moves are (all in calendar days) 45 to 52 days. That produces a rather large time window of this Friday through next Friday, then the 29th and the 19th of November. And finally the 29th of November. Considering the rate of advance the latter date seems very unlikely. It is possible, within a 90 day move to get a multi week consolidation which slows the advance. But that doesn't normally come on an advance this mature. If it matches the previous drive in price the market is at 54 current contract. The best upside number or the maximum upside number I have is 53 JUNE contract, which closed at 48.8. So that's 4 more points and they can do that in a few days. The ultimate high day could be a 3 point day. Best thing to know is this is a short term phenomenon that will be over in days, maybe weeks at the longest and not months.

CNBC ASIA

LET'S LOOK AT THE HANK SENG DAILY CHART

There is a pattern of trend that showed up at the January/February high that has just shown up in this months trading. The pattern is referred to as a "Broadening Top" They can come in 5 point structures or 7 point structures. They are formed by first establishing a high (point 1), followed by a low (point 2). This is followed by a lower low and then a higher high to complete the 5 point pattern. Since many tops are accentuated with volatility, basically, this is what this is identifying - extreme volatility. You can also see this current situation is no where near as volatile as the early 2004 top, so we need to be very cautious putting a lot of weight on the pattern. But this also represents three thrusts up, in a tight configuration, which also indicates the index is running into difficult supply - I explained that pattern two weeks ago using the Australian ASX 200 Index and that is still posted on my Internet site.

So the pattern of trend is giving us a warning. But there is nothing to confirm a change in trend. There would need be some indication of trending as occurred last March. But this could be a vertical move down, the three thrust pattern does allow for that possibility.

The next cycle is the 14th or 15th - Thursday or Friday. The index is now down 3 trading days. We don't want to see this exceed 7 days or really, I don't want to see this move down exceed 4 days. With the flat bottoms just below, there could be a consolidation starting, rather than a down trend. But I would be concerned, if the index shows an indication of trending down rather than just correcting. It needs to hold 13061 and not show wide range days moving down, we need to see a struggle down. I am still looking for the index to go up into Nov. 13th for a top. But we are now starting to see some possible problems with the trend, although only a struggle up and nothing definitive to indicate a change in trend.

LET'S LOOK AT THE AUSTRALIAN ASX 200 INDEX

Last week we saw a one day counter trend followed by a small exhaustion. The last low left a space between the previous high and the one day move down and as pointed out in last weeks message, this left the index in a strong position for the next rally. After the one day move down the index showed a small exhaustion daily pattern. Remember, we have a forecast that says this index is in a blowoff trend of 90 days and will not correct more than 4 days anytime before the trend is complete at mid November. We are still looking at the 14th or 15th as the next increment or turning point within the 90 calendar day cycle.


 

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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