Stock Market: CNBC Report

By: Bill McLaren | Mon, Oct 18, 2004
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Last week it was obvious the last drive up was complete and the index was going to correct. The style and magnitude of the move down would help us determine if there was another leg up to follow this coming correction, as I believed. In order to hold this strong trend up, I wanted to see a struggle down. I really didn't want to see the last low tested. The trend down was not a struggle and had wide range days down. I did misjudge the magnitude of the move down, I thought it would struggle down The problem now is the fact that the move down was so hard, the next rally could be a counter trend of one to four days and show a trend down, rather than a counter trend.. The previous move up was 7 days and it took seven days to return. That leaves the moves in balance and doesn't help my analysis. After the August low, when the index was able to move up as high as it had, that move appeared too large to consider another run down to new lows and any correction should produce a higher low. I am still staying with that scenario, but I did not like the manner in which this index came down. The NASDAQ actually looks better. I need to see a multi day rally before I can make a confident forecast for the remainder of the month. A rally can come from here as it is 50% of the previous range in price and time.


Three weeks ago I pointed out this was a "blowoff trend." We could qualify the trend as blowoff due to the three ascending trendlines that were in place on the Monthly chart. I indicated this is nothing new and just like everything else in the markets, it is simply a repeat of the past. On that basis there was one, time window and two dates that could end the blowoff trend. The first was a time window that ran through this week. Then a date of November 19th and the final date of November 29th. I am convinced this rally will not exceed November and if the market goes up into November 29th it will be the top. But the end of November seems too far away. Remember, this is a blowoff move and will not loose momentum until the trend is complete. This trend will not correct back more than 4 days, until the trend is complete. So once we see a correction that exceeds 4 days, this will indicate the trend is complete. This is a long term exhaustion phase of a trend and contrary to popular opinion, it will reverse and trend down within the next 45 days - at the longest.



Last week I pointed out a broadening distribution pattern that had developed. I didn't believe it was going to be as significant as the previous January/February broadening pattern, but we needed to look for a correction of some sort last week. In order to hold the trend intact I would prefer the index not exceed 7 days down and hold the previous low. So far the low on Thursday was 7 days down and has not tested the previous low. We also had a possible minor cycle work out into a low on the 14th as mentioned last week.

The question is "Is this a low and how significant a low could this be?" The probability from the cycles indicate a move up into November 12th to complete the bull campaign. But that is still just a probability, the reality is the index struggled up in September creating three thrusts upward and going nowhere and is now testing the downside. Thursday gapped down and was an exhaustion of some sort, but I can't qualify that low - it maybe valid but there is not enough evidence to make a call. The index could move up the next 30 days if Thursday's low can hold. Then it needs to recover 13223 on Monday to regain the up trend and by Wednesday that level is up to 13255. That movement would be evidence to assume the up trend has resumed. Remember the normal counter trend in this circumstance would be three days - so if it rallies, the rally needs to exceed three days. A rally of two or three days then reverses and goes to a new low in less time, would give a strong indication of trending down and would indicate the possibility the up trend could be complete.


Our forecast calls for the index to move up into the 12th of November. We have been looking for last Friday the 15th to either resume the trend or start a counter trend of 3 or 4 days. The index has moved sideways into that date and therefor offers little in the way of direction. A marginal higher high after an exhaustion move can bring in a correction as occurred last July, so there is evidence it can move either direction. I must assume Monday's movement and Tuesday's follow through will indicate the next direction. Remember if down, it should not exceed 4 days and if up, there needs to be follow through the next day or it is still in a little distribution pattern. I have been saying for a few months that this date will either resume the trend or give a three day correction. But due to the sideways move into the date, I can only say if does correct from here it will not exceed four days.


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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