Stock Market: CNBC Report

By: Bill McLaren | Mon, Nov 29, 2004
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Two weeks ago I said the index was going into a sideways consolidation pattern of some sort. This was obvious since the move up was vertical. This movement or vertical trend would need to be consolidated even if it's going high. You can see the index is now in the third day of the rally and still below the high. That does leave the index vulnerable if the trend were going to reverse or continue in the sideways pattern. Since the normal counter trend would be three or four days at this point a down day could look like a trend down was starting. But I still believe this is a consolidation and will come out to the upside and move up to the 1213 price level as the next resistance and eventually to 1260 for a top. The other significant resistance level is 1239.


Since we felt oil had topped last month we decided to look at the US Dollar since it is now of interest to investors. Last week we looked at the monthly chart and determined a double bottom would be very unlikely so the index was going lower. We could also conclude the dollar was in a capitulation style of trend or another way of stating the case is the index was starting a panic move down.

You can see the index moved below the trendline running from lows to lows so it is now running at maximum momentum for this move down. This means that the index will not rally more than three days until the low is in place. The low will either be a huge gap or extremely wide range day or the index will exhaust, rally three or four days and selloff three or four days and still be above the low that started the rally. When this occurs, it will be the first indication the down trend or this leg of the downtrend is complete.

The "Time" for this move down is difficult when dealing with this extreme momentum. There is a cycle for low Monday and another on the 16th of December. But when dealing with a panic move down, probabilities developed from anything but the realities of the price action are usually unreliable. This is an exciting trend and we are going to stay with this trend until this leg down is concluded.


Last week another 90 day cycle expired and created the probability of a correction of some sort and a move down to the previous high at 13426. Instead the index showed a huge gap down that exhausted the move down at 13557 on the fifth day down. The index then went to a new high and has pulled back two days and dropped below the 90 day high. If you will look at the beginning of the chart where the first 90 cycle expired you can see the index showed a new high afterwards and then went into a full fledged bear run. This is a different as the move down after the new high was strongly down and this two day move down has not been strong. So the price action now could be the development of a distribution pattern before a correction of this bull trend. But the 5 day correction did no damage to the trend, so I need to see a few more days of trading before I can determine the future of this trend. The leg up that started in October is still intact. So when everyone was eating a Thanksgiving Turkey, I've had to eat some crow for my call on the Hang Seng. The index could be forming a distribution pattern or the trend could still be intact. At this point I can't say with confidence.


Last week I pointed out this is the exhaustion phase of a blowoff trend. Last week there were some time cycles that could have brought resistance to the trend, but I also indicate that was a probability and the reality is this is a vertical move up and only amateurs would look to short a market in this phase of advance. The only reaction to the cycles was a first degree counter trend on the daily chart which left an outside week up on the weekly chart. Last week I said if there was no high, it would be up another 100 points. This momentum will hold until the trend blows itself up. Our target in price is around the 4,000 price level. But, again, this is an exhaustion and we need evidence of trending down before concluding the trend is complete. When this exhaustion is complete, the index will retrace 1/3rd to 3/8ths of the entire advance. That is an extremely high probability from this pattern of trend. If this corrects back more than 4 days, the trend could be complete. On a rare occasion, an exhaustion trend can show a consolidation in the middle of the trend and appear as complete. But that is very unusual, and seldom is the consolidation an actual indication of trending down. I have the same advise as last week, look at your stocks with the idea of exiting some long positions when this exhaustion trend is complete. Last week did not show any evidence of trending down.


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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