Stock Market: CNBC Report

By: Bill McLaren | Tue, Apr 19, 2005
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Last week I thought the low still looked valid and a test of the high should be the next move. The Yanks ruined the party. The US Market put on a wide range break of the obvious support level and has scared the world markets. The FTSE went up 4 days and is back at the low that started the 4 day rally within 5 days. If it can hold this level of support, it would be holding the up trend. But that is a lot of hoping. There was a bullish pattern that failed. I can't call this a bear trend due to the pattern. But I need to see a few more days of trading before I can attempt another forecast. The important remaining support is the January high around that 4850 level. If that is broken, it puts any up trend in doubt.


Last week I said the index ended with a bearish pattern and if the move up has been a counter trend - there would be a new low before the end of the week.

The index rallied 7 days and within 5 days was at a new low. Indicating the trend down was strong. The downside price objective I had for this move was 1142. The index hit 1142 on Friday. But there is nothing within the move down to indicate a low, other than a severe decline. The next support level is 1130 then 1118 to 1123, then 1114 and if this current level doesn't hold then that is were it is going. I can't be of much help other than to indicate the next level of support if this current 1140 area doesn't hold. I had a lot of confidence this level was going to hold, last week, but this week I need to see it proven. One thing about capitulation or washout moves in this index, once the end - they are over and the generally don't last more than 6 wide range days and its now down three wide range days. Worst case scenario is something like March 1994.


Last time we looked at crude I indicated there was nothing unusual about this market. That it was in the last spike or rally up and once the trend was complete, price would be back to test 51 - no matter where the high. I also noted, once it corrected more than 4 days in this situation, you could assume the up trend was complete. I said we would look at it again when 51 was hit and it was hit last week. If it could hold this level, it would hold the up trend. That appears unlikely. I assume any rally from here will fail within one or two days and the next horizontal support will be hit this week or the price of 49. Then we might see a larger rally. But this leg up is complete and it is trending down. It played out just like every exhaustion move oil has ever had. If you want to know the future, just look to history as there is nothing new in the markets - just a repeat of the past.



There had been a 90 day cycle low which I indicated would cause a rally but I couldn't qualify the extent of the rally. It could have gone to the previous high or anywhere in between. The rally has been 9 days, followed by a significant gap down. If there is a new low this week, below the low that started this rally - that's the March 29th low. It will indicate the sideways pattern the past three months was distribution and a top. If you'll look at the trading in December where the index came down 7 days and in 11 days could not get above the high, it was an indication of the weakness of the trend. This is a similar situation only in reverse. But for now the risk is it can move below that last low by Thursday and indicate a top is in place. If it can come down 12 days or so, and stay above that low, then there will be a solid low in place. How many days it takes to get to that low this week will give the indication of the strength of this move down.


I've been saying March 21st high was the end of the bull campaign. The question was-- is there going to be a sideways distribution pattern or is it simply going to trend down without a distribution pattern? Last week gave us the answer. The index rallied 7 days and showed a lower high, indicating it was trending down and within 5 days after the 7 day rally, the index was at a new low. Confirming the strength of the downtrend.


On the basis that "all highs and lows are exact proportions of previous moves and those proportions are 1/8th and 1/3rd." The chart below is the bull campaign broken into 1/8ths and thirds.

You can see the first low was on 1/8 of that major range. The last high was at 50% of that range down or 1/16 of the major range. The index should vibrate down to the 3873 level as the first objective and bounce. But understand, that price level is the ¼ retracement level and is a bullish retracement and would infer a continuation of the bull trend. So we'll need to make a determination at that time, if the rally will be a counter trend and fail and go to the next level at 3673 or whether the bull trend will resume. But going to the 3870's seem very likely. I also have support at 3955 to 3970, but with momentum this strong, it is difficult to qualify a low at that price level, but possible to get a bounce from there.

Last week I indicated I had previously given up on the Nikkei but I thought the Topix still had an chance to test the April high but any weakness ,at this stage, would end the trend. There were 5 wide range days down in a row last week. Obviously, indicating the trend was complete.


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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