Stock Market: CNBC Report

By: Bill McLaren | Mon, May 9, 2005
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Last week I said crude oil could see a small bounce from testing the January high, but the rally would be a counter trend rally of 1 to 3 days. The market gave a 5 day base pattern and moved up one day on Friday. The move on Friday showed a big gap up and may have exhausted the rally. If not, then it should be over by Tuesday, which is the next vibration point in "time." I still believe this trend is down.


We discussed a very important aspects of "price" analysis last week. The index was at a support level that can bring a rally and also keeps the up trend intact by "price" analysis. The level was 3/8th of the last range up. During my 40 years in this business, I have found this methodology to be the best "price analysis" available. The pattern of the trend that brought the market down to this support is difficult for me to qualify. In other words, I cannot say this rally is a resumption of the trend or a counter trend rally that will reverse. I need to see the first move down, the first correction to this last 4 day rally in order to judge this move up as a trend. If we do see a correction, I believe that move down will start Tuesday or Wednesday. I cannot qualify this move up as a trend, yet.


Last week I indicated the market was going to follow through with further rally the first part of the week. The real key was the 60 day increment from the high. If the index went down into that date, there was a very high probability of resuming the up trend. A 45 day low, followed by a 60 day higher low is a powerful setup for a strong low as history proves. But the index continue up into that 60 calendar day cycle and the probabilities are not as strong from this setup. This is resistance in "time" and 60 day high to high does not offer a strong probability, I needed a counter trend move down into that date. If the trend is up, a correction should not exceed three or four days down - if one starts now. If the index does correct and can hold the last high at 1164, then it would be in a strong position for the next advance. There was the little false break low at 45 days from high, remember that does have the probability of ending the move down. The index then rallied 4 days and sold off 4 days to produced a higher low and was a sign of strength. Now it has rallied well above the previous low, all we need to see is a sell off that can be qualified as a counter trend move down and a test of the March high is not out of the question.



The index struggled down into the last low, setting up the rally. Two week ago I indicated the low was solid. I just couldn't forecast if it was going to just test the previous highs or resume the up trend. I still cannot make that call. The move up has been a vertical move with only one, one day counter trend and that was last week. This index has a history of exhausting into highs. You can see the large gap up into Thursday. If there is a large gap down that holds throughout the day, then there is likely a top of some sort in place. The large gap will need to be consolidated with some sort of multi day counter trend or small sideways pattern the first half of the week. Then it will try the old highs and that point I will have an opportunity to make a further judgment about the strength of this move up.


This is a picture of the bull trend broken into 1/8th and 1/3rd. "All highs and lows are exact proportions of previous moves. Those portions are 1/8th and 1/3rd." The index has held the 3/8th level of retracement for the third time. The 3/8th retracement level can hold a trend intact. If this 3/8 level is broken, then there is the 50% mark for support but I would have to assume the entire move up was a counter trend and a test of the 2002 low would be in order. I don't believe that is the situation now, but it is a probability. Notice the index ran up one year and is now one year from high and therefore two years from low. So in one year of downside testing all the index could do is give up 3/8th of the advance. I still have to stay on the bullish side of this market unless the last low is broken. This is the third test of this support level. We'll discuss the significance of the third test next week.


There may be a low of some sort. This index almost always capitulates into lows. This last low, unlike the previous two lows, was not a panic or capitulation. If the move down the past two weeks does produce a valid low the move up will have some wide range days to it. That would be true due to the nature of the last 10 days. If the index can trade above Friday's high and hold that gain, then there is a chance for this rally. If there is a rally, I could assume it would run 7 to 12 trading days from this pattern and produce some wide range days up. Very basically, I am looking for some evidence there is a low in place as that is the probability. Please keep in mind this trend is down and this pending rally could be a counter trend rally or the start of a sideways pattern and not a change in trend.


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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