Stock Market: CNBC Report

By: Bill McLaren | Mon, May 23, 2005
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Last week we looked at the fact that the index had done 4 days up to match the previous rally in time but also had exceeded the previous rally in price. Since the normal counter trend is 4 days, it was very interesting the index had also gone down four days and gone down only 69 points as compared to 154 point rally in 4 days, obviously the correction had done no damage to the trend.. By timing dates the most important day was Wednesday and that was the start of the move up. The two resistance levels are obvious and I have drawn horizontal lines at those levels. If this is a trend the index should go to 5158 for resistance, then 5256 and an ultimate objective at between 5320 and 5350. Support is 4914 and should not be broken if the trend is to remain up.


Last week I thought the index could still be vulnerable to a test of the lows. I did not see any great damage being done but it did look vulnerable to the old lows. That was not the case and the index went straight up for 5 days. Obviously I got last week wrong. This pattern of trend since the April low does carry some probabilities with it. It does indicate the last low was a solid low. I go through about 150 stocks every weekend and the weak stocks are showing bases and that usually indicates we are going to see a strong rotation between groups and that usually keeps a correction under control. I believe this index is going to exhaust this drive in a few days if it hasn't already. I will then go into a distribution pattern at this higher level. Eventually show a sharp correction and that break will set up the low that will resume the bull trend, as per my forecast for the year.


The chart today is a weekly chart of the bear market range broken into 1/8th and 1/3rd and should give the major resistance for the move up. One thing to keep in mind is the relationship between commodity prices and the US Dollar. Since commodities are priced in US Dollars, as the dollar falls commodity prices rise. So now that the dollar is rising, it indicates a downward bias towards commodity prices. Look at the arrow or the last low in the index. The last time we looked at that index was at that time period. I indicated this was do or die for the index. Remember, counter trend moves, in bear markets of this magnitude, do not test lows. So if there is a drive to a low, as was going on then. The result would be either a successful test indicating a base pattern or a resumption of the trend at even a faster pace. So there is a base and the downtrend is complete. Now that this is being recognized, this rally will exhaust in the next few days and show a correction. But it should be able to reach the ¼ range price level (93-94) and eventually get to 1/3 to 3/8th to end the move up. This low was almost exactly 3.5 years and the longest bear leg in the history of trading has be 3.75 years. If we view this move down from the higher low, it is within a week of the longest bear leg in the history of treading.



Last week I indicated the index was going down and possibly test the previous lows. If the index can move above the low of the 11th (I've drawn a horizontal line at that price level) it would make that forecast wrong. IF the index can rally past 4 days up it would indicate the index was no longer trending down. This is the important price support as it is the mid point of the consolidation. The question that needs an answer - is this current two day rally a counter trend move up or did the last wide range day down on Tuesday exhaust the move down. If this rally can go further than two more days and exceed 4 days up, then there is a chance of a new high as it would indicate the index is no longer trending down. I still believe it can test that previous low, the next two days will tell that story.


I believe the index is consolidating the move down and will eventually resume the downtrend, but this could take a while longer. Last week I said there was a base in place and we could continue to look for further consolidation as it appeared to early to look for a resumption of the downtrend. I indicated the 20th was the key date and the index has gone up into that date. Please understand time cycles, as I use them, represent probabilities, not certainties and can be viewed as resistance in "Time." So there was a probability for a high Friday. Possibly for some sort of correction of multi day nature. If this resistance in time does not stop the move up today, then the index will go directly to 4096 for important resistance by the end of the week. There were also one and two year cycles that bottomed last week, so there could also be an important low in place. The index is currently up so 4096 seems likely.

The US Dollar has put in an important low and now that that is recognized, this rally in the dollar will exhaust shortly. But the downtrend is complete, the bear campaign is over. Since commodities are priced in US Dollars. This means commodity prices will be bias to the downside for the next six to nine months. So that top in the CRB is real. I still believe the NIKKEI is basing and will also come out to the upside. But no date yet.


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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