Stock Market: CNBC Report

By: Bill McLaren | Mon, Jun 6, 2005
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We're going to look at some short term indications. These indication are meaningless unless one has some knowledge of trending. Whenever a market closes on the high for the day or low for the day it could indicate a temporary exhaustion of the movement. Of course, when this occurs in the direction of the trend it could indicate strength if there is follow through. But follow through is the key. If there is follow through then it was not an exhaustion. But if there is no follow through after closing on the high or low for the day, then one must determine the extent or significance of the daily exhaustion. When this occurs in the opposite direction of the trend, it has more meaning as an exhaustion could then exhaust a move against the trend or counter trend.

You can see that Tuesday was a wide range down day that closed on the low, but when Wednesday couldn't follow through - traders bought the market. Friday gapped up to new highs and failed, leaving the opening as the high for the day. Did that temporarily or permanently exhaust the move up? We do know the downside exhaustion last Tuesday should not be broken if the trend is to remain intact. The trend is struggling.


The pattern that has shown up while trending up over the past two weeks is an identifiable pattern. Identifying circumstances that are similar is one of the thing technical analyst should be accomplished in. This pattern is a congestion that is tilting upward after a strong thrust up. Markets need to consolidate big thrust up in order to continue the move up. You can see the past two weeks, there were two instances were the index broke above a previous high and immediately fell back below that point. That indicated the index was struggling. This pattern will be followed by either a two or three day wide range break that will appear very scary and then a big rally back to a new high for the trend. OR it will come out of the topside with three or four day wide range rally. Because of the volume pattern we discussed last week, there is risk for a quick move down and recovery.


During the beginning of April I said the top was in place and the bull campaign was complete. I indicated we could confirm that probability by the nature of the pattern of the trend down. As you can see, each time the index broke to new lows, the subsequent rally would move back above the break point. Indicating the index was struggling to go down. This form of trend could indicate another leg up or at least a significant rally. So far the rally has been fast and 9 trading days. If it can exceed 13 trading days it will start to look like an up trend and not a counter trend rally. Actually, it does look like it could trend up because of the weak nature of the trend down. 13 days remains a key.



Two weeks ago, on May 27th , the index broke the pattern of the downtrend by reversing a very weak rally. The index then rallied three days and is now 3 days off that high. So it has held up after the large three day rally. The only timing I feel confident about is if the index goes down into June 27th . The cycles for that time have a strong probability of being the low to resume an uptrend. But the current situation is still in doubt, although there is now three days up and three days down that have gone nowhere. If it can't resume the downtrend early in the week, it likely won't be in a downtrend to test the April low.


Last week I pointed out the fact that the index had just created a one bar counter trend down. That "pattern of trend" can indicate a fast trend in progress. So the only thing to be concerned with was the next day. If there was follow through, it indicated a fast move and any correction would be 1 to 4 days until the uptrend was complete. Personally I though the index was going to show some type of consolidation action during the week. The index rallied on Monday and was followed by a two bar counter trend, although the second day was only a down opening and was followed by a wide range up day that closed on the high. Thursday then showed a huge gap up and Friday traded inside and closed on the high. If the index didn't temporarily exhaust the trend with the huge gap and the "closing on the high day," then it will still have two or three more wide range days up. This is a very strong move that needs some consolidation.


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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