Stock Market: CNBC Report

By: Bill McLaren | Mon, Jun 20, 2005
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Two weeks ago there may have been a valid break away from the congestion. In that specific circumstance I said all I needed to confirm the move up was a daily low on top of the horizontal line I had drawn on the chart. Monday showed that support above that line and the index traded against the old high or what I refer to as "OBVIOUS" resistance. The "obvious" situations are very helpful as the reaction from the "obvious" is always enlightening. In this instance, it produced a first degree counter trend of one day. The huge wide range day on Friday will need to be consolidated. Technically, our job as an analyst is to determine if this is a valid break away or a "False Break" top. At this point there is no evidence of a false break for a top. If this is a valid leg up it will go to between 5324 and 5360. With some possible resistance at 5160 and 5260. Now we just need to be sure this is not a "false break" pattern for top.


Last week I thought there could be a one or two day move down early in the week and then a resumption of the trend. If it could move up off the support established last week without a correction it would be bullish. I had my doubts due to the strength I could see in the oil market. But stocks did not care about oil and the index held the beginning of the week and rallied up into Friday's triple witching expiration. The forecast I made up the first week in January calls for this test of the highs to fail. But there is nothing within this trend to indicate that as a possibility at this point. I don't see why this trend should not test the high or the "obvious" as previously explained. Then we'll see if a counter trend emerges or a change in trend. If this is a valid leg up, out of this sideways pattern, it will go to 1260 to 1270. If a correction drops back into the price level of this last consolidation it would be a significant weakening of the up trend.


Last week I said if the oil market could exceed 13 trading days up it would indicate the move up was not a counter trend that was failing but a valid trend up that could test the high. The reason for that forecast was the maximum time for a second degree counter trend is 13 days and if exceeded would indicate a trend. Also the last move down was only two days so a new swing high, above the 10 day high would come from a small first degree counter trend of only 2 days and show a bullish picture of a fast trend up. As you can see the market showed a large gap and run day on Friday and looks a bit exhaustive. A majority of the oil futures contracts went to new all time highs on Friday - we need to be sure this doesn't create an exhaustion and a false break pattern. This drive up does look like it is a drive to complete a larger wave structure, so when it completes, there should be a more significant move down. But right now there is nothing bearish other than the large gap up on Friday to new all time highs for most contracts.



Last week we looked at the weekly chart or the intermediate term position of the index, which has been sideways for six month. The circumstance is such that the important call on the index is when will the index break out of this sideways pattern. We looked at the probability of this drive breaking out to the upside and we were troubled by the possible weakness of the move up. As you can see the index topped on the 13th day and could not do anything but get to a marginal new high. There is no five wave structure to indicate a completion but this is taking a lot of time to get back to the high of the 11 day move down. Eleven days down and now 16 days up and still below the old high. So I still don't see a breakaway move to the upside. If there is a lower high established then a test of the May low is possible. It just looks like to weak a trend to breakaway. I am still looking at the date around the 27th as a key time window to start a trend, as it will be 180 days from high.


I have had the same message for over 3 weeks now and it is still the same message today. This is a very strong trend and should not correct back more than four days. Last week we saw no reason why the index should stop at the old high. And it is the same message, if Friday didn't temporarily exhaust the move up and produce a multi-day consolidation of some sort, there will be two or three more wide range days up. Personally I believe this has to consolidate this move up now. The next key day is 4th of July at 60 days from low. It is possible to show some sort of congestion into that time window. That date is a bit of a swing date for me. If the index goes down or sideways into that date the odds favor the start of a fast trend up into 3rd of August. A move up into that date if it continues with the exhaustion style trend can put the trend at risk. This continues to be one very strong trend with hardly a counter trend so far.


One of the reasons the Australian market is hot is gold has found a strong low. As you can see the market went 180 calendar days into the last low. That calendar day time period of 180 days brings in many important highs and lows in all markets. You can see the rally off the February low was 21 trading days and it took 55 days to get back to that low. Obviously, it was finding it more difficult to go down. There should be some consolidation action this week as there is some resistance in "time" Monday, but I don't see this rally coming at risk of completing until the 7th of July.


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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