Stock Market: CNBC Report

By: Bill McLaren | Mon, Jul 25, 2005
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CNBC EUROPE

LET'S LOOK AT THE FTSE 100 INDEX

I been saying the maximum move down that keeps this trend intact is 4 days. If it corrects more than 4 days it would be an indication the trend was at risk of completing. The move down was technically 5 days since there was a marginal break of the low of the 4th day. But since there was also a higher high that day I'm still viewing this as 4 days down and holding the trend intact. We have a cycle this week that can bring about an end of this leg up. Time cycles present probabilities and not certainties. Actually, there are no certainties in this business. If this index cannot move to a new high within 5 days, it will indicate a problem with the trend. But for now it has just completed the normal move down for this pattern of trend. In order to keep the trend intact it will need to be at a new high within the next 5 days. So the only question is will this rally go to a new high or produce a lower high.

LET'S LOOK A THE S&P 500 INDEX

The "Pattern of Trend" is now moving to a critical point. Last Monday the index sold off and "closed on the low." Failure to extend down past the "close on the low" day indicated the "close on the low" capitulated the move down. When ever a market closes on the high or low for the day it can end or capitulate the movement. Tuesday showed an up day confirming the short-term capitulation of the move down. Wednesday broke to a new high but Thursday showed no upside follow through and showed a down day that almost matched the range of the up day. Then Friday also failed to show follow through to the downside and showed a weak rally. If one understands that moves down come from rallies that fail or moves up come from sell offs that capitulate, then a failed rally that shows follow through the next day is significant. So a down day that shows follow through to the downside, while in this specific pattern of trend, would indicate a distribution pattern that is complete and a correction of ¼ or 3/8 of the range up. A strong up day that has follow through the next day would indicate trending up out of this congestion.

I have been saying this trend will end or had a strong probability to end last week or early this week. Unfortunately, that seems to be the consensus on the street. When that occurs it usually means there will be no correction or the index will only correct a minimal amount (¼ or less) and charge upward when complete.

LET'S LOOK AT THE DAILY CHART OF THE HANG SENG INDEX

The Index continues in the exhaustion style of trend. If anyone has my videotape series of instruction they will recognize this pattern as a continuation pattern. You can see the three marginally higher highs and marginally higher lows that took place early last week. This pattern of trending can look like a struggle. But when there is a large space between the lows of the pattern and the breakaway point it indicates there is enough buying power, as indicated by the spacing, to produce a vertical move up out of the pattern. The index will likely exhaust upward from this pattern and when the top does come in it will be an "exhaustion" form of top (wide range or huge gap up or even an "island") . Since this is an exhaustion style of trend we can apply some trending criteria that is applicable to this identifiable style of trend. The normal counter trend or move down against this trend should hold a first-degree counter trend. That time period being a correction of one to four trading days. If a move down exceeds 4 days it will be an indication the trend is complete and the next rally could fail or the market could go into a distribution pattern of some sort. But it would indicate the up trend would be temporarily completed. The price levels, using a continuation contract, are this level plus 25 points, then around 15090, then 15800

LET'S LOOK AT THE ALL ORDINARIES INDEX

We have discussed this theory on previous occasions. All highs and lows are exact proportions of previous movements and those proportions or divisions are eights and thirds. You can see from the chart the index held a ¼ retracement. A ¼ retracement holds the trend in a strong position for the next rally. This chart shows the range of movement up divided into 1/8th and 1/3rds. It is normal to extend the trend ¼ of the range when the retracement is ¼ of the same range. Or better said that is the minimum movement one could anticipate. If this were a blow off or exhaustion style trend, then the ½ extension would be normal.

You can see it stopped at a 1/8 extension of the range, that can be temporary resistance but it should move to one of the higher price levels.

Trend is still intact and it appears to be a valid break away from a sideways pattern.

I still believe oil had topped. If this current rally can move up greater than 4 days, then I could be wrong about trending down.

My forecast still calls for the US$ to rally up into August 5th.


 

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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