Stock Market: CNBC Report

By: Bill McLaren | Mon, Nov 14, 2005
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Last week it looked like a marginal new high above the September high was the next objective but due to the vertical move going into last week I said the index would either correct or go sideways for the week. If it did correct it wouldn't go down more than 4 days and that is what has occurred. You can see the huge distance between the previous resistance and the current support. That indicates support came in at an extremely high level. That situation leaves two probabilities; the index puts on another vertical drive up to exhaust the leg up or it may still need further consolidation of that large move. Further consolidation could take the form of a struggling move upward or even a one day or two day sharp move down. If this is as strong a drive as this trend is indicating the "extreme" nature of the past run up could result in a struggle upward another week or two and would be normal.

Last week we discussed the weekly chart and some price objectives. Since the October sell off broke a swing low there is a chance a new high could produce a "5 point Broadening Top" as a topping pattern when this leg up is complete. That would coincide with either the ¼ or ½ extension.


Last week I indicated the only two alternatives were for 1260 to 1270 as the objective for this move or above 1300 if this reflected the strength of the 20 and 60-year cycles. The index moved up from a sideways consolidation that also showed support at a very high level by leaving a "space" between the previous resistance and the current support. Unlike the FTSE where the "space" was extreme. I have been saying one of the catalysts for the final rally in the S&P would be a drop in energy prices.


If crude was to go into a bear run it would come from a breakaway of the struggling trend down. The index did fall out of the struggling trend down with a large gap and now needs to confirm the start of a fast move down. You can see it gapped down outside the pattern and could be a capitulation low. I don't believe that will be the case for a number of reasons. I have drawn on the chart the possible scenario that could take place from here if the trend is now down. It could rally one-day or a day and an opening and then trend down or it could simply continue down from here. If it does anything else but one of those two scenarios this week, I will be wrong about crude oil and a low could be in place.



Last Monday I said not to worry about the big down day the index had capitulated at previous low. The next important date was the 14 th and if the index goes down into that date it would be the low. The index showed a higher low after Monday but is now going up into the swing date. This does present resistance in "time" and the resistance in "price" is the obvious bottom to the sideways pattern that created the top. When the index came off the high I said it needed to hold around the December 2004 high to hold the intermediate term up trend intact. It has done that so far. It is now at an important point on the chart if it is going to continue the trend upward. The index needs to trade above the low of the topping pattern, which stopped the move on Friday. It also needs to move past any high price set on Monday or Tuesday because of the cycle that expires on Monday. If Monday is a high day it is possible to go down into next Monday the 21st. Let me summarize, the index put in a topping pattern and trended down. In order to hold the up trend intact it needed to hold around the December high, which it has done. It order to resume the up trend it needs to move above this price level and to exceed 12 trading days of rally. So this week should give us the evidence as to which trend is going to resume.


Last week the index had moved above the 50% mark and had reached the critical point on the chart to confirm the index could go to a new high. Because of the shallowness of the correction this could be a very fast exhaustion style of trend up. All it needed was another higher high above last weeks high and that occurred on Tuesday so the old high should be reached very soon. You can also see this has been a self-correcting trend with small one day counter trends along the way. Friday showed a huge gap up in the contract and we can see by today's trading the fast move is continuing even Friday's big gap didn't need to be consolidated.

The Nikkei keeps charging upward and is getting close to the 1466 level that could be significant resistance. Remember this is a vertical exhaustion move and there may only be a counter trend at that location. I'll need to see some chart action at that level before issuing another forecast.

Crude Oil looks like it has changed its trend to down and if it has changed to down the only rally this week should be one or two days and very weak. A new weekly low should be hit this week. Price should stay below the low of the 2nd of November or I am wrong. If you'll remember the fall in oil was forecast as one of the catalyst to start the final move up in the stock indexes. If there is no new low in crude this week I am wrong, if it can trade above much above the low of the 2nd I will be wrong and crude could be a low. We'll all know for sure by the end of the week if oil is in the fast move down I am forecasting.


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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