Stock Market: CNBC Report

By: Bill McLaren | Tue, Feb 14, 2006
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Every year I publish a forecast for the coming year. This year called for a high on the 11th of January and a low on the 10th of February. This is not a pretty picture for the low to resume the trend and most world stock indexes are struggling to go up. The current market is very close to the picture I drew when I made up the forecast the first week in January. This forecast was based upon long term cycles so let's see if there are any buyers out there. The past 5 years I have not had to redo a forecast but as I stated when I published this chart, the critical part of the model is now.


You can see the index has been going sideways since the end of November. You can also see the move down since the January 11th high has not been a strong trend and in fact has been a weak move down for 30 days. So the forecast can still materialize, but I need a bit more evidence before concluding this to be fact. It needs to show some volume on the up days this week. I am troubled by the world stock indexes as much as the sloppiness of this index compared to the Mid-cap and Russell. A couple up days with strong volume and the forecast will be OK.


You can see how the index appears to be running within a defined channel. Technically this offers some probabilities. Most of the time when markets present this picture an important high doesn't come against the overhead trendline. The market will move to the right of the trendline and show a new high that fails to reach that trendline and that high presents the risk of a trend reversal. I am looking for the US market to explode upward yet most stock markets appear to be struggling against some formidable resistance. My forecast regarding this index is for one smaller drive up to complete this trend and this weekly chart indicates this is possible. Last week we looked at how there have been two complete wave structures since the October low and a third is still possible and if it occurs can complete this entire bull campaign.



I indicated when the index went to a new high a few weeks back that the index would need to struggle and correct for the next few weeks until it could come back towards the hypothetical trend line I drew on the chart. It needed to allow some "time" to expire. The previous move up was unsustainable and would need to be consolidated over the next few weeks and that has now occurred. My analysis indicated there were two probabilities from this pattern of trend. Either a large distribution pattern starting now with one or two marginal new high left and rolling into a bear campaign starting in April or the index puts on one more exhaustion leg up that would go to a minimum of 1785 and do it in 90 calendar days from the last low. If the index moves down past the 4th day down, which was this past Friday, it will be a sign of weakness as 4 trading days is the time period for a normal counter trend while in a fast trend. IF that occurs it would bring up the question is this move down a counter trend down or is it a trend down? I can't answer that question until next week.


The vertical lines on this chart are 6-month intervals in "time." You can see every significant movement either ended or started with this 6-months/one year vibration in time. The next increment is April and also times out with possible short-term cycles for a top. As we've discussed prior the 1680 price level is a 100% extension of the 2003/2004 one year leg up. This relationship is very strong resistance but when a market is traveling at this high level of momentum or speed, resistance levels can easily be temporary.


During the January 23rd report I indicated Gold would be at a risk of a correction starting the 2nd through the 8th of February. Last week I said the correction was starting and would be four days and correct to ¼ of the range up. The high was on the 2nd of February and the low came on the 4th day down as forecast. But the low price was 3/8th of the range up and very close to the "obvious" support of the previous high. Each a normal place to find support in these circumstances. The price of 542 (JUNE contract) is still probable even though the low has been on the 4th day down as previously forecast. So I'm still looking for 542 or ¼ of the exhaustion trend up. If the index exceeds 542 then there is a probability of having completed the bull campaign. Yes I know it is difficult to believe this trend will ever end the way it has been accelerating. This week will be very significant for this market. Next week I may have another forecast.


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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