Stock Market: CNBC Report

By: Bill McLaren | Mon, Feb 20, 2006
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The last few weeks I've been indicating there is one more multi week drive up to complete this stage of the advance and maybe the bull campaign. Except for a distribution pattern of some sort. Last week we noted the index was trading against an overhear trendline. You can see that same picture on today's daily chart. The resistance levels apart from the trend line are 5860 then 5974. "Time" cycles look like a minor occurrence today so I can't tell the significance and very significant cycle expiration on the 15th of March. So this is exciting, I don't believe it will move through that trendline now other than maybe 5860. If it does move higher it will go vertical to 5974. This is exciting for me to see how the index resolves this overhead trendline.


Last week we again, looked at my forecast for the year 2006 that called for a high on the 11th and a low on the 10th and a resumption of the fast trend up. Please understand just because the timing I laid out was exact doesn't mean the rest of the forecast is correct. I deal in probabilities not certainties, as there is no such thing as a certainty in this business. You can see the index first went up into 45 calendar days from low and ran into resistance and went sideways. It then went into the next 45-day increment and found resistance and a top of some sort as I had forecast. The next 45 increment is February 25th and is a Saturday so we'll look at Friday or Monday. This represents resistance in "time" just as there is resistance in "price." If the index goes up into this date and is still below the high it could be setting up a crash scenario. There is absolutely no evidence to indicate that possibility at this point. But the time cycles the past 6 months could be setting up that way.

You can see this resistance in "price" is the third instance testing this level. The fourth test of resistance has a strong probability of going through. Since I believe this is a trend that started at the last low, the move up needs to comply with specific trending criteria. Any correction should comply with a first-degree counter trend or a move down of one to four trading days. The report for next week could be the most important of the year if these cycles do setup. We'll need to see if this is an established trend as forecast and if it can push through the resistance in "time" on the 25th of February and this current price level as I believe it will.



This index hit a high with an obvious 5-wave structure indicating a completed wave up. The nature of the move down should indicate if there was another leg up. You can see the move down has been a struggle losing only 187 points in 18 calendar days. The previous correction was 348 points in 22 calendar days. The low has not been confirmed by volume yet. The problem I have now is the last rally was only 50 points with the three previous rallies being between 70 and 83 points. 80% of the time this pattern brings in a low, a solid low. But it needs to hold now. If it trades below Thursday's low and there is a rally high that fails to hit Thursday's low. Then the index would be in a panic move down. But now there is a nice rally taking place, but it is still only an inside day at this time of day. We need to see some further strength and some volume come into the rallies and there could be another leg up. To those Elliott analysts the move down has been a classic ABC with the C wave subdividing into 5.


You can see the first leg up was long and strong. The second leg up was less in pitch, time and points. The 3rd leg up was also less than leg 2 but at the same pitch. Leg 4 or our current leg should be less than the previous if this is a "normal" pattern of trend to complete a trend. There is also a sign of weakness within this trend. You can see when the index consolidated wave 3 it held close to the previous high. This current correction has not held the previous high. The trend could be weakening and not accelerating. An index can come out of a struggling trend up as the S&P did in December of 2003 and exhausted into the early 2004 high. We should be able to discern which scenario it will follow. But for now the legs are getting smaller and that is a sign of weakness.


After a small complete wave structure in December the index went 5 days up and 5 days down and within 2 days was at a new high within that trend. The high was a 10 trading day run (small) and the index has now come down 19 days and fell below the breakaway point of the Aug/Oct highs and the December high. But with twice the number of days down as up and still well above the low that started the rally it is definitely struggling to go down. It still appears there will be one more drive to a new high followed by a significant correction and maybe an end to the trend. It is unlikely the rally will exceed 16200. When each wave up gets smaller it is logical the index is struggling up. There should be one more leg up but it will find lots of resistance at 16200 and may not get through it.


The high at 1680 came after an exhaustion leg up. I could identify that leg as exhaustion due to it being a third ascending trendline. I noted if there was going to be an unusual 4th advance or 4th ascending trendline it needed to be at the same speed as the last trend up. You can see that is not going to occur. That means this index has entered into a major consolidation of some sort. The risk is that a lower high can show up on the weekly chart and if that occurs it brings up some bearish probabilities. The long-term cycles I have been using for this index still indicate April or May as top. We'll look at the probabilities from this pattern of trend next week.


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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