Stock Market: CNBC Report

By: Bill McLaren | Mon, Mar 13, 2006
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Last week I indicated the stock indexes would find a low within the first two days of the week and start a multi-week rally. The nature of that rally is very important at this stage of the bull campaign. If it is a weak rally the indexes may be topping. The previous rally was 9 trading days and the market came down 21 days and did not reach the low that started the 9-day rally. If you will remember my rule for stock indexes, "if the move down takes twice the time of the move up it is time to start looking for evidence of a low and that is what occurred. The first two days of the rally have been strong and the low left an "island reversal" so this rally should be strong, if it isn't then there could be a problem. But do not be complacent with this rally.


On February 27th I put up a weekly chart and explained how this leg up was significantly weaker than the previous three legs up in this bull campaign. This was a warning this leg could be bringing in a top of some sort. Last week I indicated if the last little swing low of March 1st was broken it would indicate a one day counter trend after a "false break" pattern and that would be enough for me to indicate the up trend was complete and that is what has occurred. Yes, this could be the end to the bull campaign. That is the probability, now I need to find the evidence of starting a leg down or evidence of a distribution pattern. We'll look at those two circumstances next week.


Last week I said the index would marginally break the low of March 1st and at that time we would need to assess the situation. The index came down and marginally broke that low in three days and rallied. The move down towards the March 8th low was a struggle and is a bullish pattern I refer to as "trading against a spike." It needed to show some upside follow through to set in that low and that is occurring today. My forecast remains the same a top into 19 April.


The 90-day move down from October through November was not the way a commodity starts a downtrend. But the last move down took only 11 days to basically show the same decline. That is more like a downtrend and was followed by a 10-day move up. If the index could exceed 13 trading days it would indicate there was no downtrend as it would have exceed the time period for a second degree counter trend. But it turned down at 10 days so that probability of trending down is still possible and the next two or three days should tell the story.



I've been saying this pattern of trend will resolve itself by either showing a few lower highs or spike up to 5975 and exhaust the current trend. It sure looks like it is now in that exhaustion phase of this trend. The only dates I have for a high are Tuesday or April 29th and that is too far away for this leg so I may not have a good time cycle to end this move and may need to rely upon price action. So it looks like the index has finally started the last little exhaustion phase of this leg up. This appears likely due to starting the rally without hitting the trendline and it showed an exhaustion day last week that it is now moving above. I still like 5975, but you need to give me 10 points either side.


The index rallied 13 days into the last high and is now down 7 and appears to be a low. There have been three daily tests of the support level and one that broke and recovered. The vibrations in "Time" called for a high on the 27th and a low this weekend. The index could be starting the last leg up to the bull campaign. The only caveat now is we don't want to see Monday (today) as a high day. In fact if the index can move up past Wednesday with this rally then it would have exceeded the normal time period for a counter trend rally and will look like it is trending and possibly starting the final leg up. But because of the 3-year cycle that is expiring we definitely need some evidence this is trending upward. This is again the importance of qualifying this rally as trend and not counter trend. A move down in oil would be helpful.


Last week the market was up 10 trading days versus the move down of 9 days. I indicated it would see a few down days starting Monday but I didn't anticipate the precipitous fall the remainder of the week. So now the market has rallied 10 days and within 5 days it has taken back the entire rally. Doing that in half the time does represent a significant sign of weakness. Any further weakness will appear the market is trending down and June contract should go to 526 or even 501. If it doesn't go lower the pattern of 10 up and 5 down to the same price level is a sign of weakness and there would need to be a higher low to get me interested in the long side. The time window of the 20 & 21 March continues to look important and could be the next significant high.


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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