Stock Market: CNBC Report

By: Bill McLaren | Tue, Mar 28, 2006
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We have previously discussed how this is an exhaustion phase of this trend. The best "time" I have to terminate the trend is the last half of April. Of course that represents a probability and the reality of how the index trades is of primary concern. But since this is an exhaustion phase it cannot correct more than 4 days or we can assume the trend is complete. It is currently showing a pattern that could present a problem for the trend. Understanding that most markets will exhaust into highs or lows and once an exhaustion day is present on the chart it is an identifiable circumstance that can present specific probabilities. You can see the last two-counter trend moves were 2 days down. But now it is three days up and still trading below the last little exhaustion move. If it cannot move above the high or starts down within the next two days it could be starting to trend down. If the normal counter trend is 1 to 4 days and this rally fails within the next two days that rally could then become the first counter trend rally within a downtrend rather than two days down and a resumption of the trend. If you study those points marked on the chart you will see exactly and clearly what I am saying.


Last week I explained there was some resistance in "time" from the multi-year March cycles between the 20th and 23rd but I thought the worst we'd see was a first-degree counter trend or a move down from 1 to 4 days. The high was on the 21st but I still believe the dominant cycle for this leg up doesn't expire until April 11th. But the index needs to move above the old high this week or the circumstance of "trading against a spike" will offer some bearish probabilities with the same technical pattern as the ftse. My yearly forecast in January called for a low on Feb 10th to start the final exhaustion leg up to complete the bull campaign. The index has been trending up since then but it has not been a strong or exhaustive trend and that needs to start this week or next. Next resistance is 1325.


I have been assuming that a drop in crude would be the catalyst for the final fast move up in the stock indexes. When crude exhausted and started to trend down I could see the trend was not the way a commodity trends down after an exhaustion of the trend and indicated crude was likely in a large sideways pattern rather than a downtrend. The next run down in February was fast as one would expect if the trend were down but the consolidation that has followed is far too many days for a bearish counter trend move. It has also developed a series of higher lows. There have been two chances to break this market and they couldn't, so I'm going to neutral which means I don't have a clue to the direction at this point in time.



This chart illustrates my concern regarding this index. I have highlighted each leg of the bull campaign. You can see that each leg has become smaller as the trend has matured. This leaves the probability the trend is now going into a distribution pattern of some sort, which has the probability of ending the bull campaign. There is no evidence of trending down at this time, but I would be alert to that possibility. It is possible to throw up an exhaustion style of leg up to complete this long-term trend. But the odds are against it at this point and the only indication that could make that possible is if there is a solid counter trend low above the last highs at 16,000 and that continues to look less likely now.


This is a good example of my rule about consolidations or counter trends that you have seen illustrated on this show often. If the market moves twice the distance in days down than it took to move up and is still above the starting point. It is time to look for evidence of a low. The same is true for moves up. So gold rallied three days and within 6 days the market was still well above the low indicating this was a struggle down and could likely rally. This analysis is not valid when dealing in currencies. But most other market will give this exact indication. I can't say with confidence if this is a resumption of the up trend out of this sideways pattern-there is a chance but it needs some follow through.


The index has trended since the formation of "three bars against the spike" showed up three weeks ago. This formation has the same logic to the current formation in Gold. Actually, since then the All Ords Index has only broken a daily low once in 13 days and that break resulted in a wide range day up indicating a powerful move in progress. That "trading against a spike pattern" is a similar pattern that is present now in the FTSE and the S&P 500 index, the difference is those are opposite to the direction of the trend. This was set up in the direction of the trend and therefore has a much higher probability. This is an identifiable pattern that can show up on weekly charts as well and take months to form or it can take 5 or 6 days to complete as we are now witnessing. Either way they are followed by fast moves so it is worth the effort to study this formation. I see no reason to change my forecast for the Australian Markets -- I still see this index exhausting up into the 19th of April for a top.


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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