Stock Market: CNBC Report

By: Bill McLaren | Mon, Apr 3, 2006
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Last week I pointed out the pattern of 2 days down and three days up indicated a possible problem for the trend if a new high couldn't be reach the next day. There was a spike up to new highs on the chart and I indicated because there was only a two-day move down after the spike if the index couldn't move to a new high within three or four days the index would correct down further. That is exactly what occurred. The index reversed back down on the 4th day and drove to a new low below the previous 2 day move down. It failed to show any follow through down and rallied one day and down again on Friday. This trading is taking place above the previous congestion and is therefore showing support at a high level and holding the trend intact. But there is now a lower high and some small indication of trending down. So we need to be cautious and see if this pattern of trend deteriorates further this week, it could be completing this leg up.


Remember, this index and therefore US stocks vibrates to 90-calendar day blocks in "time." My forecast called for a high around the 11th of January and a low February 10th and that low would start the final leg up and complete the bull campaign either April 11 or Mid-May. Most bull campaigns of this nature have a strong tendency to capitulate into their highs or exhaust and go vertical into the final top. Since the early February low this has been a very weak trend up contrary to the fast trend I had forecast back in January. Weak trends can be resolved into fast trends by showing a low on top of a previous high and that is now what the index is attempting to do. If the index holds the next few days it will look positive and we should see a big rally to new highs. If the index drops below the trendline I've drawn from lows to lows the past two weeks it would be quite negative for the uptrend.

What is necessary to get this index back trending up strongly is for the weak stocks, those stocks that hit highs during December and through January 11th and have been moving down need to find lows and resume their up trends. Since US stocks and the index trade in blocks of 90 calendar days and since the normal intermediate counter trend move down in stocks is 90 or 120 days, it is possible to have those stocks that topped in January find low in April and thus be the catalyst for the last drive up. Now to the short term-

The index has been struggling down for the past 10 days and if it can hold together the next two days it will make another attempt at the upside and either go into a fast trend or exhaust on the 11th. This will all depend upon the weak stocks rotating into lows the next two weeks.



A quick review - the last trend showed three ascending trendlines and an exhaustion. This was followed by a move to a new high in early February that failed to advance and came back below the breakaway point. Thus starting a sideways movement. This is a weekly chart so you cannot see the days but the rally was 9 trading days and the move down was 21 trading days and I've noted those days on the weekly chart. This is part of a trading strategy I refer to as "trading against a spike." When the move down is twice the number of days of the move up it indicates a struggle down (logical). So when the move down exceeded 19 trading days I said to look for a low and it came on 21 days. Three weeks ago I said it was going to a new high the next week - well, it took two weeks. Probabilities are now a top Tuesday/Wednesday and fall back below the breakaway point and that could be serious but I don't believe that will occur. I believe the strongest probability is to run to 18 to 18250 by April 20 th. There is some resistance between 1750 and 1770, then 1785 then the target price.


In early March I indicated the index had show a "trading against a spike" set up for low and was going to resume the trend and run out to April 19 for a top. Since this is a classic blowoff trend I've been indicating this leg would be a fast trend up, at least as fast or faster than the previous legs. In order to complete this trend there is now one small correction and one last thrust left between now and April 19 th. Because of the speed of the trend I'm reluctant to give a price for top until next week.


Last week I again explained the setup for a low as occurred in the NIKKEI and the ALL ORDS based upon number of days to the rally and the number of days to the movement counter to the rally. When that difference equals twice that time period of the rally and is still above the low it is time to look for a reason to go long. The rally was three trading days and the move down was six trading days. The market has now gone to a new high on a gap up. So we must be sure this is not a marginal or "False Break" pattern that just exhausted and see it fall back into the sideways pattern. If it can extend the current rally it should go up into May 5th and reach 628. There may be some resistance around 606 but the correction into the March low was a ¼ retracement and that should give 628 as the minimum move if this is another leg up.



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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