Stock Market: CNBC Report

By: Bill McLaren | Mon, May 22, 2006
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A few weeks ago when I thought we had a top in place I put this chart up and laid out some ground rules for support. I said we would see a bounce from the 3/8 level and that occurred with a bounce to the ¼ mark. The index is down to 50% and further rally should go to 5773 but may go no further. The index is now 30 day off the high and that is a time period for support but I still need to believe any rally is a counter trend rally. Even though this is 50% of the last leg and the move down is a capitulation style of move down there is much stronger support at 5440 to 5524 and coincides with other ranges.

If there is going to be another leg up this will likely be the level but there will need to develop a base from this level. A move up without a base would be doubtful. There is some timing around Thursday and could represent a turning point within this move down. The most important future time cycle is on the 5th or 6th at 45 calendar days from high and 135 and 225 from low all 45 day vibration.


Just like the FTSE we break the ranges into 1/8th and 1/3rd. First with the last leg up which is currently very close to the midpoint or 50% of that smaller range. You can see by comparing this range with the entire bull campaign it would not be significant if the trend had changed to down. This should offer support and if so the rally off this level will be important. This has been an extremely fast move down as the past 8 trading days has taken back the previous 90 calendar days of advance. But look at how small this last range is relative to the entire bull campaign. So if we were looking for an intermediate or long term correction of the bull campaign we simply use the next larger range and those same divisions. Remember all highs and lows are exact proportions of previous ranges.


This is the next larger range and should be more significant if the trend is down. You can see the 1/3 to 3/8 level around 1226 and 50% at 1194. You can also see there are two more previous ranges to consider if this move down is a bear campaign. For me, the extent of this correction and the nature of the next rally will determine if this is a bear campaign. In other words I believe a bear trend is a probability. So the next rally will be the most important rally of the year. If that rally has the characteristics of a counter trend rather than a resumption of the trend-then we have a bear campaign. Remember this technique of dividing the ranges can be used with all ranges in all markets. "All highs and lows are exact proportions of previous ranges."



The high price that was hit during the exhaustion leg up remains the important price level at around 1700. If this index is still in a fast move down the next high will be Monday or Tuesday. If it can rally more than 4 days then we can assume some kind of low is in place. There are three very important price levels on the chart. First is the last low or the daily low of the 15th at 1660. If that is all the rally can bring then the index is still in a fast move down. The next price level and significant to indicating the uptrend can resume is the exhaustion high around 1700. Then of course the last series of lows and I've drawn horizontal lines off all those points. If this rally can exceed three days is the key right now. If it can do that than we'll consider a resumption of the up trend. But for now it has fallen below some important support for the uptrend.


Last week I indicate a top was in this market due to time cycles and the "pattern of trend" that showed a possible three-thrust distribution pattern. The chart below is the last leg up in the bull campaign divided into 1/8 and 1/3 as we do will all markets. The index just moved below a ¼ retracement on its way to the 1/3 to 3/8-support zone. I would anticipate a bounce from that level and if the trend were going to remain up that would be the price level of the low. I doubt that circumstance and believe that rally is more likely to be a counter trend rally rather than a resumption of the trend and the index will go to 4814. If this is a bear trend the first real bear trend objective would be the previous high at 4625. I will need to see the nature of the rally from the 4949 level before I can give a more specific forecast. So all bull trends and all bear trends in all markets can be viewed in the same manner. So the range of movement that is selected determines the level of price support and its significance. Remember all highs and lows are exact proportions of previous movements


This is again broken into 1/8 and 1/3 and you and see the midpoint at the previous 2005 high. I have been promoting the theory that important highs and lows can become 50% marks when trends are complete. This would be an excellent example of that theory, as important highs have become 50% marks. A ¼ retracement could keep the trend intact and in a strong position if the correction held at 4985 even though that is a long way from the high and a normal correction of a bull campaign would bring the index down to 4624. So if one thought this was a short-term correction and the trend will resume you would be concentrating on the last range. If you thought the correction was of more intermediate term nature then you would look at this range and if you thought it would be an even larger correction you would use the entire range. Personally I want to see the nature of the bounce from the 4949-price level before I make a forecast for the remainder of the year. But there is a probability this uptrend is complete.



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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