Stock Market: CNBC Report

By: Bill McLaren | Mon, Dec 11, 2006
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Last week there was evidence of trending down and a possible small distribution pattern at the top. The index had come down to the obvious support and bounced but because the move down if both the FTSE and the DAX were so sharp it was likely there would need to be a consolidation or rally of some sort. I noted that rally should not exceed four days or a downtrend would be in doubt and that still holds for the FTSE. The DAX cycle runs out to the 14th and could likely test the highs or move marginally above those highs. The CAC 40 could be setting up a broadening pattern if it manages a new high and that looks proossible. The FTSE held a 3/8 retracement but with such a weak trend since the June low I have a difficult time seeing another leg up start from this correction even though it held a 3/8 retracement. Remember how 3/8 can hold a trend intact. The next three days should tell the story in those indexes. The rebound last week was stronger than I anticipated but if the cycles are valid the indexes do need to exhaust up into them. But I need further evidence of trending down or there could be further consolidation and a multi-day spike up.


My forecast for many months has been the index would run up into this 180 day time period (now through Thursday) for a top of some sort. The resistance has been 1420 to 1426. There has been sufficient struggle in the movement the past month and a half to leave the index vulnerable to a move down. Thursday the index showed an outside day down on the 4th day of the rally and closed on the low for the day. It failed to show much follow through so the index looks like it needs another marginal new high to complete the wave structure and the pattern of trend. Yes, I know December is a very unlikely month for a top in this index. But all I can do is read these charts in tune with the price and time cycles and both indicate a probable topping process now taking place and one more multi day move to complete. The November lows at 1377 are going to be considered very important support by the street. If there is weakness I still believe the support will be at the 1360 level or close to the 56 point move down from the last forecast that represents the previous largest move down. As of today I don't see anything in the individual stocks to warrant a top without a further multi-day rally. Consensus levels are at extremes and do indicate too many bulls to be complacent even though it is December. That overhead trendline is very significant if the index can trend above it and not just move marginally it would as be important if the index drops below once getting above.



Last week I indicated the index needed to move past the 11th day up to show the first indication that it could be trending up. It is also important the index doesn't move down more than four days or it will be giving evidence of trending down since a first degree counter trend is one to four days a move down into the fifth day will make an uptrend in doubt. So the next week is very important. Our next timing is not until early January.

Today's chart is weekly and shows the move down against the last range up. We break all ranges into 1/8th and 1/3rd and this last correction was 50% of the last leg up and 1/3 of the entire bull campaign. Those retracements can hold the uptrend intact but as I've explained the move up since those lows has been weak and we need to see this weak trend get resolved either up by showing a low on top of the last high or resolved down. You can look at the FTSE 100 this past year to see how this pattern of trend can be resolved to the upside.


You can see the index came out of the tight August/September sideways consolidation with a strong leg up. There was an early November exhaustion followed by another sideways pattern. Monday through Wednesday there are cycles that can be significant but as we know cycles represent a probability and the price action represents reality. So we need to see the direction the index takes after this time window. But so far there is nothing but a tight consolidation of a fast move that exhausted. I cannot tell if this is top or bullish consolidation yet. I'll have to wait for price action to indicate the resolution as we did at the end of the last September consolidation.


Our forecast called for the index to move up into this time window and move to a top of some sort. If this were to be a top of some significance it also needed to show some distribution and I am assuming that is what the current consolidation represents. Friday showed a down day after a weak three-day rally but Friday also "closed on the low." We all know by now when a market closes on the low for the day it needs to move down the next day or the "close on the low" will represent a small capitulation or exhaustion low of some sort. Today's price action has indicated Friday capitulated the sellers although it could be temporary. I am still looking for evidence of a high early this week and not much higher than the current resistance.



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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