Stock Market: CNBC Report

By: Bill McLaren | Tue, Jan 16, 2007
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I thought we'd take a closer look at this trend on a weekly chart. Notice the three exhaustion moves up while this index has been trending. Markets find highs by either exhausting into tops or by showing a struggle upward. The later being much less probable as most markets exhaust. So you can see how this trend has been struggling upward and not shown an exhaustion phase yet. On the daily chart this last low broke below a daily swing low and recovered creating a possible "false break" pattern. Fast moves come from false breaks. If this index is going to exhaust and not create a sideways distribution pattern the last low is the one that needs to start the fast trend. If it cannot move above that last high this week it will be unlikely an exhaustion leg has started. If this is starting an exhaustion there should be very few days down and not exceed three days at any time.


Last week we discussed how this was the exhaustion leg to this 4-year bull campaign. We also discussed how the pattern since the last high was developing into a bullish consolidation due to the struggling move down for 12 days. I've been telling you for years this index has a tendency to match previous moves down in points and that has occurred with this last move down at 27 points. This drive will either end by Wednesday this week or go out to January 31st (+-two days).


On my website I been saying this is an extremely bullish pattern of trend. So much so I was having a difficult time believing it is real. The consolidation was very tight and actually showed a space between the "obvious" old high and the current support. One of the things that have been missing from a topping pattern was a rush of speculation and this could be representing that missing component. This index has the same cycles as the S&P either a high by Wednesday or out to the first of February. Price for high if this week is 2516 through 2525 and if the 1st of February price top then price could be 2563, 2581, 2616 to 2638 or even 2700. If there is no "false break" pattern by Wednesday then we can assume an exhaustion or a vertical move and the higher price levels listed.



In response to your request to look at the euro/yen. You can see this trend has exhausted. Remember, exhausting is how trends complete. The number of waves upward and the vertical nature of the trendline make that easy to see. If this exhaustion was short or intermediate term will take a bit more evidence. The move down since the exhaustion has been larger in points than any of the previous moves down within the uptrend but the time has only been three days. Since 3 or 4 days is the normal counter trend it needs to break that pattern in time. The next weeks trading will help to determine the significance of this exhaustion. If it can only rally 4 days and hits a new low in less time then it will test the previous exhaustion high and that is a long way down. If it cannot get above that spike high within 11-trading days it could present a lower high. So we'll need to monitor this chart for the next week to qualify the significance of this exhaustion. We'll look at this again next week.


Last week I indicated this trend had exhausted. The index has now fallen to a price of the old high (went marginally through it) and also the long running trendline. After an exhaustion, the move up from "obvious" support can be a counter trend and needs to be watched closely. The index should get a bounce from this level and is a high probability. If it can exceed five days there would be an indication of resuming the trend. But for now there is an exhaustion and a move to support from which we should see a rally. The nature of that rally will tell us if this is resuming the trend or the exhaustion ended that trend. Next cycles for highs are Jan 24 to 26, Feb 2 and March 14.


Last week I indicated the index would run down and test the 5470-level and bounce. The nature of that bounce would tell us the significance of the last exhaustion high. The index came down to 5482 (just like the Hang Seng) and the bounce has consisted of three days on the side and one large day up. This resembles a three days base and rally rather than a counter trend rally that I was anticipating. So a new high is likely from this pattern. If that does occurs it should be the last wave up to complete the pattern of trend. It could be a marginal new high for top or it could be 200 points higher. If no top at a marginal new high then it can run out to Mid-February for a top.



Bill McLaren

Author: Bill McLaren

Bill McLaren
McLaren Report

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