Stock Market: CNBC Report

By: Bill McLaren | Mon, Jan 22, 2007
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Last week we looked at a daily chart and I indicated if the index could rally past a 4 trading days it would eliminate the probability of a downtrend. Since the normal counter trend is three to four days in that circumstance it is quite logical. If that occurred, which it has, I said it would rally 11 days. If it could not get above the previous high within that 11 trading day rally, then there was a risk of ending the trend. You can clearly see three ascending trendlines on the weekly chart and therefore this is in an exhaustion leg up and when this market falters it will end this uptrend because it is currently exhausting. The first indication the exhaustion is complete is a move down that exceeds four days.


Last week I said the index had found a low and would rally. If the rally could exceed four days there was a probability of resuming the uptrend. You can see the low was an island so there is an exhaustion at the low and an exhaustion at the low. The index is now up 5 trading days and there is resistance in "time" (from time cycles) the end of the week from Wednesday through Friday, then Feb 2nd and March 10th through 14th. If the index can move up past Friday then a top will come in either the 2nd of February or Mid-March for an end to the uptrend.


Last week the index had set up a three-day base at calculated support and I indicated a test of the high was likely. The price level of the last high was very strong price resistance and moving above that is quite bullish. We could anticipate a move down from the "obvious" resistance level of the previous high. That move down was 3 days, the normal time period for a counter trend move down and in those three days lost very few points. If that is all the index could correct then it is back into a vertical move up again. Best forecast is a run up to 16th February. Price could be 5760 if this rally fails or 5850 or higher during mid-Feb. This is very likely the last of the exhaustion style of moves up. I am surprised it could move through that price resistance so easily but that was a very weak 3-day move down so this move up could be quite strong or better said should be very strong and a vertical move up that could exhaust the bull campaign.



First the DAX and there are now two little thrusts that broke to new highs and were turned back. The moves down were only three or four days, which is the normal counter trend time period. You will see this type congestion within strong trends often. This congestion is resolved one of two ways. There is either a third thrust that can't hold the previous high and after that third failure the index will show a very sharp move down or possibly a change in trend. Or rather than a third failure the index will show a low above or on top of the previous high and go into a vertical move up to exhaust the trend. You can also see the last low on Friday was well above the trendline and therefore a very important low as support has come in at a high level and could resolve this congestion to the upside with a vertical move up. The CAC 40 is in the same position so this rally in the European indexes is extremely important for this trend.

Now let's look at the FTSE DAILY CHART

Last week I pointed out the index had broken a previous low while trending up and created a little false break pattern. If a valid low the index needed to move up without any hesitation. If it didn't behave in that manner it meant the low wasn't an exhaustion low or false break and would indicate the index was likely in a distribution or topping pattern. You can see the rally was three days after the break and now down 4 days and still well above the low that started the 3-day rally and therefore no evidence of trending down and now looks like another rally attempt. This index has been struggling against the November highs for too long to be a healthy trend. Last week was a good opportunity to resume the uptrend and it struggled. This still looks like it could be part of a topping process.


Last week I indicated the US stock indexes were either going to hit a high on Wednesday or run up into the 1st of February for the next resistance in time. All the indexes hit highs on Wednesday and some like the NASDAQ, Russell and Midcap had significant corrections and left possible false break patterns for tops. But the S&P 500 only went down one day followed by an inside day, the Dow 30 showed the same pattern. If you'll recall the move down from Dec 15 through Jan 10 was a form of very bullish consolidation and therefore the index needed to show a strong move up or something was wrong with the uptrend. So the S&P 500 looks like it could still exhaust up into the first of Feb due to the one-day move down. Maybe a better way to state this is if that is all the correction that is going to occur at this "obvious" resistance then this last leg up will be vertical and hit a minimum or 1450 to 1458. But it needs to move up now, no hesitation or this is going to start looking like a distribution pattern. One does not want to be early selling an exhaustion move as each thrust up will be at the same momentum or faster than the previous thrust 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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