Stock Market: CNBC Report

By: Bill McLaren | Mon, Feb 12, 2007
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Last week I indicated the sideways pattern had run its course and there needed to be an up week or the pattern could represent a problem for the trend. We got the up week, now it needs to continue and not leave a little "false break" pattern behind. Most fast moves come from breaking to new highs that fail to follow through. The low of the one day counter trend needs to hold to keep a strong trend. It can be broken but needs to be recovered the next day or the index will be starting to show risks of a false break pattern.


Last week we were looking for a possible correction between 1450 and 1458 in price. There was a 90 calendar day increment that appeared to be resistance in time so we were looking for a correction of some sort. Whether this was going to get legs to the downside is in doubt since this index is more likely to exhaust into a high than limp into it as this has been doing. As you can see we did get the correction, if there is a real problem with the trend today will be another wide range day. Because the low to the move down stopped at "obvious" support it could show a small range day with Tuesday as a down day if there is a short term problem with the trend. Any other price action but those scenarios likely means a test of the high but I still believe the bond market is important for stocks at this stage. The risk in the S&P is 56 points down.


Notice the rally has been 7 trading days and could still be a counter trend as long as it stayed less than 12 days. It could also indicate a fast trend down if it turned down prior to the price low of December 28 and 29 and both of those criteria are met. The rally was also a 3/8th retracement and that keeps the downtrend intact. We have discussed many times how that 3/8 retracement level is the highest probability for a counter trend rally. It is possible to see another marginal new high to give a little 5 wave structure up and a higher probability to the pattern completing as a counter trend rally. Bonds could still show a fast trend down this week or next as long as the criteria I just laid out remains intact. The next important time period appears to be the first of March.



Bill McLaren

Author: Bill McLaren

Bill McLaren
McLaren Report

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