CNBC Squawkbox Europe
LET'S LOOK AT THE DOW JONES INDEX FROM 1942 THROUGH 1947
We've been following this chart for a few years now because my forecast said this would be the roadmap for our current bull campaign. The bull campaign started in 1942 with a high momentum trend up. The middle leg of the bull campaign was a "struggling trend" up and it finished with two exhaustive style of legs up. The last leg up was followed by a 45 day distribution pattern. The only difference between the current trend and this one, is this one retraced ½ of the leg up before it completed and our current market only retraced 3/8 of that leg. The smaller retracement indicated the current trend could be a bit stronger and the topping pattern could be a bit different. But notice the distribution before the change in trend.
NOW LET'S LOOK AT A WEEKLY CHART OF THE CURRENT MARKET
Our current bull campaign has been almost exactly the same with its "pattern of trend." It started with a high momentum trend up. The middle leg of the bull campaign was a "struggling trend" and has finished with two fast drives up. Because the correction was smaller at 3//8 the indication was the end of this trend would be a bit stronger. I have been looking for some small amount of distribution or sideways movement before the trend changes. But it may have already taken place. Tops in this index do take some time to form and 180 days is normal. You can see the index had a 45 calendar day congestion or distribution before this last run so it is possible the distribution is complete, with only the possibility of a secondary high still to come.
LET'S LOOK AT THE DAILY CHART
There are a few things on this chart that are note worthy. There is a "false break" pattern in place. Changes in trend come from false break patterns or moving above an obvious old high and failing to extend the move. From the start of the sideways pattern on June first through to the last high was 180 calendar days and that is a normal time window for a top to complete. They can be 240 or 270 days but 180 has a history in this circumstance. In order to confirm a top is in place won't take much from here. Since the high there have been two very weak rally days and a wide range day down that exhausted the short term trend. That is the indication of a fast trend down. The wide range day may have put in a temporary capitulation and a rally of 7 to 12 days can occur. If it moves down to new lows without moving up above the low of October 17 it could indicate the fast trend down is still intact.
It would be better to see a rally of 13 trading days to show a lower high or secondary high and then start down. If that occurs it would complete a distribution pattern and confirm a top was in place. Two weeks ago the bullish consensus hit an extreme so another piece of the puzzle has been put into place. Another rate drop next week could set of the last rally to set up a secondary high.