CNBC Squawkbox Europe
LET'S LOOK AT THE S&P 500 INDEX DAILY CHART
The index started the year continuing the vertical move down. After 8 days of not even moving above a daily high the index has capitulated into a low on the date I hade previously forecast would be important. The short term sentiment indicators have hit levels that are extreme and could be an important low if the trend were still up. Since I believe the trend is down this rally should only be temporary. As you've heard me say on many occasions this index trades in 90 calendar day blocks in time and extensions and divisions of that time window. The date I had forecasted as far back as two months ago (9th of January) and was 90 calendar days from high and 180 calendar days from high and the low price was very close to 180 points down in price. As with sentiment if the trend were still up this would be an important low but since the trend is down this will be a temporary low.
This rally could be a counter trend of first degree or 1 to 4 trading day but due to the vertical nature of this current trend less than 5 trading days of rally keeps the fast trend intact and would immediately move through the August low. A rally of second degree at 7 to 12 trading days is also possible but I would be aware of the consequences of a 3 or 4 day rally. If the index can move past 12 trading day or above the vertical line on the chart at 1445 then I may be wrong and the rally could go on another 30 or 45 calendar days. But for now I still believe the August low needs to be broken and wash out any bulls, bringing the intermediate sentiment reading to extremes and setting up a sustainable low within the first quarter of 2008. That low could be much lower into the 1200's as we've previously discussed.
NOW LET'S LOOK AT A DAILY CHART OF GOLD
I do not have a full analysis of gold prepared but this is a good opportunity to look at the best way to view price analysis for any market. Going on the major premise that "ALL HIGHS AND LOWS ARE EXACT PROPORTIONS OF PREVIOUS MOVES." Then extending this last leg up should give the high price. As I've noted many occasions on this show support at 3/8 of a range carries a probability of keeping the trend intact. Unfortunately it is not that easy because a market will bounce form that level if the trend is going to continue. But once that low is proven with a retest the probability is strong it will then extend that range. A "false break" will end at ¼ extension of that range, a normal extension under normal market conditions is 3/8 or matching the decline at 927 and a normal exhaustion move is a ½ extension at 951. In extreme circumstances a market can extend 100% but that is extreme on a daily chart but not usually using weekly legs or ranges. But for now we can look for evidence of top at those price levels of 927 and 951. Maybe next week I can have a full analysis.