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February 16, 2009

CNBC Squawkbox Europe
by Bill McLaren

LET'S LOOK AT THE S&P 500 DAILY CHART

Back in December I put this chart up on CNBC and said this was the price and time road map for this intermediate term counter trend rally. If the index went up into any of the three "price and time" windows the index would turn down and resume the bear campaign. The index went up into the first window and failed and moved down into the second "time" period for a low and is now looking at the end of the cycle at 90 calendar days from low. This 90 day period is the strongest of all cycles in the US Market and dominates trading. Other markets as the FTSE have two dominate cycles one 90 and another of 144 calendar days and its 1/8 and 1/3 divisions. I was hoping the index would exhaust up into the 90 expiration but that appears unlikely now. There is also an identifiable distribution pattern on the chart and that is a lower double top (LTD) that can end rallies in bear trends as it is a possible distribution pattern. We may just see a three day rally that ends below the lower double top and resume the downtrend rather than an exhaustion move up. But there is now a probability the downtrend should resume next week.

LET'S TAKE A QUICK LOOK AT THE NASDAQ 100

This is showing the ideal pattern to complete a counter trend and one more small drive up will complete a little 5 wave weak structure into the "price and time" window for a top. This is what I was anticipating for the S&P 500 but with the lower double top there is a distribution pattern. So next week could be the week to resume the downtrend.

If the November lows are broken as I am forecasting the market will move back above those lows on the next rally. That will occur because that is how bear campaigns behave this late in the trend.

The European indexes could be running this same timing but I also get a date the 17th to 20th of March as significant.

There is one bit of timing I am very confident about and that is this bear trend will not be complete until 2012. There will be a very fast 270 calendar day to one year rally once this current leg down is complete followed by a two year decline although that two year decline will not as severe as this current decline. I'll draw that forecast for you on my next appearance on Squawk box.

The world economies are contracting faster than even I assumed. Again don't believe the talk that China is going to save the world since they are an export driven economy and will have as much or more problems as everyone else.

The one thing that can bring about some confidence is a bank bailout that truly makes some sense. The toxic asset problem must be taken head on. The country needs some REAL leadership. Every suggestion or proposal seems to be coming from the financial industry itself. When the solutions offered protect the stock and bond holders of the insolvent banks it is not a solution. There is now an audit taking place of the top 18 banks because Geitner obviously doesn't trust what the banks are telling him. The problem is too big to just through money at the banks or guarantee their mammoth losses as was done with Citibank. That is just wasting taxpayer money and only satisfies the financial industry. Many of those insolvent banks need to be placed in some form of receivership and their toxic assets sold for what they are worth at the expense of the bond and stockholders and the functioning parts of those banks either set up as a solvent bank and sold to investors or placed or sold to successful banks. Trying to keep insolvent banks alive is far too costly and will be to the benefit of no one but the financial industry. With the current "planning" this will likely cost in excess of a trillion more dollars and counting yet not solve the problem. They are insolvent do to the greed of management and those stock and bond holders who backed the management should pay the price and not the taxpayer. So far this has been the largest rip off in history and needs to stop now. The economy will go nowhere until this problem of insolvent banks is truly solved and solved quickly for the benefit of the country and not the financial industries management, bond and stock holders.

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.

Copyright © 2004-2009 Bill McLaren

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