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June 12, 2006

Stock Market: CNBC Report
by Bill McLaren

LET'S LOOK AT THE FTSE 100 INDEX DAILY CHART

As usual we divide the range into 1/8 and 1/3 for support and resistance. Those are fixed angles and not trendlines. They were drawn on the chart the day of the high. You can see they each gave support and resistance, as did the index stopping at 5/8th of the range. That sets up the 22nd as a vibration point in "time," we also need to watch Wednesday this week. Almost every stock index in the world broke below their previous swing low, yet the FTSE did not. That is a sign of strength but the importance of the 22nd for a high cannot be overstated.

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

You can see how the S&P broke that last low and recovered. According to my rules it now has three days to break that low or it isn't going to without a significant rally. If it doesn't break that low and the index goes up into the 22nd of June, it could be setting up a lower high and a crash scenario. Yes, I said "crash" and if the index does look like it is setting up I'll explain the parameters, as I believe this is one of the most significant discoveries I've made in my 40 years in this business. The first of those parameters will be running up into the 22nd for a lower high.

When you look at this chart I've drawn little horizontal lines on the chart to indicate just a few of the "false breaks." That is breaking to a new high or low and falling back and failing to advance. Fast moves come from "false breaks" and changes in trend come from "false breaks." The point being there are very few occurrences where a buying a breakout or selling a breakdown are good strategy. 90% of the time there are better entry strategies than dealing in breakouts.

LET'S TAKE A QUICK LOOK AT COPPER

This is not the classic pattern of distribution I teach but it is close enough to represent a large risk. There is a distribution and accumulation pattern I discovered about three decades ago. This shows up in all markets and the result is a fast movement. Whenever a market in a compressed style of congestion can show three or four lower highs or higher lows it can represent the start of a very fast move. In this instance it would be a fast move down. High # 2 actually moved above high # 1 but because of the nature of the pattern I still feel confident in calling this a distribution pattern and the start of a fast move down. One of the parameters for this pattern of distribution is the last lower high must remain well below the trendline and that is what has occurred. One of the good things about this pattern is there should be no doubt about the move down as it should be wide range days. If it is not a panic move down now the pattern is not distribution. As you can see the market came down to the critical 3/8 point of the range, the normal support for a market in a fast or blowoff up trend. But if this is the distribution pattern of "three lower highs" then this should offer no support.

This is not as easy as counting three lower highs in all cases there are significant parameters that have to be met. One of the most significant is the last rally does not hit the trendline. In 90% of the occurrences of this pattern the last move is a two of three trading day rally and a new low in less time. We don't have that situation currently but the rally didn't hit the trendline and Friday could have started the trend. We'll know immediately since if this is that distribution pattern the move should be vertical and leave no doubt. If it doesn't move in that manner the next few days I am wrong.

CNBC ASIA

LET'S TAKE A LOOK AT COPPER

You can see that copper, while in this consolidation has shown a series of lower highs. This can set up a distribution pattern and a fast move down. If that is going to occur it should be now. If it can hold then possibly the trend is still intact, as we all know a 3/8 retracement holds the trend in a strong position for the next advance.

Friday's low stopped at 3/8 of the range and under normal circumstance would bring in a bounce. But, if I'm correct and this is a distribution pattern the minimum move should be to 290 and even to 268 appears possible on this thrust down. Those prices are the DECEMBER CONTRACT.

LET'S TAKE A CLOSE LOOK AT THE PATTERN

The parameters I have established to confirm this, as a distribution pattern has not been fully met as the second lower high-exceeded lower high # 1 for a moment. The last rally was not the normal two or three days up and one day to a new low. But the volume and overall pattern make that still a possibility since lower high # 3 did not reach the trendline and that is a critical part of this pattern and other patterns that create very fast moves. If copper can hold here and rally than a low of some consequence is likely. But there is now a large risk to the downside over the next two days.

LET'S LOOK AT THE NIKKEI

I redid the timing and it makes the window between July 3rd and 7th as the next important point in time. Thursday's gap down was huge and the index is obviously capitulating down.

LET'S TAKE A LOOK AT THE GOLD CONTRACT

Gold only showed a two-day rally up from the 3/8 support level. The midpoint of the range and the previous high are the next support -- that's around 600 Dec contract. This is critical for gold to hold that level if it is going to hold its bull trend. Because this is such an "obvious" support level we will also need to look very closely at the nature of the rally to tell us if the uptrend is still intact. This is another example of my theory that important highs and low will become 50% marks into the future, which helps to confirm the completion of a trend.

CRUDE OIL has refused to establish a trend since April. The high in April was followed by a weak move down. When that weak move down was complete, oil should have shown a strong trend up but couldn't. So I'm concerned this market could be in jeopardy. The 20th of this month is the next important time window.

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 © 2004-2008 Bill McLaren

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