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August 17, 2007

CNBC Squawk Box Europe
by Bill McLaren

CNBC EUROPE

LET'S LOOK AT THE S&P WEEKLY CHART

The past month I have been presenting forecast for this market. On the 3rd of August I said the first leg down in a bear trend should run 20 to 25% and last 90 to 120 days. That was based upon every bear campaign since the start of trading in the US Stock Indexes. In all instances one should know what is "NORMAL" for a circumstance. Of course one has to have the knowledge to define a circumstance, but everything in the markets are a repeat of the past, there is nothing new. Last week I said I could refine this circumstance a bit more and indicated when in a capitulating style of trend down, as this could be identified. The first thrust down to the first leg down should be between 14 and 18% and end between the 21st and 24th of August. There was no secret to this analysis and is a summation of all capitulation style of thrusts down eliminating 1929 and 1987. Yesterday was a capitulation of some sort but I still believe there is a further lower low into next week and that has a better probability of supporting a sustainable rally, but still a counter trend rally.

If the index does a weak three day move up into Tuesday or Wednesday then there is risk of a larger multi-day move down. I just don't like panic lows that come it at the "obvious" support levels. Those levels being a 10% decline and at a previous "obvious" low. It would be more normal to see a low broken to wash out sellers and set up a stronger low. How the index goes into the 3rd to 5th or September is still significant.

So any market your concerned with just go back in history and calculate the "normal" price and time for capitulating style of trends, those that don't rally more than 4 days. This is not an abnormal circumstance and has occurred many times before.

This does not change the forecast for a 20 to 25% first leg down, this is just for the first thrust within that leg. Eventually we'll see a 7 to 12 trading day rally and another run down.

LET'S LOOK AT THE FTSE 100 DAILY CHART

Last week we noted how there had developed a large space between the previous low within the trend down and the rally. That huge "spacing" left the index vulnerable to further capitulation if it started down. This index has broken the "obvious" low and shown a day with a huge gap down and wide range typical of a capitulation low and is also now down 14%. I don't have the history of trading to indicate the significance of 14% but there have been a few fast moves that have hit that percentage. There are a few of the criteria present for a capitulation low (possible) but all we may see is Thursday's move down being consolidated for the next 7 to 12 trading days IF (yen carry trade) the US Indexes stabilize here. If it does stabilize a rally would produce a secondary high before another thrust down to marginally break the June low, then I'd feel confident the move down being complete. I just can't see this as a correction in an ongoing bull trend. If it is then the DAX is the best buy around since it has technically held its trend. If we see a new low today there could be another wide range day. You can see the two day bounce from the obvious at the March low. I can't believe the US S&P Index is going to find a low with a double bottom in a bear trend and that should affect this index when it goes through its March low.

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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