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September 03, 2007

CNBC Europe Squawkbox
by Bill McLaren

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

This index, through out its entire history of trading has been dominated by 45 calendar vibrations. We just went through a 90/135 expiration that resulted in a fast move down. Now the next 45 increment comes out Sunday through Wednesday. The time cycles represent a probability, the reality is what is on the price chart and that reality is not clear. If there is another weak rally attempt for another day or two and the index remains around the 1464 level it is vulnerable to a run down. If it moves above last weeks high it could also be vulnerable to a sharp run down but the magnitude of the move down is in doubt for some obvious technical reasons. First, the stock indexes have hit a lot of extremes in many technical categories that offer a probability of temporarily aborting the trend down. The move down held the March low and that sets up the probability of a larger sideways pattern. Technically when an index shows a horizontal low the probability exist for a test of the previous high. And lastly, the rally has retraced well above the lows established on the 6th of August and is a surprising display and takes a lot strength out of the trend down.

LET'S TAKE A LOOK AT THE NIKKEI DAILY CHART SO I CAN BETTER EXPLAIN THE CIRCUMSTANCE RELATED TO THIS DOWN TREND.

You can see how the NIKKEI broke its March low and the current rally has not been able to move above its August 6th low. This leaves the down trend in a strong position IF the index starts down from this level, unlike the S&P 500 which has move well above that low and taken a lot of steam out of its current down trend.

LET ME SUMMARIZE what I have been trying to say. I do believe there is a probability for a correction from the little time window (2nd through 5th). But the magnitude of the move down is very much in doubt for the three reasons I just explained. If the index hits a high sometime in the next three trading days and runs down to a higher low and starts a rally that could develop into a larger distribution or topping pattern ending in mid October. This index can take a much longer time period to distribute before changing trends. Or this move down will break the March low and capitulate or panic into another lower low. Either way this is resolved I wouldn't anticipate that trend to end until Mid October. So there is risk of a run down stating the next three trading days as I had forecast, but qualifying the magnitude is now difficult due to the nature of the internals and technical extremes that have been registered the past two weeks.

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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