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April 16, 2008

CNBC Powerlunch Europe
by Bill McLaren

LET'S LOOK AT THE DOW JONES INDUSTRIALS DURING THE 1969 BEAR CAMPAIGN

The first significant decline was 21% from the high. The index then showed an intermediate term counter trend rally that lasted 99 calendar days and retraced 3/8 of the decline from the high. Almost all intermediate term counter trend rallies stay below 3/8 of the range and don't exceed the 90 to 99 day block in time as this had done. There was a break to new lows followed by a three week rally and the bear trend continued. But the intermediate term counter trend was 99 calendar days and retraced 3/8 of the decline. Eventually this bear campaign lost 37%.

NOW LETS LOOK AT THE CURRENT S&P 500 WEEKLY CHART

The last decline was 19% down from the high. The last rally was stopped by 3/8th of the range down. The S&P went to a marginally lower low but the Dow Industrials did not back in 1969 or currently. But the pattern of trending is very close to being the same. Almost all intermediate term counter trends in bear campaigns are less than 99 days and generally run 90 to 99 and all stop at a 3/8 retracement of the move down.

NOW LETS LOOK AT THE S&P 500 DAILY CHART

The past month I have been saying there were two time periods that could end this rally and indicate this move up was an intermediate term counter trend rally in a down trending market. The first was around the 8th of April at 180 days from high and the last high was on the 7th. But there is usually some distribution before turning down and that seems to be lacking. The move up since the March low has been weak as you can see since every time the index moved to a new highs it was immediately sold off.

The next time for top if this is an intermediate term counter trend move up is around the 22nd or the 90 day time window from low. That time window can run out to the 99th day or out to May 1st.

Because of the weakness of this last rally and the depth of the last 6 days down the rally can simply by a one to four day move up and resume the counter trend, Or it can go up into the little time window and establish a distribution pattern and start down. If that does occur it will set up as a classic intermediate term counter trend in a down trending market.

The only thing I have technically that says that is not the circumstance of a counter trend rally is that bearishness has hit extremes in the consensus readings and indicates a low of some significance is in place. If the index can move up into May or past May 2nd then it would prove me wrong, but right now the form of the trend and the timing indicate a counter trend in a bear trend as the strongest probability.

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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