Stock Market: CNBC Report

By: Bill McLaren | Tue, Feb 22, 2005
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Three weeks ago I said this index was starting a powerful trend upward. This is an identifiable pattern of trend by my technical analysis and should hold to some very specific criteria. It will not correct back more than 4 days until it is complete. The first correction or the proper name, the first counter trend will be 25% of the range up from the January low, followed by a new high within the trend. If that corrections started now I've marked on the chart where it would be. The next counter trend will retrace 1/3rd to 3/8ths of that range up from the January low. That is how this trend will move until the trend is complete.

Just as there is "price" resistance there is also "time" resistance and those dates for this index are 27th of February, 8th of March and 22nd of April. Either of those dates can end the trend although the February date appears too early. The March date is showing up in other markets, so that is of more interest.


My forecast, published on CNBC EUROPE the beginning of January called for this rally to fail at or marginally above the previous high and move back down to test the January low and show a higher low. Last week gave the first indication that could be valid as the index dropped significantly below the last swing high. Notice the move down into the January low was 15 trading days and the index is now up 19 days and still below the high. Obviously it is finding it a little move difficult to go up than down. The index should find a low when it opens Tuesday or on Wednesday and move up to the highs. The price action at the old highs will tell us if my forecast is correct. The only other scenario I can see is a fast move up to 1270 which would be followed by a deep correction. Again, that is not my forecast but if I am wrong that is the alternate scenario and we need to be prepared as that will be a fast move up. But once against that high, I will be able to confirm, if my forecast is correct by the daily price action.



Last week we looked at the weekly chart and daily chart and discussed why this was a sustainable trend. Last week I drew the small horizontal line on this chart and indicated that support needed to hold. The index had broken out of a small, weak trend that had been in effect for the previous two weeks. I indicated I doubted that break would occur. As you can see the index came down to that level and closed on the low the day when it tested that horizontal line. Whenever a market closes on the high or low for the day it can indicate a capitulation of the movement and Monday proved that to be the case. It still looks like a test of the April 2004 high.


Remember, the index showed a possible "false break" pattern and rallied 5 days. This was followed by a move of 4 days down (the time of a normal counter trend) and was still well above the "false break" low. The last three of those days were within the same range indicating a basing pattern. I indicated that should be the end of the move down and if so, the index then needed to trend up - it did. The market just went down 3 days which is the normal counter trend when trending - so we can assume the trend is still intact and will test the December high.


Last week we discussed how this index had moved into a resistance zone that I believe the index will not get through. This is a large zone of over 100 points, but two week ago the index hit the bottom of that zone of resistance. Just as there is price resistance there is also resistance in "TIME." The 14th of February was one of those "time periods" and is the current resistance. But the index is now 9 days off the high and is showing even less a smaller move down in price than the previous moves down. This still leaves this index in a strong position for an advance possibly into the 9th March or the 23rd of April. If this current sideways pattern is one of distribution and the index moves down from here, it will stop at the January high and give a strong bounce back up. Moving up past today's high would present a probability the move down is complete and the trend could resume. This is very important - the index must close up above today's high (Monday's high) to break this possible distribution pattern.


Bill McLaren

Author: Bill McLaren

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.

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