Stock Market: CNBC Report

By: Bill McLaren | Mon, Apr 4, 2005
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Last week I indicated the normal thing for this index to do at this stage of the trend down was to rally. The pattern of the trend down had developed into a struggle. I noted if it broke that "pattern of trend" down, the probabilities were for an intermediate change in trend and a couple wide range days down. But that would not be the normal thing to do. The index is in the same position this week. Last week the index moved three days down against the established low and held. Again, the normal thing for this index to do would be to rally from that 5 day pattern. There are now two daily patterns to justify that scenario. If I had been trading this Index I would have been a buyer Friday and now worried over the outrageously bearish appearance of Friday's price action in the U.S Stock Indexes.


Last week I still expected the January low to be tested as the downtrend showed no signs of letting up. The fast trend down remained intact. I indicated the rally that would occur after testing the January low, would be a key for the market. If it produced a counter trend of one to four days. There could be a scary move down. The index did test the January low and bounced up. Remember, a counter trend move or a move that keeps the down trend intact is between one and four days and on the third day up, there appears an outside day down and one of the largest daily ranges we've seen since last August. The appearance of a daily pattern that looks this bearish, one has to ask if something that obvious can be real. If that was a completed counter trend, the index should be at a new low within two days at the latest. If there is follow through the support levels are noted on the chart with the two small horizontal lines and are a 1/8th and ¼ extension of the range down at 1155 and 1147.


The only point I want to make here is, what is going on in crude or the whole oil complex is not abnormal. Commodities are fear based, fear of shortages and fear of oversupply. Stocks can run on waves of optimism, but because of the fear factor commodities exhaust into highs. And every 30 years or so there are moves of exceptional blowoff or exhaustion nature and this is one of those instances. You can see by the angle of the trendlines this current move up is even fast than the previous which went 18 points in 120 days. This current move is 18 dollars in 90 days. This is now the final spike up and could stop at 59 or up to 63 June basis. This is all normal, what occurs when it comes back to 51 that will be the real key to this market. After the last correction I can say when it corrects back more than 4 days the exhaustion is complete. I cannot give a price and date for this high yet. Maybe, next week - too many probabilities. But this is the last spike up within this leg.



Last week I indicated the index needed to test the January lows as that would be the normal thing to do in these circumstances. I also indicated that Tuesday could be a low day by cycles, but the significance of a low at the current price level presented no probabilities. So we assumed Tuesday's low would be minor in its nature. The index showed a wide range day down on Tuesday and left Tuesday as an exhaustion of the current move down. The index is down the same number of days it went up, while in the sideways pattern. The congestion for almost the entire month of March is making this difficult for me to forecast. It is an abnormal pattern within a sideways move. The index moved down into cycle lows but this pattern of trend getting down to this level is not clear. Need some further price action at this old low to forecast the future. If this low can be proven, then it will test the highs.


Last week I said the index would find support at or in between the two horizontal price levels I had drawn on the chart. You can see that is where support was found and the index is now up 2 days. Understanding that the normal counter trend in this index is one to four day while in normal trending situation. We look for counter trends to rally either ¼ of the range or 3/8ths of the range down and the high on Friday was 3/8ths of the range. So the question for this index is - is this a completed counter trend rally and the fast trend is now going to resume? If it is, then there would be little doubt as it would go to a new low by Tuesday. Then another down day or two and a consolidation. I believe this index is trending down and may still build a topping pattern of some sort. But it looks like the bull campaign is complete.


This is a weekly chart and you can see the highs in crude have all been exhaustion move up or vertical moves up. This is because most commodities trade on fear, fear of shortages, fear of oversupply. Stocks and indexes tend to trade on waves of optimism when moving up, but they can also exhaust into highs. This is a picture one could find in every commodity at multiple times in its history. Blowoff moves or exhaustion moves will show ascending trendlines just as this market has done. Eventually will start a third or fourth ascending trendline and go into a runaway market and exhaust. As the Arrows on the chart indicate. The last run was 17.5 points in 120 days, it has now run 18 points in 93 days. The point being, this market is in an exhaustion phase and will spike into a high, sometime very soon. It is the subsequent correction that will tell us if the trend is complete or if there will be another leg up. What is transpiring now is not abnormal, not yet. The spike could terminate at 59 or up to 63 I can't say now. This is a normal exhaustion trend.


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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