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CNBC SquawkBox Europe

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

This had set up as an intermediate term counter trend high May 19th. It had reached the historic price and time for a counter trend rally and there was a FALSE BREAK TOP to complete the distribution pattern. The move down from that false break was fast as it needed to be. The rally was 3 days as is the normal counter trend in a trending market. Then the index moved marginally to a new low and instead of following through and giving a sign of trending down it has rallied with a wide range day that closed on the high. Closing on the high for the day can temporarily capitulate a move. One thing that is troubling about my bearish stance is the MIDCAP 400, NASDAQ 100 and Russell 2000 all hit new highs yesterday. So unless those spikes up were tops and exhaustions my analysis could be wrong. In order for this index to hold a bearish pattern of trending it needs to move just marginally above the 3 day high and come rushing back down within three days.

LET'S LOOK AT AN OIL DAILY CHART

Crude bounced up today from a trendline. Bouncing up from obvious "support" this late in the trend can easily be counter trend rallies rather than keeping the uptrend intact. This last high could have exhausted this leg up and possibly the trend since it has exceeded both in both price and time the largest previous move down. This is referred to overbalancing price and time. Seven days down is not enough to indicate a change in trend, it would take exceeding 12 days to give that indication but this overbalance while in a blowoff is an indication the leg could be complete. If the leg up is complete the rally will be only 1 to 4 trading days and turn down and move below the 7 day low. We had indicated 135 could be a top on the 28th. If it can exceed that daily count of 4 or 5 days then the next stop could be 141 to 143. But the "overbalance" is a bit of a warning.

LET'S LOOK AT THE RANGE OF THE LAST LEG UP

I have divided the last range into 1/8th and 1/3rd as we do with all ranges. This has been a rather small correction of only ¼ of the range down and keeps the blowoff trend intact. This is true of all markets. I indicated Crude would go to the 1/3 to 3/8 retracement as it had done in all the previous consolidation moves -- 3/8 of the range is 115. This appears too small a move down now unless the blowoff style of trend is still intact, I doubt that and am looking for this rally to qualify as a counter trend rally rather than a resumption of the trend. Then a move down to the zone of 1/3 to 3/8 and the nature of the rally from that level will tell us if the trend is down. If I am wrong then the market will be at a new high in 7 days or less.

 

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