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CNBC Squawk Box Europe

LET'S LOOK AT THE S&P 500 INDEX

Last week I was a little concerned about the lower high that was showing up. But when the index held support rallied on Thursday it confirmed the trend was not down. The was a wide range day down on the 25th followed by a small range to consolidate the wide range and if the index were going to trend down the next day would need to be down. If not trending down then the movement must be up. In other words "They" had a chance to break 'em Wednesday and couldn't do it. After 11 days of moving down it could not move below the low of the last 2 day rally-2 up vs 11 down. So the struggling move down was even weaker than the move up. If the index was not going to trend down then the alternative was to repeat a similar pattern of trending that occurred during the 1973/1974 bear trend. We looked at that probability last week. The objective for this move up remains the 3//8 retracement of the entire bear campaign around the 1340 price level. Once the index moves above 1313 it becomes at risk of reversing but the probability of the 3/8 retracement is very strong. The index closed on the high and that could have been a temporary exhaustion but the 1340 level looks reachable. There are a number of Dow 30 stocks that have obvious multiple higher low basing patterns that should rotate out of those bases and bring about the continuation of the rally.

LET'S LOOK AT GOLD TODAY THE FIRST CHART IS MONTHLY

The same exact technique we used to forecast the top in CRUDE OIL on this show and the price of the last low to within .25 cents also applied to GOLD. Remember all highs and lows are exact proportions of previous movements and those proportions are 1/8th and 1/3rd. OIL showed a massive 100% extension into the high and Gold showed a more normal 50% extension of the previous range into its high. The move down showed support at 3/8 retracement of the bull campaign exactly as did CRUDE OIL. Both were "blowoff trends" as indicated by the three ascending trendlines.

NOW LET'S LOOK AT THE DAILY CHART

Since 3/8 of the range can hold an uptrend intact the big question becomes is this rally on the daily chart a counter trend rally in a bear trend? If that is the case there are two critical points in time for this rally to end and resume a downtrend. Onet is around the 13th of September and is a continuation of the cycles since the high. If Friday or Monday proves to be a high it could indicate the market could go down into mid September or even mid October with a fast trend. Those are the two important points in time September 13 and October 13 and Friday/Tuesday if this rally is a counter trend in a bear trend. Because of the magnitude of the decline the odds favor a larger time for a rally than Teusday but the movement the next two weeks should tell this story.

 

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