OCTOBER 29 & 30 IS THE TRADERS AND INVESTORS EXPO IN SYDNEY. I WILL BE GIVING TWO, 2 HOUR WORKSHOPS. IF YOU HAVE ANY INTEREST PHONE 03 9813 8200 OR GO TO www.traders.com.au. These are very good value. Hope to see you there.
LET'S LOOK AT THE HANG SENG DAILY CHART
We have been concerned about this move down due to the struggle upward by this index during the month of September. This struggle has created a three thrust distribution pattern and is either start a consolidation or change the trend. There are a few things that are contradictory on the chart. You can see the index rallied 4 days to produce the last high and the "False Break" at the third thrust upward. It has taken the index 12 days down to reach the level that started the 4 day rally. Obviously, finding it difficult to go down as compared to the rally. But the move down is trending. The last rally within the last 12 day move down was 3 days and within one day it was back at the low that started the three day rally. If there is further move down today and a day of follow through, it could break this up trend. Our cycles still call for this market to go up into the 12th of November for a high. But that is a probability, the index needs a low this week and not much lower in price to have the reality match the probability. Please understand, this is a strong trend, but the last thing on the chart is a distribution (possible distribution) pattern, a False Break pattern, and now a trend down rather than a correction down. Last week showed a three day rally that failed with a wide range down day. Thursday was an inside day and could have been consolidating the wide range day down. If that was the case, then today would be another wide range down and put doubt into the index running up to our November date with a higher high.
ASX 200 INDEX
We have been looking for this index to go up into the 12th of November for a top. For the past month I've been indicating, if the index went up into the 15th of October, there would be a three or four day counter trend move down and set up a final run to the November completion of the trend.
The move off the last high was followed by three inside days and was appearing as distributive. The move down for two days was a weak move down, but so was the rally on Friday. This index has moved to a new swing low this morning, so the last thing on this chart is a one day counter trend. There is a chance a top is being put in now, we won't know for sure until we see the next rally. A marginally higher high is still possible on the 12th of November, but it would only be a marginal new high. This move down has left a weak one day counter trend and is an indication of a strong move down. Chasing a market down is usually poor strategy. We need to look for a rally.
Most of the world markets look vulnerable here. I would be very careful this week if looking at the long side as there could be a scary downside surprise.
LETS GO TO THE S&P DAILY CHART
The move down since the last high has been a trend. This is not a sharp correction as occurred during the 5 day correction in September but a trend as indicated by the one and two day counter trends that are apparent on the chart. This is obviously a fast trend down and may need a capitulation or a bit of a panic to end this decline. The first indication there may be a low in place, is a False Break pattern as indicated by the fingers and "FB" noted on the chart. The index is breaking obvious support with wide range days and needs a marginal break to stop this momentum, rather than the wide range days that are now showing up. The manner in which some big cap stocks are getting whacked is putting some fear into portfolio managers and me.
LET'S LOOK AT A WEEKLY CHART
Remember our theory, "All highs and lows are exact proportions or previous moves, those portions are 1/8th and 1/3rd. Since the high, there have been two run downs that broke to new lows and have immediately run back up. The last low held ¼ of the range and when the index rallied above the 1/8 range level, it changed the probabilities to a higher low on the next selloff (that is this move down) rather than a drop to the 1/3 to 3/8 retracement level which had been our forecast. NOW, the manner it which this index is trending down is indicating it could see the 1030 to 1015 price level. You can see no damage has been done to the weekly chart so far, but the daily chart needs to stabilize quickly or we could see a bit of a panic here. Understand the Dow Industrials are now at a new low and leading this trend down. This is unusual and it could put the Dow Industrials down to 9420 very quickly if this doesn't stabilize now. These markets could be on the edge of a cliff. There was enough volume last week to indicate a capitulation of some sort, but that volume needs to end this price deterioration - immediately. Breakdowns from this style of struggling trend down very seldom occur - let me repeat that "breakdowns from this struggling pattern of trend down very seldom occur" - but when they do they are vertical in nature. There are a huge number of instances where the index has shown a struggling trend up and broke out to the upside. There has never been a struggling trend down that has broken to the downside. But the price action the past two week does make that a possibility. So be very careful. The good news is if this does capitulate down into a low from this pattern it will be a spike low and a significant low. And even if it doesn't capitulate down, it will also be a strong low.