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Stock Market: CNBC Report

LET'S LOOK AT THE S&P DAILY CHART

Four weeks ago I indicated the index was going into a sideways consolidation. The index is going to the 1260 level, the question is: Will there be any downside testing before the up trend resumes?

If we do see a downward movement it would be an opportunity to add to long positions. A move down would not get legs in this circumstance. I still believe the only thing that would cause a move down is an unexpected news item. This coming Friday is a turning point in time but I can't qualify it from this pattern. The first week in January is, historically, an important week and a move that continues sideways into that week, will very likely resume the up trend, coming up out of that week first week in January.

This still remains a very bullish technical picture. There is a lot of money on the sidelines looking for a decline to buy. That is why any move down will not get legs. If the index starts to trend above this consolidation, that money will be forced to chase the market and we could see the same style of move up as we saw in late October and early November. I believe we can assume, the move up out of this consolidation will be a high momentum trend.

U S DOLLAR INDEX

The situation in the U.S. Dollar is the same as the situation in crude oil back in October. These are both in "Blowoff trends." Two weeks ago the index fell into the terminal phase of this leg down by going to maximum momentum for the move down. When oil was exhausting in October, I was able to tell you that when the index corrected more than 4 days the uptrend was complete and the index would now trend down. And the first move down will then exceed 12 trading days and the first rally will be less than 12 trading days. The same situation exists in the Dollar index, only in the opposite direction.

You can see the rally has been three days, but has been quite large for this circumstance. The rally did stop at the logical resistance for the move or the point that started the maximum momentum drive down. The long term trend remains down and down strongly, the intermediate trend remains in a strong downtrend. The short term trend has shown a rally that is the normal rally within a downtrend. If it can exceed the current level we can assume this leg down is complete and the index is either reversing trend or starting to consolidate the huge move down. Consolidation would be the highest probability. This week will tell us the end of this current story. If the trend cannot move below the last low with the same momentum that it just rallied, then we can assume the leg down is complete. But for now it has rallied three days and that is the normal counter trend for this trend. It also need to show a new low this week to keep the downtrend intact.

ASIA

LET'S LOOK AT A WEEKY CHART OF THE NIKKI 225 INDEX

Last week we looked a daily chart and a pattern that was becoming obvious. This week we'll look at the weekly chart and get a larger perspective of this current trend or lack of trend You can see that the index has done nothing but go sideways since the high in April 2004. There are two things about this pattern that are noteworthy. First, it is easy to see that since the high this year the index has been trending down, but very meekly. In this circumstance, a market will usually show three thrusts down and then start to trend.

You can see the three thrusts down. That movement down has produced a series of lower highs while in this weak trend down. So it is possible to fall out of this pattern and create a fast trend down because of the lower highs. But for now, it is a weak trend down and we are looking for evidence the down trend is complete and the up trend will resume or an indication the index is going to fall from this third lower high into a fast trend down.

The point being, after 2/3rds of a year doing nothing, the index should start to trend again. So we'll monitor this index to see if we can determine when it will resume trending, which should occur within the next 30 days.

ALL ORINARIES AUSTRALIAN STOCK INDEX

Remember, this index is in a massive blowoff trend. Blowoff trends follow some very specific criteria. This is similar to crude oil, when, at the end of October I said if oil could correct more than 4 days it would indicate the trend had changed from up to down.

This is the same style of trend, although there are some differences between commodities and stock indexes, the basic premise is the same. If this index can exceed 4 trading days down. It would be an indication the trend has changed from up to down. The difference between commodities and stock indexes is a stock index has a probability of creating a distribution pattern after the initial break of the up trend, before reversing trend. I don't know if that will be the circumstance with this index. I do feel confident this is an exhaustion of the trend and exceeding four days down will put the up trend at risk of completing. But for now it is down the normal counter trend time period for a low and at the support level that supports the trend. A new high will likely fail and could be the high for the drive.

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