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Stock Market: CNBC Report



This is getting to be a bit frustrating. When this trend up started the end of January, I said it would be a powerful move up. When it hit the last high I indicated it would then correct a maximum of 3/8ths of the range up. And that is what it has done. But it also needed to rally with some strength from this low and that hasn't occurred. The index is down to a double bottom or better said a possible double bottom. Double bottoms, as a pattern, are valid while trending up. The direction of the trend always determines the significance of the pattern. But this is also "obvious" support and one must be very careful of the "obvious." A failure here, an inability to rally more than three days would put a lot of doubt into this up trend extending. It would be bearish to rally one or two days and go directly to a new low. As that would look like a counter trend up in a down trending market. Anyway, to make a long story short, it is at support and needs to resume the trend or I'll give up my short term bullish posture towards this index. Remember, the index needs to move above the high of the 9th immediately as that was our cycle day for a high or possible end of this trend.


I had been agonizing over my forecast for 2005 that I published on CNBC Europe on January 10th . That forecast can be found on my website under the free CNBC reports for that date. It called for the index to come up to this level and fail and make a run down to test the lows and produce a higher low. And when the index came up to the marginal new high last week I couldn't tell if it was going to fail or go to the 1270 objective. It has obviously failed, so there are now only two probabilities. A test of the last January or February lows. Or a continuation of this weak trend up with another weak rally . This weak style of trend and is not the kind that allows for a breakaway move. Maybe one deep correction but now we have a deep correction following a new high leaving a False Break pattern which does leave the move up at risk of further move down. You can see the index is down to a trendline or obvious support and a counter trend rally could be anticipated. This trend is too weak to put much faith in it breaking out and needs to regroup.


Two weeks ago I indicated the US Dollar could resume its downtrend. It is now getting to a critical point. If your looking at purchasing US assets you might want to let this index stabilize first. You can see this trend is still in a hard down mode, failing to even get above a previous low the entire 4 year trend, indicated by the horizontal lines. The last rally stopped at 3/8ths of the last range down and keeps this fast trend intact. The last rally was anemic at best and has been the weakest of all the rallies the past 4 years. If that rally is complete, it leaves this index and thus the dollar in a very precarious state, especially since this rally has come from a previous low or "obvious" support.



We have been looking for the index to test the April 2004 highs. It has been stalled at the July 1st high. Since that is "obvious" resistance there could be a small counter trend of first degree or one to 4 days and this appear to be a counter trend move down. Therefore, it should resume the trend. If not it will put doubt into my forecast.


For the past few months I have been indicating there was a probability for a top in this index on the 9th of March. The index has fallen two days since the 9th but that is not enough evidence to conclude I was correct in this forecast. First it will need to exceed the time period of a first degree counter trend or 4 days. Then it will need to exceed the largest previous correction while in this exhaustion style trend up or 99 points and 12 days. So we are now looking for confirmation that our forecast was correct. Please understand, ending this bull campaign could still bring in a distribution pattern rather than an immediate reversal in trend. If it can hold this price level of the previous high it could continue the acceleration of the trend. So I am now looking for evidence to confirm the end of this trend or evidence I am wrong and the trend will continue at an accelerated pace. The Rally today was a surprise and if it can exceed three days, then I will be wrong about the end of this leg up. One wide range day up is possible but two would not present a probable counter trend. And exceeding three days of rally would exceed the normal time period for a counter trend and make a top unlikely.


Since the Hang Seng is having a difficult time establishing a trend, let's look at a real trend this time. This is a monthly chart of the US Dollar Index. You can see how each rally during this past 4 year bear campaign has failed to reach the previous support as indicated by the horizontal lines. You can also see how anemic each rally has been as indicated by the arrows. And one of the weakest rallies had been the last one. If that is a complete rally. This leaves the dollar in a very vulnerable positions for a further capitulation move down. This is a trend that will eventually go into text books on markets. If one were considering buying US Assets, one might want to wait until this dollar trend has stabilized. As trends go this is a thing of beauty.

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