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Stock Market: CNBC Report


This chart is a picture of the entire bull campaign. The index spent the first half of 2004 in a sideways consolidation. You can see how, in 2004, the index went up 4 weeks and took 14 weeks to get back down to the low of the 4 week rally - definitely struggling down and indicating another leg up. This current leg up ended with a three week vertical move or exhaustion leg up. The subsequent move down in March was also a struggle down. But last week was hit with a huge gap down, falling out of the struggling pattern down. That is quite unusual and could indicate a change in trend. If that huge gap down didn't exhaust the move down, then there is a trend down and not just a correction. Most markets tend to exhaust into important highs and that move up into the February high maybe what has occurred here. I need another week or two of trading to confirm that probability. If there is a failing rally here, an indication the current rally is a counter trend, then the index is in a down trend. If this last move down didn't exhaust the move down, then the index is trending down and we'd be looking at the 4500's for support.


I had been saying the maximum downside move for this index was 1140, and when it hit 1140 last week it did so with wide range down days in a capitulation form of trend. I have been very confident this level would hold, but the manner the index came down would allow for a counter trend and a resumption of the down trend. That is an exhaustion low but could be a temporary low. The 45 calendar day time period has a probability of being a counter trend low, historically, but can also be the high to a counter trend while in a fast move down and this has been a fast move down. So I'd still be cautious until this is proven as a low. The current vibrations in time are setting up May 6th as significant and historically 60 day time periods have the highest probability for lows to intermediate term counter trend moves down. If it can come in with a higher low on the time period it would represent an extremely high probability of resuming an up trend. But for now we need to let this index prove it is not, still, in a capitulation move down.


Last week I indicated we could anticipate a bounce off the 51 level. If the trend was down (as I believed it to be) the rally would not exceed 4 days and be a weak rally. It has not been a weak rally and today is the 4 days up. As I said last week, the significance of the 51 support level is it holds the up trend intact. The market needed to do some trading below that level to give up - the up trend. A new high does not indicate a break away move due to the possible broadening pattern. The first couple days this week need to be a high point or my analysis that the last high was significant will be wrong. This is show and tell week for oil and many stock indexes.



All markets trade in a normal pattern of trend, even the Hang Seng. But the past two weeks have been an abnormal pattern. After the 90 day cycle for low the index rallied 9 trading days. This was followed by two huge gap down days to below the previous low but holding support. Something like this might call for a weak rally if the trend were still down and taking out 9 daily lows in two days is a strong move down. Instead the index does the unusual and within four days is back within the range of the high day. The magnitude of the rally makes a downtrend unlikely. But the entire pattern of 9 up and two day to a new low and now 4 strong days up is abnormal to say the least. All I can say is that low looks valid, but it is abnormal at best and therefor not very reliable. I didn't last 40 years in this business by trading or positioning the abnormal. So we need to let this stabilize before getting too excited.


Last week we felt the index was going to 3955 to 3970 or directly to the 3870 price zone. The low was an exhaustion move that stopped at 3958. So the forecast support level held, but the subsequent rally stopped at a resistance that kept the downtrend intact. The move down has been so severe in its nature and the history of this index, while in a capitulation style trend is very scary and would lead one to assume the only prudent thing to do here is watch until this is either confirmed as a counter trend high or a low of some quality is confirmed. If it cannot do some trading above the spike high of last Wednesday within the next few days, the down trend could resume. If it starts to struggle upward as it did in early April, it could start to look like a counter trend rally, rather than a solid low. Remember, our forecast says this is a bear campaign.

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