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Stock Market: CNBC Report



Last week we compared the 4 day move down with the 4 day move up, to indicate the move down was a normal counter trend. The index ran up to the previous high and has stalled. The index came down one day at the obvious resistance, rallied as it should if the trend were going to continue at a fast pace. But Friday showed no follow through and creates a 5 day pattern that can bring in further consolidation or correction. It is only a 5 day pattern, but volume is just starting to appear negative. I'd be a bit cautious until the possible correction materializes or the trend resumes. The one day down on Wednesday, followed by a wide range up to new high should have been followed by another wide range day up. Not doing so puts some doubt into the ability to move higher. If price can pop up as though Friday's trading had never occurred, then a new high should follow quickly. But for this week it has given an indication of a problem at this price level, so I'd look for some further weakness. If Friday is immediately reversed to the upside then the trend is still intact and could accelerate up to the February highs.


There has been a lot of concern in the technical analyst community concerning the lack of volume during this current rally. You can see there have been 5 weeks of rally and 5 consecutive weeks of declining volume. The end of May normally is a light volume seasonal time period due to the holiday. You can also see that the declining volume was not necessarily light volume until this week. So it may not be a serious as it appears. But we do need to view this volume pattern as showing some risk for this rally. A risk of a small corrections, worst case a run to test of the last low - but that appears unlikely.


Notice the last thing on this chart is a one day sell off that was immediately reversed with a new high. This was followed by a small range day which was the day before a holiday on Friday. Notice the space between the low of the one day down and the previous high. That indicates support came in at a high level. If it can extend Friday's rally, it would indicate a fast trend up is in progress and could even accelerate. That is what the pattern of this trend is telling us. But there is no confirmation from volume. The failure to show volume advancing is telling us there is risk of a multi day move down after Tuesday. Many of the world markets are in the same position, they have a possibility of accelerating their up trend the first part of this week if they can show just a little more strength. If not, then a small consolidation will take place this week. A lot of the weak stocks continue to improve their technical patterns. I don't see a lot of risk yet.



We have been looking for the index to go back and test the low to the sideways pattern that has been going on for over 5 months. If that occurred it also offered the probability for a strong low towards the end of June. Last week showed an abnormal pattern. The index gave a small capitulation into a low on the 17th. This was followed by a very weak rally. The rally was up one day on the 19th and was followed by four days that couldn't reach the high of the one day rally. Again, a very weak pattern. This was followed by a wide range down to new lows and a day to consolidate that wide range day. All very normal for a down trending market and the probability of a fast trend down. Friday gapped up and went to a new swing high. For this index to not follow through to the downside, after the previous 8 day pattern, is very unusual and an abnormal market pattern. I didn't last 40 years in this business by trading the "abnormal." So I'm stepping back from this index for the week. If it can extend Friday's move up, then my forecast of going back to the lows is wrong and something else is going on. There can be a one day aberration to a trend and that may be what has occurred. But with so many markets in the same position of possibly accelerating up, I'm a spectator here.


Last week I thought the index could go to 4096 by the end of the week. That price objective was hit by Tuesday. It has subsequently gone down one day and has gone to a new swing high the next day, leaving a one day move down in its wake. The one day move down ,that was immediately reversed, could indicate a very fast move up to test the old, all time high is in progress. That is a probability from that pattern. OR the index will hit a high Monday and go into a consolidation or small correction of some sort. The form of that consolidation will tell us if the trend is up or will reverse. If that is the case then the ASX index needs to stay below 4150. I believe the index is going to start a consolidation pattern this week and will give us the indication of direction the week after. But the form of this trend, if Monday is not a high, does allow for a fast move up to continue at a very fast pace. The strongest probability is to consolidate this move up this week with a congestion of some sort, starting Monday. If I am wrong, it will continue in a vertical manner, not correcting more than four days until the trend is complete. So the early part of this week is very important. It will tell us if it is going to consolidate the fast move up or continue with the fast move up at a very fast pace. Those are the only scenarios I can see for this week and it all depends upon Monday/Tuesday.

Many of the world markets are in the exact same situation, the US Stock market and FTSE to name two. If Monday/Tuesday is not a high, then they can accelerate. But a high is still probable, it simply depends up the next day of trading.

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