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Stock Market: CNBC Report



A few weeks back I indicated the index was going down to match the previous move down which would put it also to 3/8 th of the range. Once at that level there would be another bounce or counter trend rally. Last week it came down to our objective and I restated the probability for a weak rally. I said I anticipated a further move downside but a rally of first degree should occur (not to exceed 4 days) and not to get above the double horizontal lines I had drawn. As you can see the rally was weak and less than 4 days. The next objective is the previous high. I would anticipate a much large rally from that level and if the up trend is going to resume it will come from that level or marginally below it. A move back above the 3/8 th mark on the chart would indicate the downtrend has lost its momentum or possibly even complete. But for now I still believe it needs to test the old high and again any rally should not exceed 4 days.


Our concern with this index is it may have completed its bull campaign and may now be in the process of building a top or trending down. The March 5 th high was our objective for this move down and price came very close last week. The rally was 5 days but the 5 th day was just marginally above the 4 th day so I can still view this as a possible first-degree counter trend. This move since the low is full of something I call "one day wonders." Tuesday was a reversal day down that closed on the low and Wednesday was a huge outside reversal day up that closed on the high. Thursday was another reversal day down and Friday was an inside day to consolidate Thursday's wide range day move down. The index is trying for a higher low but I am having a difficult time believing that will be the pattern. If it can hold another day there will be a good chance for a rally. There is a valid or what appears to be a valid cycle expiration that could start a trend on Wednesday the 26 th. If the index is going to hold a support level that will enable the bull trend to resume, it needs to be around the price of the March 2005 high. The NASDAQ is about as high as it should go if the trend is down. This will be an interesting week.


Last week I showed how the index had exhausted at the last low and was up two days against very important resistance. If it could exceed the two-day rally and move above the horizontal resistance it would indicate the up trend could resume. If it couldn't move above the two-day rally then the trend could be down. The move down has failed to move above the two-day rally. A further move down today will look like it is trending down. But for now it has matched the previous correction in price and we should get some confirmation as to the direction of the trend.



Since the top we've been indicating the index was going down to test the price of the Dec 2004 high. Last week I indicate the index was going to hit that level during the week and bounce. The nature of that bounce will be helpful in determining if the bull campaign is complete. I don't believe this move down will terminate until the middle of November but it is now at the price level that does hold the up trend intact. You can see the low on Friday was a bit of an exhaustion with the huge gap down followed by the wide range day up and closing at or near the high for the day. The high of the previous one-day rally will be important resistance. A move above that level will indicate it will try to make a base. Then there is the obvious resistance that was the previous support. If it can trade back into that zone it would be back into the topping pattern and that would be bullish. But for now it hit our price objective, the rally from this exhaustion low could still be a counter trend. I still believe the odds favor lower prices but this is the key support so lets see what this rally looks like in three days.


Last week I described that the weakness of the rally indicated the index was going to a minimum of either the previous high or the 50% mark. Just as the Hang Seng Index exhausted into its low Friday at the price objective, so did this index. It opened at the low for the day and closed near the high. The index hit the first price objective but this came from an extremely weak rally and indicates lower prices are possible. Closest cycles are Wednesday then the beginning of next month. Moving above the low of the 14 th would be the first sign the index may hold this level. But the weakness of the rally indicates it will need a capitulation to end the move down. I don't believe there is enough evidence to believe this move down is complete and we could have a bear trend starting. A weak one or two day rally could set up another thrust down. So there is an exhaustion of some sort at support on Friday, lets see if it can rally. If it can't immediately rally past the low of the 14 th, then further downside is likely.


Last week presented us with a pattern I refer to as a three thrust congestion pattern and does represent a top of some sort, although could be temporary. Since this is a big bull trend we could assume a correction but not the end of the bull campaign. At least not solely from this pattern. As you can see the index did corrected as anticipated and came down to horizontal support. If the coming rally is weak and less than four days and if it breaks this last support within one or two days or less time than the rally, it will indicate trending down. But for now it is at support (double bottom in up trend) and we'll see if it can rally further. This was all I could see from the "three-thrust pattern." Now we need to see the rally this week to draw another conclusion.

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