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Last week I indicated there would be a rally up from the "obvious" support but had a probability of being a counter trend rally and setting up a move down to test the price of the February high. If that occurred we would see a secondary high or lower high on July 27th and a fast move down. That has been my forecast for some time. But the rally up from the "obvious" support is at the critical point, if it can go higher it will make my forecast wrong. Even if we see a down day today there needs to be follow through on Monday to give any chance to my forecast.


This has been one of the strongest indexes and just popped to a new high. This is a recognizable pattern of trending, the Nikkei is showing the same pattern of trending. Notice how the trend has been struggling upward, every time it breaks to a new high it immediately fails to follow through and runs down but holds the previous low. This style of struggling trend is always followed by a fast move. It is either accumulation against sellers who eventually run out of stock to sell and the market will then make a vertical move up and eventually exhaust into a high in a few weeks. Or this could be distribution and the weak style of trend will end on one of the break out moves and run down and break a previous low with a strong move down as occurred in February. If this is the start of a vertical move up this index will not break back below the last high and will not move down more than three days at any time until the move up is complete. But breaking back below the last high will look like the weak or struggling trend is complete. Bonds will likely hold the key, again.


This is a weekly chart and bonds are going down to the 95 price level within the next 12 months. I indicated this move down would bounce off the "obvious" support on the chart. That rally has been three weeks and if that is all the rally it can do, then the fast trend down is still intact. I thought we'd see a little further distribution at this level before resuming the down trend but how bonds behave the next few days will be the key to the stock indexes, which behaved well considering the move down in all treasuries yesterday. If there is follow through in treasuries today it will likely ruin the party again in stocks.


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