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CNBC Squawkbox Europe

LET'S LOOK AT THE S&P 500 INDEX

Last week I said the 22nd had exhausted the downtrend and we could look for a rally of 3 or 4 trading days or 7 to 12 trading days. This current rally will not run past 12 trading days and could end tonight. There was a chance the index could marginally break the lows and reach 1261 but I'm not very confident of that break other than it will not be big if it occurs. Very important resistance, resistance that keeps the downtrend intact is 1378 to 1385. If the index reaches that level within the 7 to 12 day time window and turns down then we could see a retest or even a marginal break of the low.

The index has currently rallied 3 days and is now testing that 3 day high from last week. Turning down without reaching that high or just marginally getting above it could set up a move down to break the exhaustion low and possibly down to 1261 because the rally would only be a 3 or 4 day advance and would not have reached any resistance. With the percentage move down and an exhaustion style of low on the 22nd the index should hold this level for weeks if not month's even if the trend is down. Once a multi-week base or test of the low is complete there should be a rally of 45, 60 or 90 calendar days. Then we'll see if this is in a bear campaign since those are the exact time periods for rallies against the trend in bear campaigns. If it is a bear campaign the rally will be weak. But I still believe there will be a significant low within this first quarter of 2008.

LET'S TAKE A LOOK AT A GOLD DAILY CHART

The first week in January I put this chart up and indicated this would be a valid methodology to find the next high in Gold. My rule is "all highs and lows are exact portions of previous ranges" and those portions are 1/8th and 1/3rd. If we expand the last range up in those simple mathematical divisions the top to this leg up should be at one of those divisions. Last time we looked at this chart in the first week in January I indicated the minimum move would be to a 3/8 extension since the move down was a 3/8 retracement and that is where it currently has stopped. But since this was an exhaustion style of trend on the weekly chart, the extension could be ½ or even greater. But any indication of trending down after hitting one of the extensions could be an indication of a top in place. So 3/8 is a possibility for top but due to the "blowoff nature" of the trend the extension of the range could be ½ or even much greater. When momentum is this strong you also need to allow for zone of a few points above the calculated level. There is another range extension at 965 not shown. Also, because of the "blowoff" nature of the trend on a weekly chart, I would expect some kind of exhaustion at the high as a big gap up or wide daily ranges and that hasn't occurred yet.

 

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