˜

LET?S FIRST LOOK AT THE PREVIOUS YEAR?S DAILY CHART IN THE S&P

It was suggested that I explain the significance of the numbers and arrows on my charts. The normal counter trend or the normal move against a strong trend, in this index and most markets is 1 to 4 days. I refer to that as a first degree counter trend. Once a leg of a trend is complete, if the index is going to hold the trend in a strong position, the next larger counter trend should be 7 to 13 days and I refer to that number of days as a second degree counter trend. You can see moves against the trend have been 1 to 4 days while trending. On two occasions the index moved 5 days and that was the last counter trend before the change in trend. The 5 day move could have also been followed by a higher low or lower high, rather than the spike moves that occurred.

The pointing fingers and the letters "FB" indicate a "false break" pattern. Which is when the index breaks to new highs or new lows and reverses. Since most significant highs and lows are set up with "false break" patterns of some sort, it is important that we recognize those possible circumstances when they appear on the chart. There are major and minor "false break" patterns. We?ll look at that difference on another occasion.

NOW LET?S LOOK AT THE CURRENT CHART

The last message was two weeks ago and I indicated the index would come down and test the 52 point decline of the previous run down - indicated by the horizontal red line and the word "match" indicating matching the previous decline. I also doubted the rally would get legs and would need to base before attempting to trend again. As you can see the last move up has been 3 days and has been quite weak as it couldn?t move above the previous low. So the index has bounced up from the obvious support level of the previous March high and so far, has only shown what could be a 3 day counter trend move. If it cannot move below the last low within the next two or three days then we can assume a higher low in place and would be in a position to rally. Moving above the 3 day high would also give a bullish picture by eliminating the probable fast trend scdnario. The maximum downside would be the October high at 1142. The normal support below the current support is 3/8ths of the range up or at 1158. So what is needed now is some price action to indicate the downtrend is complete as either a higher low or a false break pattern. I did have last Sunday as a cycle low (90 calendar days) but the move up has not been impressive, so the significance of that cycle has yet to be proven, maybe by next week.

CNBC ASIA

LET?S FIRST LOOK AT THE HANG SENG DAILY CHART

My last report was two weeks ago and I indicated the next rally would fail and bring a new low. It appeared the maximum downside would be around 13,000. The rally failed but when it broke to a new low it immediately recovered creating the possibility of a "false break" pattern for a low. Keeping in mind the normal first degree counter trend is one to four days, the index needs to show another up day, above the 3 day rally to indicate it is no longer trending down. I am still a little troubled by the previous, weak 11 day rally but this is starting to look like a base pattern, just need some confirmation.

LET?S LOOK AT THE TOPIX DAILY CHART

Two weeks ago I indicated this index had a probability to start trending upward again. The three thrusts down appeared to have completed the sideways pattern and the current resistance should produce a counter trend move down and when completed, in less than 13 trading days (the time period of second degree counter trend), the up trend should resume. The low so far has been 8 days and the rally 3 days. The index needs to exceed four days of rally and that could confirm the start of the trend.

LET?S LOOK AT THE WEEKLY CHART

Since the spike low in May the index has tested the downside three times, the last time producing a higher low. The move up from that May low was 7 weeks and the move down, into the higher low was 24 weeks. Obviously finding it more difficult to go down. If this were a bearish distribution pattern, the testing would have been to the upside. Testing the downside, as this has done, creates a bullish appearance. You can see the last low (8 days down) stayed on top of the previous high and thus has held the trend in a strong position - so far. Looks like it should now test the July high or near the 1200 level, provided it can move above the three day rally. The Nikkei looks weaker and is another good reason why some evidence is necessary that my scenario is valid. So a higher low is needed here especially in the Nikkei.

˜