LET’S LOOK AT THE S&P 500 INDEX—DAILY CHART
Rallies in legs of bull trends have very specific characteristic. Rallies in bear trends have very specific characteristics. This rally has developed some bull market characteristics. You can see when this rally started it move vertically and that is normal for bull and bear trends. Then the index moved into a struggling move up and can be seen as each new high was immediately reversed, again “normal” no matter the direction of the trend. The index then fell two days and came back up to test the high in 6 days. If this were a rally in a bear trend the index would have reversed to down at that marginal new high. Instead the index showed a vertical move up and is a characteristic of a bull trend.
The trend is currently an exhaustion mode of trending and will exhaust into a high. If this keeps the characteristic of a bull trend it will correct three days and stay above the previous breakout point or the large horizontal line on the chart and rally to a new high and consolidate 7 to 12 trading days.
The 60 day cycle expired two days ago and is resistance in “time.” The previous largest rally was 63 days ending May 19, 2008, so this time period is important. The large outside day down yesterday looks like an exhaustion but remember if this is a leg in a bull trend the correction after the exhaustion will only be three days it will hold the horizontal line followed by another thrust up to a new exhaustion high and then consolidate 7 to 12 days. If the move down exceeds three days and moves much below the horizontal line then the uptrend is in doubt and further correction will occur.
LET’S LOOK AT A WEEKLY CHART
This is a picture of the bear campaign with the range divided into 1/8th and 1/3rd. As a bear market matures the rallies become smaller and smaller until a final exhaustion of the trend. Has this occurred? The previous rally stopped at ¼ retracement which keeps the down trend intact and this rally has just moved above that resistance level. The previous largest rally was 183 points and this is at 262 points. Historically if a rally can reach 3/8 of the range down at 1007 it indicates an end to the bear trend. The market will correct significantly from that resistance but if the index can reach that level it is a strong indication the bear trend is complete and the next selloff will be a higher low.
So the index may have exhausted into the time window of the 60 day cycle. If the exhaustion is significant then the selloff will exceed 3 trading days and break the support at 875. If the index is running higher then that will hold and become a springboard for further advance possible out to the first week in June.
Disclaimer: All the reports and content in the entire McLaren Report web site (including this report) are for educational purposes only and do not constitute trading advice nor an invitation to buy or sell securities. The views are the personal views of the author. Before acting on any of the ideas expressed, the reader should seek professional advice to determine the suitability in view of his or her personal circumstances.
