LET’S LOOK AT THE S&P 500 DAILY CHART
The up trend since August has been struggling as indicated by each new high quickly breaking back below the breakout point of the previous high. There were two probabilities that can apply here. Our preferred scenario and forecast calls for the index to move down 22, 30 or 45 calendar days to end this correction followed by a strong up trend to complete in 2010 for a significant top. The other alternative is for the index to go into a sideways pattern. Sideways patterns usually start at a previous low and most stock indexes have tested that low and rallied. The S&P is a few points short of that level but with all the other indexes at that level it remains possible. Because that previous low is an “obvious” support level -- a rally is normal if the trend were up or down. This rally should not exceed 4 trading days (first degree counter trend) if the trend remains down. If this rally is a counter trend rally it needs to slow down and not look like the vertical move up from the July low.
LET’S LOOK AT THE SUPPORT AND RESISTANCE LEVELS FOR THE S&P
With all market we break the range of movement into 1/8 and 1/3. The normal correction for all trends is 1/3 to 3/8 of the advance when the trend runs this length of time. The same divisions are used when analyzing a leg within a trend. The ‘normal” correction within a leg of a trend is ¼ of that range and a correction that keeps the trend in a very strong position for the next advance is a ¼ retracement. This correction has not even hit the ¼ retracement of the entire range and seems too small a move down to end this correction unless the uptrend since July is still intact. So we are viewing this rally as a counter trend rally that will end by the 4th day. It could go a few days longer but with little advance as occurred June 25th through July 1st but with little price advance. If this rally is not a counter trend rally that will fail in the next few days there is a chance for an exhaustion style of move up but that remains on the bottom of the list for now after a sideways pattern.
LET’S LOOK AT THE DOW JONES CHART OF 1975
The index has been following this roadmap very well. This is also the last time there was a dominate 5 year bear cycle and is the same cycle the index is trading within now. We can expect the same type of trend that occurred from 1975 through 1978 to occur now through 2012. I’ve highlighted the possible current location within this roadmap. This correction was approximately 3/8 retracement. We are looking at a possible ¼ retracement but 1/3 to 3/8 is would be normal to consolidate this advance and that’s our forecast.
So the rally fails in the next few days and resumes the move down to price and time objectives or I’m wrong and it tests the highs and likely 1120 at the 50% mark of the range down. Next week will be important.
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.
