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Summary for Week Ending 11th December 2004
The market maintained its sideways behavior this week, with some fairly volatile movements, but with little or no effect in either direction. This thrashing around, does little except churn those who are too impatient to wait for a position, and trying to second guess the future without a coherent plan.
In last weeks message I highlighted the Elliott style running correction that was in place at the time. This week we saw the market play with the downside but failed to penetrate the 29 Sept low, and rallied strongly on Thursday giving us a solid Outside day off the low. Apart from this movement and continued weakness in Oil there is really isnt too much to discuss, so a little crystal ball gazing may be in order.
The following is based upon the supposition that the market will continue to run sideways for a little while, prior to a final rally to the 1263 area of resistance. The last significant low was 25th Oct so if we suppose that the final run will last 90 days then this takes us to Jan 23rd as a likely date of termination. If we assume that Elliott is correct then the last wave forward will be equal to either the First or Third waves ( but the 3rd wave can never be the shortest) so we will take Wave 3 which is 107 points. If we subtract this from the projected high then we get 1156 as a likely area of support. Curiously, this lines up with a 38.2 % retracement of the current movement, so from a geometric perspective there is some support for the conjecture. Another dimension is the length of Wave 1 to Wave three (multiplied by a fibonacci ratio). That's 136 points. I'll leave to the reader to play with this one. If we look at this weeks S&P chart I have this marked up. Curiously the trend line ( blue ) also agrees with this prognosis.
So, what does all this mean ? To be completely honest, at this point in time absolutely nothing. Its simply a possible plan on how the markets may unfold, based upon what we know about market behavior. If it works out exactly this way, then brilliant, but I am always prepared to alter a plan, based upon new information, so we will just have to wait and see.
If this scenario does play out, then we are looking at more sideways movement for a little while and perhaps some bearish sucker plays just to keep everyone on their toes.
Note ! More on the All Ords. Last week I mentioned that Dec 9 was a likely date for the market to break through 4000 points. It didn't happen and there are some cyclic reasons for why this was unlikely. This weeks chart I have the last 17 years data with a 365 day calendar day cycle applied. If we look at the December cycle ( red ) we can see that the market does not have a habit of running up and then throwing in the towel in December. January (blue), however is a better performer (although marginally). If we follow with the 90 day scenario as mentioned in the S&P report, the we get a termination in late January, which ties up nicely with the US market. Curious!
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