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Summary for Week Ending 16th October 2004
Another week of savage declines has seen the market drop back to its previous low on 28th Sept. From a news perspective, it is the Oil circus that is once again focusing thoughts on future market direction. In a previous weeks report on Aug 20 I wrote of the general consensus of opinion regarding the price of oil and its future impact on the economy. After a lot of gyrating the market may have finally caught up with this concept and the last two weeks of severe declines may be the proof of this. This is of cause prefaced with the George Soros quote also written on the same date.
If we look a bit closer on the past week we can see that the market performed some sort of consolidation before continuing with the decline. The fact that the market stopped around the 28th Sept low is of little consequence at present as this is an area of obvious support, that is, everyone can see it. If the market were to rally from this point then we would have a higher double bottom in place, although at this juncture it isn't all that significant as you would expect this formation at the end of a serious, prolonged decline. ( the opposite of course for lower double tops ) . There are 6 trading days for the decline which is the same for the previous rally, so we have a balance in both time and price, so the consolidation style action ( inside day) on Friday was of little surprise. This was also backed up by a very wide range day on Wednesday and again on Thursday as well as strong volume.
So where does that leave us?
Following on from last weeks discussion regarding the series of lower highs that we have experienced in the past 200+ days then we have not seen anything yet that would dispel the proposition of a bearish market. I wouldn't say fully blown bear market just yet as we have been going sideways for almost 8 months now and the current action is merely confirming this. If the declines continue, that is we get a lower swing high in place then I would say that the market would be especially weak, would provide a possible entry for a short position, dependent upon the level of the corresponding stop loss. If Oil continues on its merry way, then I would also expect that each $$ rise will only further entrench the belief that High Oil prices are very bad for the economy, and that would have an obvious flow through to Stocks and potential future earnings estimates.
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