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Summary for Week Ending 23rd October 2004
This week again we saw the market react badly to Oil news. We now have Oil at a seeming entrenched level above $50 and this cannot be good for anyone's economy, so there are global implications for the continual rise in energy costs.The price chart for Oil does show the look of a blow off type movement, although there may be another leg to go yet before we see what should finish in a capitulation topping movement. Locally and internationally, there is only 1 show in town at present, and continuing unrest throughout the world is not playing any real role in market confidence, so we are left to follow what appears to be the current correlation between Oil and the market.
Looking closer at the week that was, we can see that the market attempted some sort of rally on Monday and Tuesday, although neither day was convincing. Wednesday saw the market drop down to new lows in 1 day, displaying that the path of least resistance is to the downside, and any bullish attempt to rally will be a struggle and eventual falter fairly quickly. At least that is what should be happening. What we are seeing however is a quick dip to the downside, and a failure to get on with it. After diving to a new low on Wednesday, we saw a rally on Thursday, only to see that swallowed on Friday as the market made a serious slump on the day. That is, we saw a 1 day rally, and then new lows. although if you look at the chart you can see that the market is struggling to go down. A strong movement would see 2-4 days of consecutive downwards movement followed by a 1-4 day counter trend rally. This is not what we are seeing at present, even though the market is still moving in the forecast direction. When its choppy like this it does require some patience with the short positions, eg Put Options.
Looking ahead to the coming week, we can take a lead from the close on Friday where we saw the market close almost on its lows. From here it is well poised to strike out to a new low and a rally at this point would be indicative of strength as we would see a chart pattern of a new low, followed by a test of this low. If we see a new low, the we also know that the market last time managed a rally of only one day so I would bee expecting something similar, ie a 1-3 day rally but the rally back should be shallow to confirm the strength of the downward pressure. Also a lower swing high, positioned below the previous swing low (20th Oct) would produce an air gap pattern to the downside which would be extremely bearish. There is technical support at 1092 although if we are really seeing a bear market finally awakening, this should be of little consequence.
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