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Summary for Week Ending 31st July 2004
The market finally decided to display some strength this week, even in the face of the continuing saga of the higher oil prices. There were some other sundry news items as well, including the big Democratic Convention show, the latter of which some pundits say may have had some influence in this weeks rally.
Looking closer at the week, we did see some follow through from the previous weeks bearishness with the market poking its nose to a new low, and getting very close to the area of obvious support of the May lows. At this point it is difficult to say if its going to hit it or bounce early, and as we saw, it bounced early, but what was of interest was the number of days in the rally (so far). We now have 4 days of upwards movements, something we haven't seen since the decline began in late June. This can still be counter trend but it does show that there is more strength at this point in time and perhaps we have seen the end of the down side for a while. This is of course very speculative but you have to go with what you can see.
Looking ahead, I would expect that the market will play out the model that I proposed on June 3 and stick with the Elliot pattern described. So far, this has been borne out but as we all know, things can change very quickly. Firstly I would like to see a higher swing low in place to confirm the bounce as well as the subsequent rally from this low take out the previous swing high in a maximum of 2 days. If we get that in the coming week(s) the I would expect the market to travel back up towards the 1150 level before getting nervous once more and succumbing to the bears once again. This is in keeping with the Elliott 'double' correction pattern. The rally upwards will be a B wave, and therefore should unfold in three distinct movements. Timing for this is difficult as we are still in a bear phase and really anything can happen. The recent past has seen two rallies of 13 days and 43 days respectively. As this should be a bear rally, it should be a hollow run so lightish volume should also be a factor.
In the coming week we should see if this scenario plays out. The worse case is that the bounce we saw this week was a complete sucker play and the market simply drives down to a new low. If this does happen and we do get a solid movement below the May low then the previous Elliott analysis is out the door in a hurry and we have to look at the next scenario which is the 50% model which would see the market head down towards the August 2003 lows.
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