Summary for Week Ending 2nd April 2005
All news this week appears to have been the reports that Oil will spike to about $105. Whilst the market is rising, apparently fed by an unrelenting demand, these sort of predictions are always going to be around. I remember in late 1999-2000 I saw a book for sale in Borders advertising DOW 38000 ! Only time will tell if the DOW will hit 38000 and the same can be said for the price of Oil. If we stick with what we do know, and that is that the West is heavily reliant on Oil, and should the price become too high, then we can expect the economies to contract, which in turn will decrease the demand, which of course will see the price drop... but not before that damage is done.
Last week I was discussing the market approaching the area of obvious support, that being the Jan 2005 low. Well the market did manage to trade down to this point on Tuesday and we saw a rally of sorts for the rest of the week, although the market did produce a very wide range day on Friday to close things off. When dealing with areas of obvious resistance, I tend towards the idea that they will be broken, although not necessarily on the first attempt. You can think of it this way : The market is made up of lots of players, and the majority are educated about support and resistance in basic terms. When the market reached the support level this week, it bounced, thus validating all the players who were banking on the market bouncing off this support level. Since bouncing, it has at this point, not been all that convincing that the drop is over and we can all go back to happier times. Looking at Fridays performance, you kind of get the feeling that there was a lot of 'changing' of hands, that is, stocks going from experienced to the inexperienced. Should the market drift back down to the level, then the players who banked on the first bounce will be emboldened by the previous bounce, believing that the line will hold, however the reverse is historically more likely, setting up another interesting scenario. If the punters go in long at the bounce point and the market drops through, then the support line can be said to have failed, and the longs becomes shorts, but this is only temporary pressure, which may last a day or two. Once this selling pressure is expended, the market has nowhere else to go except up, and we may see the market put in a strong rally. What is interesting about this scenario, is that the run down will finish with a false break to the downside, after originally starting with a false break to the upside. False breaks breed false breaks.
Last week I mentioned that the previous run downwards was 21 days. I was subsequently held up on this point by a number of readers as the 25th January was also the same low, so which one is it ? There is no rule here, just pick one! I chose jan 24 which gave up 21 days days, only to see the run downwards hit the support level on day 22. Its just bad luck on my part, however the exercise on the whole does go to show why watching previous times frames can be advantageous.
Regarding the All Ords, the market found some support this week after more declines. As it stands, the decline is the largest in this run :200+ points, and as mentioned last week, this is a primary marker that we are at, or very close to the terminus of the great bull move. Looking for a lower high this week.
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