Summary for Week Ending 3rd September 2005
Sorry. There was no report last week. I was working on finalizing Version 5.
It s certainly been a long two weeks, and plenty has certainly happened, what with Oil taking yet another gallop and the hurricane disaster around New Orleans. Its been interesting how two seemly unrelated events can be linked together. There has been plenty of press regarding domestic Oil supplies since Katrina blew away a reported 25% of the nations production capacity. This will have an impact on domestic fuel prices but is unlikely to affect the international price of oil. What is interesting from this perspective is the fact that the price of oil could actually drop, whilst domestic fuel costs rise enough to push the US economy over the edge. The cause would entirely domestically generated (if we forget about the act of God event that started it!)
A couple of weeks ago I put up a scenario that would seen the market hit the 1204 area around the 17th September. This scenario lasted all of 1 day before the market started heading south yet again and went straight for the support level without really stopping. This final drive down was marked by some very wide range days, giving us a hint as volatility started in increase. We finally bottomed out on Tuesday this week with the market going through the 1204 level marginally (1201) for 2 days before rallying spectacularly for the rest of the week. Looking at volume, Wednesday and Thursday were monster days and Friday which spat up an inside day was very light in comparison. If we see a continuation of this light volume as it rises then we can be confident that its a hollow run and there's more downside to come.
Seeing as the original scenario has been unceremoniously sunk, it begs the question : Where to now ? As it stands at present I'm not convinced that we have seen the last of the bearishness, We had 27 days of declines, and I prefer to believe that a decline of this dimension should unfold itself out, that is, we should see a classic Elliott style pattern emerge. This weeks chart plays on the concept of wave equality. The first wave down was 45 points. If we apply a price retracement to this decline then 45 points from the 61.8 % retracement level takes us down to the spike low that occurred on 7th July, the next level of technical support.
We can then line this up with a trend line and we still get a 17th Sept termination date as before but at a lower level. Curious.
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