Summary for Week Ending 3rd December 2005
The market finally put in some corrective moves this week, to bring the train ride to a quiet halt. Nothing too spectacular about this as it was long overdue and certainly not unexpected. The question now is how long it will correct for before it takes off once more.
Last week I highlighted on the chart the old high as a level of likely support, following on from one of Gann's core rules. The market did come down to the area but has resisted touching the line (so far) and did manage a bounce following on from a standard 3 day decline. In normal processing, I would expect the market to make it to a new high within the 3 day period and as of Friday, being the second day of recovery we are still short of the mark set on 23rd November. Seeing as the rally so far has been very far and deep, then perhaps we may be looking at more than a standard 3 day decline for a corrective move, and we may see a 3 wave decline pattern occur. If this is the case, then we are currently in wave 2 of that pattern and the weakness seen on the Friday rally may indeed be just that.. weakness and we are in for another wave of decline to wash things out before the rally continues. If this scenario is correct then I would not expect the market to make it to a new high and then retreat (false break), I would expect the current swing high not to be breeched and another decline of about 3 to 5 days. If we break to a new high... it should keep going.
On this weeks chart I have added a 90 day rally line to go with the 365 day cycle line (go back 365 days from Mar 2005...you'll see what I mean). The reason I have shrunk the time frame is simply because this rally is moving way faster than the original line would predict, and the 90 day line does appear to be in harmony with the current pace of events. Lets see what happens...
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