Summary for Week Ending 5th November 2005
Following on from the past few weeks, I have been expecting this market to consolidate for about 13 days and then resume the decline, possibly the last one before a major rally. My primary expectation was for the market to halt its upside on Monday or Tuesday and then start to decline rapidly, however, as we all know now, this is not how things unfolded. It now appears that the corrective phase may be over and we are not going to see a final push downwards. This scenario business is a tough game !
Looking at the chart, the danger was always that the compressed impulse pattern was a basing move and not counter trend. By this I mean that the market was not correcting its previous slide downwards, it was in fact preparing itself to launch forwards. Whilst this appraisal is not fully confirmed (it wont be until we see new highs) there are a few hints as to what happened this week. Most notably is the level of volume we saw as the market took off this week. If we were seeing the final push forwards then I would have been expecting volume to be fairly hollow, indicating that only the weak hands were playing in the market, instead we saw strong volume come in indicating that the majority were in favor of going upwards... and so it did.
The Down day on Friday was a simple corrective movement so far and this is indicated by the volume we saw on the day, which was 25% down on the previous day. Looking ahead, we may see this push upwards correct for another day or two and I would expect the high of the previous swing upwards to be the line of support should we see it drift down this far. Following on from this I would expect the bounce to be impressive and we should see the market go to new cyclic high very quickly, if in fact the corrective phase is over. Watch Oil - it should keep going down.
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