Summary for Week Ending 6th August 2005
The most notable item about the market this week was the rally that started on Tuesday and followed through on Wednesday, simply failed. If we look closely at the behavior we can see how a failure can be an unavoidable part of trading markets. Following on from the decline of the previous Friday we saw the market put in a small dip on the open on Monday and that was all there was in it. That gave us 2 days down. If we are expecting the market to recover in good order, then we look for the decline to be taken out in 1-2 days, thus showing that there is life in the movement. We can improve on this type of analysis by also looking to see if the close is above the open on the days that its rising. Looking at the chart, we can see that we had all our ducks in a row. We have a recovery in 2 days to a new swing high, and on both Tuesday and Wednesday the close was above the open. Then on Thursday the market sunk, closing near its lows and this was followed through on Friday to drop to a new swing low. In dimension we have to go back to the day of the London bombing to find a larger decline. This is what happens when the market throws up an ambush.. there is nothing to be done except to accept that fact that these things happen.
Looking ahead,
we have had two strong days down. On a weekly chart the market appears to be forming a rising wedge formation, which under Elliot should unfold in 5 waves. If this prognosis is correct then in the longer term we should see a short period of declines followed by an fast expiry type move upwards. It should also be noted that this style of movement can also be classified as an exhaustion pattern ( there's always two sides to the coin ). What we need to do is what the market closely and look for hints of what its planning to do. Oil may be a deciding factor in this. Any declines in Oil should be seen as bullish.
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