Summary for Week Ending 7th May 2005
Interest rates and Oil are the two games in town worth watching, and its Oil that is providing most of the surprises. It is worth wondering if the damage has already been done, but is as yet, not apparent.
This past week we saw the market follow through on the Outside Reversal we saw on the previous Friday. Apart from the fact that the market managed to rally this week there is very little else to discuss at the moment. If we are counting the number of trading days since we saw the low (20th April) up to the high which we saw on Thursday, that marks up 13 trading days, which lies at the maximum end for an intermediate counter trend rally.. and this would imply that the rally is now over and we can expect the market to start driving down into new lows. This is of course predicated on the fact that we are in fact looking at an intermediate counter trend rally.. If we look at the extent of the initial decline over a 44 day period, then a 15 calendar rally is not out of the bounds of normal behavior, however it does provide a problem when you are expecting the market to maintain itself above the 20th April low for at least a few more week to come. If we look at this weeks chart for the S&P 500, we can see there is a cluster around the 1193 point level.
Last week I mentioned that I was expecting the market to rally, but also that this period of rally/consolidation should last 45-90 days. I'm still of this opinion, however should the pattern, as discussed in the previous paragraph, breakdown, then we would then be looking at a 5 wave decline, which would then be followed by a major rally. The question of course is that are we seeing a 3 wave decline, or will we see a 5 wave decline. Neither Elliot or Gann can answer this question with any real confidence, and all you do know with some certainty is that the market will unfold in 3-5 or 7 waves ( sometimes more !). When faced with this then we can only build scenarios and look for weak points.
If we compare the All Ords with the S&P 500 we can see that both markets are currently marching to the beat of their own drums at present. We have seen the US market rally of the re-test, and watched the All Ords market falter on this test and drift down to new lows. This movement down is more reminiscent of a final move as it is lacking all the enthusiasm that we have come to expect from the previous 2 drives southwards.
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