Summary for Week Ending 10th September 2005
In last weeks report I was highlighting the possibility for the market putting in a 3 wave decline pattern. As this weeks behavior has borne out, this scenario lasted all of 1 day before being trashed.
Before going on with what has happened, I thought it may be worthwhile looking at where I was getting my assumptions from. I was using something that Gann called trading a decade. When looking at market behavior over long time frames, you can make some assumptions as to what your expectations are for a given year within a decade based upon previous information. The 5th year of the decade is where the market is supposed to arise out of its slumber and start making heady gains. If we take into account the 20 and 30 year cycles we actually have quite a lot stacking up in our favor.
Lets first look at what happened in 1975 around this time of the year. On the 15th July the market made a high and then proceeded to drop 15%, finally stopping on 17th September. From there the market rallied strongly into the 2nd quarter of 1976. In 1985 the market made a high again on 17th July and fell 9 % until finally stopping on the 26th September and then rallying very strongly into mid 1986. As we already know, this year the market made a high on the 3rd of August, and I was expecting a decline to absorb a similar period of time. As it stands at present this is not going to occur. If you have access to data in 1955, you can see a similar compressing wavy pattern. It will be interesting to see how this all pans out.
If we look at what happened this week, after Mondays holiday, we had a massive break upwards which was consolidated on the following 2 days. On Thursday we have our first down day and this was taken out on Friday giving us a 1 day counter trend movement. In 10 days we have nearly consumed the 27 day decline and volume has been strong, so there's plenty of energy behind it.
So what happened to the 3 wave decline. This isn't off the table just yet as a flat correction is still a possibility, its just that it doesn't look likely. If this strength continues then we should see a period of consolidation around the old high as this is obvious resistance. the level of resistance is difficult to ponder as the run so far has been so strong. I'm expecting a much quieter week this week.
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