Summary for Week Ending 15th October 2005
After the inside day of the previous Friday, I said last week that I expected that the low put in on 6th would be retested. This happened this week, but not as quickly as I expected, so we actually saw the market slow up a little. More on this next. On the news front there is nothing particularly interesting so we are seeing little directional impetus from this front and as such the market is running under its own self generating sentiment.
Looking at the Chart we had a very wide range down on the 6th followed by an inside day on the upper end of the previous days range. Ordinarily if the low was to be retaken then I would expect this to happen within a day or at the most two days but it took the 3rd day this past week before we saw a drive successfully to new lows which was followed up with another smaller range day on Thursday which stopped the market at 1168 which was also a bounce day which saw the market close high near the open. Volume was again high but not very high so I think there is more to come, but perhaps not immediately.
On this weeks chart I'm playing with a range equality question. If the low on Thursday is to hold as a short term rallying point then an ~50% retracement level is the most likely point of upside resistance. If we apply a range equality to this point then we can see that the market is then forecast to drop to the level of the next 'obvious' support or around the 1136 level. If we do see a rally to the 50% range this could be quite complex in comparison to the previous rally in this drive down which was a six day rally finishing on the 3rd of October. This was a simple construction, so a complex construction could be a 3 wave affair taking upwards of 12- 13 days. If we do see a rally to the 1207 region then the index will be at a very precarious point and its may be worth watching volume if we see a rally and see if the punters are getting on board or if the rally is genuinely hollow. If its the latter then the drive down to 1136 should be quite swift and savage which may bring on a capitulation level of volume. A good time from for the low at this point would be 19th-25th Nov. This is of course all predicated upon the assumption that this decline is not over just yet...!
Bearing all of the above in mind, I'm expecting this week to be on the quiet side and some consolidation to continue. If the above scenario is correct then we should not see new lows for about 2-3 weeks, so there is a considerable amount of time to be absorbed.
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