Summary for Week Ending 16th April 2005
The only news for this week is the severity of the declines in the later half of the week. Nothing else really stands out at this point with the market now 7% down from its previous high back in March.
Last week I mentioned that although we were seeing a rally of some sorts, as far as I was concerned I was not convinced that we had seen the end of the bearishness. This position was certainly played out this week, with far more vigor than I had anticipated. The market did play out as I had expected, putting in a weak 3 wave rally against the major trend, a behavior that is common when using swing patterns to play in against a major trend, which in turn highlights the problems when blindly following swings. For those who saw the bounce off the obvious support, as well as the higher swing low and went in long, did not have to wait too long to have their stops triggered, and it was likely these very same people who run for the exits on Thursday and Friday.
If we look at the week from a close technical perspective we can see that the swing high occurred on the previous Friday and on Monday the market signaled its intentions for the week with a very tight range day. On Tuesday we had a very wide range outside day which opened lower and closed above Mondays high. Wednesday proved to be a weak inside day which finished on its lows. This is where things become complicated. As a general rule of thumb, Outside days will draw energy out of the system, which is why we see them at the ends of trends. In this case, if the market traded to a new high on Wednesday, then things would have been looking stronger in the short term but not necessarily bullish, just more congestion. As it turned out we got an inside day, which is also not uncommon after a wide range day (hence the complication), and it finished near its lows and we still did not have a new high past the April 7 mark so taking the major trend into consideration, things looked bearish on Wednesdays close. We didn't have to wait too long on Thursday to see the bearishness come in strongly with the market finishing on its lows AND breaking the previous point of obvious support AND closing below it. So then, what happened on Friday, apart from a monster fallout ? If we look at the chart we can see what happened on Thursday, quite clearly, and so did everyone else who came home from work and updated their charts. A close below previous support ( even though it was obvious in the first place) so its easy to imagine what everyone was thinking ( and saying to themselves) at this point, and everyone headed for the exits. I should qualify this point however in that we have yet to see a volume blowout.
On Fridays close the market closed on or about the next area of support and it should be noticed that this is NON-OBVIOUS support so Monday should prove to be interesting. We have a trend confirmed as down and it will stop going down when everyone has had enough. Panic is very difficult to quantify in comparison to greed so we need to watch both the obvious and non- obvious levels of support as well as keeping a close watch on volume to see if we have a blowout. As it stands now we are at a new level of support, that has yet to be confirmed as such. Also watch the 50% retracement levels as they may also come into play ( Although this is at 998 points so its a long way away.) We should also look at the possibility of range equality coming in at around 1126 as well as the approach of 45-49 days in trend time.
Looking at the All Ords, we can see that the market made a pre-emptive strike on Friday and generally dropped its pants in the face of an uncertain future. Considering the strength of the rally, its my guess that its the less experienced ie those with the lowest pain threshold, who are making for the exits at present. Volume is strong so there is plenty of intent on the downside. With the US market falling heavily on Friday night, it should be interesting to see on Monday how the punters line up. There are plenty of areas of support coming up, as well as the 30 degree mark in time. Looking at the depth of the decline, it is safe to say that the great bull market is over, at least for now and we are entering in a period of high volatility, declines and compressions.
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