Summary for Week Ending 17th September 2005
Last week I gave an explanation as to how I was arriving at some of my conclusions (expectations). I mentioned last week that there should be some kind of a bounce off the old high as this represents obvious resistance, that is, everyone can see it.
In the week that has passed I was most surprised by the depth of the correction. To keep in with a standard counter trend movement then a 2-4 day decline was on the cards and we saw this for most of the week. If we ignore the false start on Monday then we have had a clear 3 day decline, with the final day on Thursday showing distinct signs that the run downwards had run out of steam. This was confirmed on Friday with the market jumping out of the blocks and heading straight back towards the previous swing high. If we are going to see fresh highs then I will be wanting to see the previous swing high cleared within the dimension of the 3(4) day decline, so I am expecting the old swing high to be cleared by at least Tuesday if all is going well. The old high may provide some additional resistance but it shouldn't be of the dimension that we have just witnessed, as the strength is currently with the upside.
So what's the worst that can happen ? As i mentioned last week, we still have a Flat Correction scenario lurking in the background, but the performance and shape of the market this week puts it at long odds to come off. The secondary possibility is a false break occurring just above the old high. This cannot be predicted but this market has shown a predilection for this kind of behavior in the past. If we look at the chart on a whole, the market has been sliding since Feb 2004. Its now Sept 2005 so its been figuring out what to do fro some time. This is also an indicator of energy building up in the system and should we get a clean break upside, then it should be fairly strong if the majority believe that the market has started trending properly once again.
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