Summary for Week Ending 20th August 2005
Following on from this weeks behavior, I though we might look at building a complete scenario that may fit with what is happening at present. Firstly this scenario is based upon the premise that the market is correcting, but this is not a simple counter trend movement. The assumption is that this is a minor bearish phase.
The first point of order is to locate a likely area of support for the market should this bearishness continue. In previous issues I highlighted that the region of the high before the high was a likely place for the market to encounter some support, and if we were looking at a basic counter trend movement, I would be inclined to say that it will end around this level and then continue rising. In the past few weeks we have seen the market decline, and it has held up a little around this area of support, but the 'bounce' we saw on Friday was not heartening, hence I think there may be some more in it. If we assume that Thursday marked the bottom of the first leg down, then we can start projecting this into the future. Using basic retracement levels we have the next area of support at the 38.2% retracement level at 1204. If we add the range down ( 30 points) to this level, we get 1234, which is also a 61.85 retracement of the 30 point decline. The first drop is 15 days so using time equality we can postulate that the final decline will also take 15 days. If we also postulate that the intervening swing up to the 1234 level also takes 15 days then we have a total of 45 days for the movement which is always a good Gann number. Also notice how this scenario lines up with the major trend line running from the Mar 2003 low. Its all technically very interesting.
So what does all this mean ? Absolutly nothing as its all about projecting forwards into the white space but it does give a solid, technically based scenario that may be worth watching should matters unfold as projected. The big questions that will be answered this week will be if we see further declines thus breaking the price dimension of the pattern and if the market decides to suddenly lift off. In either case the scenario would break apart, however its simply a matter of constructing a scenario that will cater for any unforeseen happenings.
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