Last week I was discussing the fact that the market was in an expansive mood, with forward swings increasing in dimension, and this was coupled with the fact that the declines were also increasing in dimension. The 13 May low provided a launch pad for the index which saw it continue after the previous Friday, making room for 2 new highs for this movement on Monday and Tuesday. When we look at the action at the beginning of the week we can see that the market was starting to slow down and a correction was due. Looking at the chart the primary support for a correct was the 9th May high (old highs become future support levels) at 1179. A decline to this level would have been only 19 points,, well below the dimension of the previous decline of 35 points, a concept outlined in last weeks report. As it stood, the market only corrected for one day (a sign of underlying strength) and only declined 11 points, leaving this swing low, well above the 1179 level.

Looking at this from a broader point of view, we now have an 'air-gap' swing pattern which is normally a sign of strength although in this position, it is suspect in the short term and we may see another correction before this minor phase is over. Dismissing this however, we have to go with what we see and not with what we think may happen, and this particular pattern is worth following, if for no other reason other than is allows a short stop loss to be placed.

Looking briefly into the future we are at 100% of time next Friday (June 3rd) so it will be interesting to see if the market plays off this point. It should also be noted that June 5 (Sunday) is the 90 day point in the market since the March high.

Looking at the All Ords, the market continued to move forward as strongly as the S&P and appears to be back in step with the overnight news from NY. We are a long way off from the next area of obvious resistance (4149) so I am expecting this to go ahead slowly but I do not expect the March high to breached any time soon. The expectation is still for a broad congestion before a serious decline perhaps not until next year.

Charts

S&P 500 See Chart

All Ords See Chart