Summary for Week Ending 21st January 2006
Last week we were talking about the likelihood of a passive correction and the impact of the price of Oil. This past week we have seen first hand what the price of Oil can do and its not pretty. If we ignore some poor earnings reports and discount the new terror threat, I would venture that the price of Oil has had more to do with the past week performance more than anything else.
Looking more closely on the past week, we can see that since the Jan 11th high the market went down for 4 trading days, and this decline was quite orderly. There was support of some sort coming off the 14th Dec high, but I really didn't figure that one in as being significant, hence I never mentioned it last week. On Thursday we saw a strong rally come in and it looked like the 4 day correction was setting itself up to be taken out in 2-3 days, a performance I would have considered uniform and in keeping with a 4 day counter trend movement...IF it was a counter trend movement. Last week I also mentioned that I expected the market to perform a larger that normal corrective phase, and 4 days was not the number I had in mind, so a 3 wave corrective phase was more of what I was going for. This is where the analysis gets hard. You have an expectation of a solid correction, and then the market sets up looking like something completely different. Needless to say the up day on Thursday was all it had in it and it collapsed under good volume on Friday to finish the week off in a shambles, with one of the largest 1 day declines we have seen for a few years. This does not look good in the short term but it has to fall a total of at least 78 points before it becomes something more significant (Sept 05 - Oct 05 decline).
So what does all this mean?
Looking at this weeks chart, we are now 6 trading days into the decline and 7 is a strong number to finish a minor movement, so I would be looking at 1 more day down and then a rally. My expectations are that the rally will be weak and short lived leading to another decline which should take the market back down to the 1250 level and if lower then around the 1230 area. This would then produce a cycle level 3 wave corrective phase that will also eat up time, allowing for a final rally coming into March. Note also that this rally would be about 100 points which is in line with the initial wave forward from 13th Oct 05.
On the flip side (yes there is always a flip side) the declines will continue and the March turning will be a low not a high !
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