Summary for Week Ending 10th November 2007
We had more of the declines this week and they managed to extend past the wave equality mark, that is, if we accept that we are looking at a classic 3 wave decline. Looking briefly at volume, I suspected on Thursday that we may be close to a blowout, something that would be expected to arrest the decline but the level of activity is not what one would call extraordinary. Oil is again on the march, after having a little decline, its again bearing down on the $100 p/b level. It appears that there are more cheerleaders to see this than those who truly understand the longer term implications of very expensive oil.
On the question of Oil, is the idea that Ethanol will be the saviour and that Ethanol/Fuel blends will shield the economy. What we are seeing is an ever increasing level of our food supply being diverted to fuel production. If this sounds insane, that's because it is! What does this mean for the share market as a whole. the idea is very simple: If everything becomes more expensive and becomes suddenly more expensive then something has to give and that's the economy. There is only so much money in supply and so what logically follows is a decline in economic activity which leads to lower profits and rising bankruptcies. Stocks do not go up in value if that is the future scenario. If this sounds like a bit of a soap box rant, its not meant to be. Its simply a rational look out the window of what is happening in the world today and, as more people are coming to realise, its not sustainable.
Looking at the chart, we can see that the market is currently at the congestion level of Aug/Sept, so we can expect some resistance to further declines here. I'm watching the August Low, because if that is taken out then we are looking at something far more ominous, and the party may well and truly be over. If you have access to a Char, have a look at the Hang Seng index in Hong Kong. That cannot go on.
This coming week I expect the market will try and consolidate the decline. Any more bad news of course and things will be very different. If Oil does break 100, expect it to swiftly drop below 90. Also.. its teh 90 day mark on Wednesday. Lets see what happens. If it runs into it it will be a low.
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