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The McClellan Oscillators were at support, triggering a bounce back up towards the zero line. If they penetrate the zero line successfully, then we ought to expect higher prices for the rest of the week. However, notice that it is quite usual for the Oscillators to bounce from support and test resistance at the zero line--causing a one day wonder rally in price--only to turn back down again.
SUMMARY For last week we said, "Given last week's price action the two most likely scenarios are shown in the illustrations below. Basically the pattern suggests that either: a) Friday's decline will be extended by another 1%-1.2%, but it will be followed by another run to the upside (see scenario#1). In that case, the 2325 level for NASDAQ, and the 1370/65 level for the SP, should provide support, triggering an upside reversal by no later than Tuesday. b) Friday's decline will continue down to the first downside targets (see table below) but it too, will be followed by another run towards the most resent highs (see scenario#2). In that case, the 2300 level for NASDAQ, and 1360/55 level for the SP, should provide support, triggering an upside reversal by week's end. Regardless of which scenario ultimately takes place, there is an additional important message that can be derived from the current price pattern; although the rally from the July lows may be near its end, the "end" is at least 7-15 trading days away, thus, shorting the equity markets at this juncture may turn out to be a rather poor idea." Also please read: "A market top is expected on the week of 11-6-06"
For the week of 11-6-06: After today's and yesterday's price action we can safely conclude that--at the very minimum-half of scenario#2 has been played out. Going forward, the rest of the scenario can unfold in three different ways which are illustrated below and labeled as 2a, 2b, and 2c. In sub-scenario 2a, the major indices will experience a minor pullback over the next day or two, which will be followed by a resumption of today's rally. In scenario#2b, the major indices will reverse to the downside, and over the next 1-3 trading days they will make marginal new lows (just to fool the bears) and then they will reverse again--this time to the upside--and they will go on to make marginal new highs (just to fool the bulls)! In scenario#2c, the major indices will reverse to the downside over the next couple of days; they will violate support, and by next week they will end up at the first downside targets. The first two sub-scenarios are the most likely.
Ike Iossif
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