Outlook for Selected Markets. DJIA - S&P 500 April 30/05

by Bill Voeten
April 30/05

Summary for Week Ending 30th April 2005

All the news this week was about Oil and the fact that it finally dipped below the US $50 mark on its way down from its highs. The market appears to have taken this news to heart, however I wouldn't be looking for an amazing breakout to the upside just yet.

Looking at last week we can see that we have had a period of congestion following on from the congestion of the previous week. The market staged a rally for 4 trading days and then started to decline. I would have expected the market to be at new lows by the 3rd day at the most, yet at this time the market has managed to hold up. If we assume that this congestion was at the end on the run downwards AND we had the low in on the 20th April, then there would be an expectation that the low would be re-tested before we would see a bear market rally in excess of 10-15 days. This re-test can appear as we have seen this week, with the market putting in a strong outside reversal pattern on Friday with the market rocketing up strongly and closing near its highs on the day.

The other re-test pattern is the one that gives us the false break, that is, the market not only re-tests the low, it goes through it. There is a myriad number of psychological influences at play when this second pattern happens, but suffice to say that its generally an exhaustive pattern that has used up time and gone nowhere. In the current case ( yet to be confirmed ), we have the possibility of a higher low of a possible re-test of the 20th April low. If we do get a rally from this point then I would be looking at the market slowly climbing over the next 45-90 days. It should be noted that the initial decline was 44 days, so a time equality at 44-45 days and a retracement of 50-75% should see time and price square out and a resumption of the trend downwards

Looking at the All Ords, we may have re-test pattern number 2 in play with a smallish false break to the downside. If we assume that the market took 2 days to make the rally high to 4032, it has taken 6 days to make it down to a new low, suggesting that the path of least resistance no longer resides on the short side. The coming Monday will see the Australian market will react to the NY close of Friday, so a strong rally is quite likely. Expect that market to follow NY for a while while it tries to find its feet. Again, as with the US markets, if a low is in, then expect an extended bear market rally.

Charts

S&P 500 See Chart

All Ords See Chart

Bill Voeten

The forecast was done with Gann analysis software which is available at:
gannalyst.com