Outlook for Selected Markets. DJIA - S&P 500 May 21/05

by Bill Voeten
May 21/05

Summary for Week Ending 21st May 2005

In last weeks report, the question posed was whether or not the market would discover some heart and put in a rally before tripping down the stairs on its way past the recent levels of support. Judging from this weeks exceptional response, it is easy to say that yes indeed the market did manage to find some heart, and we saw the market move to the next level of resistance (April Highs). It should be noted that this level is an obvious level of resistance, that is, 'anyone' with a stock chart can see it. This being the case, I am always prepared to bet against the level holding. You can expect some market consolidation at this point, and this was evidenced by Fridays reaction which was generally weak in comparison to the earlier parts of the week. If we do get a pull back from here, I would expect it to be short lived and we should then see another thrust forwards past this level. The next push forward can however produce a false break, but then again, there are no certainties in this business.

If we look at the day counts we had a decline in the market which lasted 4 days and managed to hold above the previous low. This week we have seen 5 days of rises equaling 45 points in advance. This is in comparison to 4 days of decline equaling 33 points. As it stands at present, looking at basic swings we have a confirmed upside swing advance against the major low in late April, with each advance forward being of a greater dimension than the previous. This would indicate that the market is attempting to expand even though we are getting a compressed swing pattern, that is, the declines are also increasing in dimension. If we do see a breakout, then the next decline should be of a much lesser value than the previous, that is, we should see a 1-3 day decline coming in at less than the previous 35 points. If we do see some more consolidation off this resistance level, I would expect the market to hold somewhere between the 1174 and the 1169 levels. This is of course , if we are seeing the market advancing.

Looking at the All Ords, we can see that we now have a pattern similar to the S&P, although its 15 days out of lock step. We have seen some kind of a rally, although its fairly weak so far in the face of the decline we have seen recently. Its still too early to say if we have seen the last of the falls for a while, and I'd be happier to see a proper retest of the May low before a decent rally could come in. Then again, there are lots of things I would like to see, but that doesn't mean they're are going to happen.

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