After a six-week rally, is the stock market headed for a fall? Will next week’s trading bring a return of the bear market or does the market have the will to continue?

For six weeks, each of the four major indexes tracked in my GMT indicator have closed higher than the week before. There has been no interruption of the week-over-week upward march. Granted, some weeks have been more robust in their gain than others, but for six weeks, the markets have closed higher.

Can the market make it seven?

Historically, on a weekly chart, an upward move lasts three-to-five weeks before a pullback. This is more typical of an up trend. Specific to the NASDAQ 100 weekly chart, the prior run up that lasted six weeks occurred in the second quarter of 2005 – almost four years ago. However, there was a seven-week run up the year before in the fourth quarter of 2004. Although rare, seven-week moves can happen . . .

Do you recall last week’s Moxie Notes, wherein I discussed looking to the left when reading charts? The left side of the chart contains historical data that can be used to inform our opinion of current and future market activity. In looking to the left on the NASDAQ-100 weekly chart, we discover that a six-week run up is not a common thing.

Bottom line? I expect to see the markets pull back from their recent highs, looking for price support. If they find it, they may consolidate around that support and continue moving upward. If the support test fails, the battle to overpower the bear will resume.

As witnessed by the spread of green in the GMT box to the right, all four major market indexes that I follow for this column are showing some serious bullish green.

On the daily charts, all four indexes are in an up trend through the mid-term (three months). However, the long-term trend (one year) is still downward.

On the weekly charts, all four major market indexes are now scored as up-trends in the Micro column. The Micro-trend represents an intra-month period of roughly two weeks. All other trend periods remain bearish on the weekly charts.

In a prior Moxie Notes column, I drew a couple of rectangular boxes on the NASDAQ-100 weekly chart. I expressed the larger box represented a proving ground. If the NASDAQ-100 could push through that box, the rally would be validated and have legs to continue.

Within that larger box, I also drew a smaller box, indicating it was the near-term challenge. If the NASDAQ-100 could fight its way above that box, the likelihood of it breaking out of the larger box would be increased.

As of today’s close, the NASDAQ-100 is teetering on the top line of that smaller box. It has officially penetrated the line I’d drawn; however, I don’t think in absolutes when it comes to the market. I think in terms of ranges and probabilities. I’m not yet prepared to call it a clean break away from that first hurdle. In fact, I expect to see the market pull back next week and, ultimately, retest the lower boundary of the larger box, which is roughly in the 1200 range (see prior Moxie Notes column).

In reviewing the chart above, I’ve drawn a horizontal trend line indicating what I interpret as the upper boundary of price support for the pullback. If this line holds, the recent price gains are validated and consolidation around that support level is likely to ensue. If this line fails, the lower boundary for price support is in the 1200 range (possibly as low as 1160). So long as the pullback doesn’t grossly violate this lower boundary, prices may stabilize and consolidate somewhat above the support line, looking for strength to again test the upper boundary.

The second trend line I’ve drawn in the above chart is an up-trend line, connecting the bottoms of the trading bars in the six-day rally. Note how steep this line has become.

This trend line will be the first casualty in the looming pullback. Trend lines are useful for gauging action and educating predictions of likely market scenarios. I think of them as "If, Then, Else" statements, useful in creating trappings of logic.

I’ve included a view of the daily NASDAQ-100 index in this column. I wanted to illustrate what I believe to be mounting indecision in the market over the last several weeks. This indecision is not apparent in the weekly chart, due to the compression of five trading days (four in weeks containing a Holiday) into a single bar.

Take a look at the last fourteen trading days in this chart. Note how they reflect multiple days of gap-up/gap-down market opens. On the daily chart, this choppy trading pattern is a distinctive break from the more orderly move upward of the several weeks prior. This, in my opinion, is a tangible argument for the looming pullback being a reality. That and the rare occurrence of a six-week unbroken upward move.

I use multiple timeframe charts in my trading regimen. As illustrated, above, some clues are more apparent in one timeframe than another. To interpret the big picture, I use the daily and weekly charts, accompanied by my GMT indicator to gauge general market trends. While in the trenches, trading, I relay heavily on intra-day charts: typically with fifteen minute, half hour, and hourly bars.

This coming week may surprise me and pull off the improbable, a seventh consecutive week of the upward rally. If so, I can live with that. My job, while trading the week, will be to remain nimble and open to whatever opportunity the market may present.

As a mentor has often told me, whatever the market may do the market is always right. The best we can hope for is to recognize opportunity as it unfolds and be prepared to take a position as the market begins to confirm its intentions. To hold fast to an educated speculation that the market chooses to invalidate is no way to make a living.

Happy trading!

-Mike.