Fibonacci forecaster weekly review and preview
By Jeff Greenblatt
Dec. 11, 2006 — So far this has been a December not to remember. The market has fooled both pundits and traders alike. The bulls are waiting for the benefit of the favorable seasonal Santa Claus cycle. It has not come. The bears are waiting on the bigger selling leg, which has not arrived either. Last week in this column, I stated the highest probability outcome would be a continuation of the sideways action. If you have followed the baseball winter meetings last week, $10 million plus premiums was being doled out to those pitchers with the ability to burn 200 innings a season. This market is also doing a very good job of burning through innings (daily time bars) with very little change in price altitude. Market leader NDX opened the week at 1782 and finished up at 1786.
Not that we didn't have our moments. Friday we threatened to break through the bottom of the range in tech as prices opened to the downside, spiked up and suddenly dropped hard. This wash and rinse action likely cleaned some weaker hands out of their positions as the action suddenly moved north. This looked like a short covering rally because as we moved off the low (1767) intraday support came in at 1782. Then without taking time to consolidate or catch its breath, the chart made a hyperbolic spurt to 1799. If you happened to catch my Thursday night email I told readers to expect slightly lower prices on Friday morning so it didn't upset me one bit when that actually happened.
All of which leads us to this week. Once again, Helicopter Ben S. Bernanke, chairman of the Federal Reserve, takes center stage on Tuesday as the market waits on the final Fed announcement for the year. As stated here a week ago the highest probability pattern is a larger sideways correction in the NDX/ Nasdaq coming out of the Thanksgiving high. It looks like the weekly cycles are dominating the action as the markets are just marking time until arriving at the meat of the cycle period, which is this coming week. It never ceases to amaze me how these Fed meetings usually seem to coincide with important Fibonacci or Lucas time cycles. This week we are squarely in the 21st week off the July low as well as 61 weeks off the October 2005 low and 122 (Lucas -1) weeks off the April 2005 low. Wednesday will be 127 days (1.27 = square root of 1.618 derivative) off the June low in the S&P 500. Once again, the markets should dance to the Fed/Fibonacci tune.
Thus far the internal calculations of the pattern since the Thanksgiving high in the NDX/ Nasdaq do suggest a larger sideways correction is being traced out. If that is the case, the highest probable out come of all this is a continuation of the uptrend and the Christmas rally to commence later this week. But we also have a bifurcated market. While tech has been marking time, the S&P 500 has continued to make new highs. The fact that tech has not confirmed these highs is not surprising, but it should serve as another hint that all is not well with these markets. There is also a chance that I will call the lower probability at this point for the cycles to create a high as opposed to a low here. Coming out of these weekly cycles, a high would lead to the kind of selling pressure we saw in May. But since this rally has confounded even the best minds with its staying power, I have to give the larger trend the benefit of the doubt.
For those of you who prefer to let someone else keep the scorecard here are a couple of important facts about this corrective measure. Starting from the Nov. 3 pivot low the NDX has now traced out two important lines in the sand, which are near term support. The 1760 low on Dec. 1 was in the 133rd (134-1) hour and last Friday's low was in the 163rd hour, which missed the important 160-62 hour cycle window by a hair. These can be interpreted as bullish omens because important cycle pivots do tend to hold their ground on important time bars.
Last week I felt that if the absolute lows were tested yet again they would break which could lead to a larger correction to the downside. While the lows in the NDX were almost tested, the Nasdaq has stayed firmly within the trading range. The Dow and S&P 500 have stayed at the top of the range. Once again, if markets won't correct sharply in terms of price, they will make up for it in terms of time. This is exactly what we have achieved, but expect that to change this week. As far as Santa Claus is concerned, better to come late than not at all. There are still two weeks to Christmas.
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