FIBONACCI FORECASTER WEEKLY REVIEW AND PREVIEW
By Jeff Greenblatt
Dec. 18, 2006 — While Santa is alive, I'm not sure he is well. It seems this year's version of giving may turn out to have a little Grinch in it after all. Our timing model correctly forecast to the day when we would begin the ascent out of the trading range. There have been other outposts looking at Dec. 13 with importance, but they were predicting a top on that date. The Forecaster was the only outpost anticipating an upward move, which actually kicked on the very next open Thursday morning. We were rewarded when the Nasdaq took out the Thanksgiving high. While the timing was on target, it is the price action that is a bit concerning.
If you go over the intraday charts from last week, you will see most of the northerly flow in price movement was achieved in two distinct bursts. Thursday's moon shot was achieved in a half hour, and Friday's was merely a gap up that was retraced by the afternoon. If you blinked, you missed it. If this is the best Santa can do during a favorable seasonal cycle, what is January going to bring once the Christmas euphoria wears off?
The new high in the Nasdaq brings us to a very vulnerable high-risk point on the chart. While we may have set a new high, it was not confirmed by either the NDX or the SOX. As a matter of fact, the SOX is nowhere near it's 2006 high and has had repeated difficulty getting above the 61% retracement level of the 2006 sell off. We have continuously warned if that condition did not change, a rally into 2007 would be difficult to sustain. The new highs are also greeted by bearish MACD divergences on the daily period even in the Dow and S&P 500. Finally, when prior highs are retested, the markets are most vulnerable, as important resistance levels are the place where rallies can meet their end.
While the cycles have been mildly bullish here, I must refrain from being too bullish. While the bears have managed to be wrong lately, perhaps their problem was only being too early. While the 127-day cycle was active and enabled us to be out front for this small burst to the upside, you should know the highest probability tendency is when this cycle acts as the bullish catalyst it usually runs it's course by day 134. That takes us to the end of this week. The weekly cycles are also suggesting a possibility of a high by the beginning of January. Right now we are 87 weeks off the April 2005 pivot, 61 weeks off the October 2005 pivot and 122 weeks off the August 2004 low. This week leading into Christmas is a 62 (Fibonacci ratio), 123 (Lucas) cluster and the week leading into New Year's Day is an 89 (Fibonacci)/ 28 (Lucas 29-1) week with the June pivot. We have repeatedly seen early year tops in the course of this rally from 2002 and this time may be no different.
Putting it all together, the Nasdaq/NDX are now retesting highs made near Thanksgiving. The reason they are testing these highs is that there were four attempts at breaking through support at the bottom of the recent trading range, which all failed. By default, if we do not go down we are going up. Since we are in the seasonal bullish period, I do not see these markets giving up so easily. While we may get intraday drops, overall I look for a drift or melt to upside in the period leading to the Christmas break. The Dow and S&P 500 now have higher targets but the Nasdaq is bumping into serious resistance right here. We should see a continuation of the rally that started on Thursday morning but have bearish non confirmations by the NASDAQ and/or the MACD throughout the week.
Questions or feedback? E-mail Fibonacciman@aol.com.
