THE FIBONACCI FORECASTER WEEKLY REVIEW AND PREVIEW
Jeff Greenblatt
They started celebrating President's Day on the History Channel the other night. In a very unique documentary they attempted to piece together a portrait of what George Washington may have looked like as a young man. See, they have all kinds of portraits of him when he was in his 30's, 40's and 50's but none when he was a lad of 21. That got me thinking about this bull market. This rally really has never had a face to it. After the brutal bear, most analysts including myself thought we were dealing with a technical retracement (or B wave) of the 4553 points that spanned from the all time high in the Dow down to the bear market low.
If you really stop and think about it, we weren't going to get an ultimate top until that kind of thinking was extinguished for good. I know that sounds painful to some bears out there, but everyone knows that is the truth. Once again, as technicians, we started thinking top when the Dow tested that 11750 high simply because we all saw the possibility of a double top. That's a reasonable thought. However resistance at those levels didn't hold. Still, one way of looking at that double top scenario is we weren't going to have a final top until those looking for a top extinguished that thought as well.
My point is like George Washington, none of us have really had a realistic portrait of what the potential of this rally really is. All we know is it keeps going up and its already 2007. All I know is this rally keeps going and we haven't come close to seeing the kind of excitement we saw from the public back in the late 90s. I know that was a once in a lifetime tech bubble but I haven't seen many party hats either. Last week was the first time I observed analysts on television starting to get swept up in the price action. If this is the beginning stage of the euphoria we are not finished yet.
If you look at a MACD on a weekly time frame of the Dow and S&P500 since the bear market bottom you will see momentum peaked in February 2004. After the October 2004 low momentum started to rise again all the way to the May 2006 high. At that high, there was a large divergence with price action as MACD wasn't even close to its 2004 high. It was reasonable to think we could have had a long term top last year. But since the July 18th low, Dow weekly MACD has surpassed the 2006 high and has leveled off just short of the 2004 high. Bearish divergences are just starting anew, at least in the Dow. My whole point is once set in motion, momentum will carry the price action further than most people believe.
The fact that we've taken out most shorter term Fibonacci extension points means this rally is not over. The fact that we are still weeks away from the next important time window implies this rally is not over. Now that we've had a chance to celebrate President's Day with a longer term view, let's see what might be in store for this week.
There are still several opposing forces at work which should keep the action choppy. The Dow and S&P500 are once again at the high end of a trend channel on the hourly time frame going back to last summer. We are also 145 days off the July low which puts us squarely in the 144-146 day time window. Mind you, I'm not looking at tops for these time windows, just points where we could get a violent reaction going the other way. This sort of reaction is due at any time going forward. I mentioned in my evening column that the BBH was setting up with an interesting pattern. Since the high several weeks ago, we've had a progression where the latest wave down that broke support measures approximately .618 times the first drop. In a bullish environment, we see C legs measure .618 of the A leg all the time. Of course, this could be a trap for something larger developing to the downside. However, it does appear like the BBH is forming an ending diagonal triangle and I will draw the 186 area as the line in the sand. As long at that area holds the biotech should turn back up. A break of that Fibonacci calculation could change the entire tech landscape. The SOX still has unmet calculations up to 480.
So while it appears the Dow and S&P500 are due for pullback, we may not get confirmation from tech if they do so. We could be in for a real volatile week. Questions or feedback? Email Fibonacciman@aol.com
