School is in session as the markets spent yet another full week testing various resistance points. Last Monday the S&P 500 finally broke through the February high but spent the rest of the week testing extension points of its last two small corrective legs to 1485. Last week I threw out a couple of extension points for the NASDAQ, one at 2500 and the other at 2520. Since we came into last week at 2491, the 2500 level was taken out rather easily. However, getting to and beyond 2520 proved to be a more formidable challenge. While we finally closed above that level, Friday's doji at 2526 should not provide any comfort to the short term bullish case. We did take out the February high by a single point (2532) but unlike sports, style points here do count. The NDX also struggled to get above resistance, finally doing it Friday. But it also left a small body candle.
We haven't looked at the SOX in some time. We are back at that key level we've looked at so many times in the fourth quarter of last year. This is the 61% price retracement of the big leg down last year and we are now retesting it for the fourth time since November. This time we are 187 trading days off last summer's low and if you look at Friday's high wave candle, the small real body indicates more indecisive behavior by the bulls. The candle and the time count suggest another retreat here.
Finally we look to the Dow. It took all week for the Dow to get past a smaller degree extension point at 12850. Since it took so long to take out the February high, I thought it would run out of gas by the time it would get to 12850. But the Dow had a little surprise in store for us. Once it took out near term resistance, it developed some ambition to attack a bigger number I first discussed back in February. Those of you who receive the evening email may recall my discussion of advanced Fibonacci extensions. As you know, the Dow bear market from 2000-02 spanned 4553 points. Back on Feb. 22, I stated the Dow likely had the stamina to get to the 1.27 price extension, which would take it to 12979. As it turned out, it had just peaked two days earlier (but hadn't dropped yet) at 12795 which was 2 points off a perfect 1.23 Lucas extension of the bear market. Now the Dow is one breathe away from this larger extension point.
All of which means we are at a very interesting point of the year. We've been in test mode for the better part of the last 6 weeks. In the bigger picture we've been in the 232-237(+/-1) week window off the bear market bottom from 2002. This period has produced a vicious sell-off and a recovery. As we just completed the 237th week, if we get anything other than an immediate higher high and a drop for the rest of the week, it implies the market has survived another big test. I'm not here for bold predictions or announcements. What I do is present the highest probability tendencies of these time cycles. The bottom line is if the 233-236 window (in any time unit) does not produce the reversal, odds are that particular chart will not reverse until it gets to 250, or the 255-261 window. Of course, there could be and will be smaller degree reversals but we are talking the bigger picture here. For your information, the 261-week window does not kick in until October, which is also the 20th anniversary of the 1987 crash.
Getting back to the near term picture, the markets are right on important intermediate level resistance points. The S&P 500 finally hit that 1485 target on Friday. We've already mentioned the NASDAQ and SOX. The Dow is 18 points shy. While l was waiting for these charts to hit these milestones last week and pull back, it was the NASDAQ complex that gapped up Friday and spent the rest of the day attempting to refill the gap. The Dow and S&P 500 stayed strong. Overall, we are very close to some larger degree milestones. The S&P 500 is likely to get back to its all time high and the NASDAQ is likely to get to its 38% retracement of the bear market at 2645. For now, the p/c ratio dropped below .80 on Friday into the euphoric zone. I am still looking for corrective activity, which should likely take the form of a sideways pattern.
Jeff Greenblatt
Fibonacciman@aol.com
