News Bulletin: The market is never going down! Last week the S&P 500 finally hit and surpassed the 1500 mark for the first time in seven years. All of the other indexes hit fresh multi-year highs as well. Do you need to know anything else?
During this past sequence, this column was looking for a small-degree high, fourth wave pullback and a continuation of the current leg (at least from March 14). Why did we have the confidence not to think last week could have been "the high" good technicians have been looking for?
There are two reasons. First, the April 27 high in the Dow was a 1.618 extension, which normally implies the top of a third wave. Second, the cycles last week were not mature enough for an important high. We have stated many times, not only in this space but also in my articles, updates and book, that these markets behave so much like sporting events that are governed by a clock. The trend always continues until time is up. That also implies we know when conditions do not exist for markets to put in a top. Last week was simply not one of those times.
But the times may be changing. This week we enter an intermediate-level turn window on the weekly scale that runs until the end of the month. Now we enter a period where we are 143 weeks off the August 2004 low and 108 (Gann) weeks off the April 2005 low. This is not as pronounced as last May, when we lined up in six degrees of trend with the smallest being on the daily time frame. We also have much larger time windows lining up later in the year. But we do have something to work with here. In attempting to scale these weekly time windows down to a daily, we find ourselves in a position where there are several candidates to put in a high. So instead of outlining all of the technical reasons why each date could be the one, suffice to say the highest probability windows extend from May 7-16.
In purely technical terms, this means any of the major indexes could top and give us an intermediate level correction at any time going forward and it is highly likely that different indexes may top on different dates, gives us bearish non-confirmations that can kick in on a larger scale later in the month. The only thing that could change this forecast is if we were to suddenly flatten out and consolidate sideways for the whole week.
One of the major calculations that has been guiding my work with great success lately is the price extension relationship the Dow has to its bear market from 2000 to 2002. As we know, that correction covered 4553 points. The reason why we cannot expand this discussion to the Nasdaq complex or even the S&P 500 is that they have not taken out their 2000 highs. But I have said here and in other publications that the Dow high at the end of February topped on a 1.23(Lucas) extension of the bear market. This was 5600 points added to the 7197 low (12797 to actual 12795). Now we are approaching the 1.34 extension, which would take us to 13298. We are close, so close (13284 high) that the difference is now statistically insignificant. So close, in fact that if the markets choose to top on Monday, technically they are in a position to do so
But there is a flip side. When we use pattern recognition methodologies like this as well as the time dimension, there are key forks in the road where markets can elect to change trend. If they do not elect a particular fork in the road, it should be viewed as a continuation signal. In the case of the Dow, the 13298 level is very significant. If it were to blow through this level by more than a handful of points, that is an indication the market is eventually going higher, even if we start a correction.
Watch that 13298 level in the Dow. Also, watch the 1520 level in the S&P 500 because there are several smaller extension relationships there as well. Keep in mind the highest probability dates, as this Monday, Friday and next Wednesday are as far as the time dimension goes. The Dow is now as historically extended as it has ever been; the others indexes are not far behind. You have your price and time markers.
Now it is time to let the market decide.
Jeff Greenblatt
Fibonacciman@aol.com
