We say good bye to 2007, it was an interesting year. I had the opportunity to cover the big turn window in the hard copy of the magazine. Of course, it never does turn out exactly according to plan. I suppose this is what keeps our interest because it’s such a challenge. But in the end, the methodology used here and in my book alerted us to the most important turns of the year. As usual, it did so in advance. Readers of this column as well as my evening updates were told in advance the July pivot would be important. As it turned out, the July 19th high in tech was the 89th day off the March low. What was impossible to know at the time was how the incredibly bullish run would respond to the 382 (Fibonacci 38.2 derivative) week high to high cycle with the March 2000 top in the S&P 500. Give the Dorsey group credit for telling the world the August low produced the most oversold readings since the bear market bottom in 2002. But that low produced a Gann 108+1 low to low cycle with the same March low and we had that for you as well.
Now that I look back on it and see the August low was 234 weeks off the February 2003 pivot low in tech. But September and October had the twin windows of the 161 week cycle off the August 2004 low and the 261 week cycle from October 2002. There were four possible turn dates and the market did respond to the first three in a smaller way. Finally, it took the last opportunity on October 11-12 to finally put in an important pivot. But markets are more complex than at any time in history. In this case, tech did take out that high but elected to participate in the correction anyway. As for our October pivot in the Dow and S&P 500, we are 11 weeks out and still holding.
What to look for in 2008?
We finally put the big pivots in the history book but no doubt they will still influence market action. I've gone over stock market history for the past 100 years and discovered that in decades where the 262 week cycle didn't produce the decade top, markets went on to make higher highs in more progressed cycles be it at the Lucas 322 week marker or even further out to the 423 week cycle. This year we had a split tape where 263 produced the high in charts like the Dow and S&P but not the NASDAQ or NDX. This is a complex world!
Going forward it doesn't get any easier. The New Year could get very choppy and become the ultimate trading market. Why? The next big pivot we are watching is the 262 week cycle off the 2003 lows. Go back to 2003 and you can see the mess developing for yourself. Seems tech bottomed the week of Feb. 10 and the rest of the market bottomed the week of March 10. I expect these twin pivots to impact us in the first quarter. This is no different than reading a novel where something significant happens on page 30 but you don't get the payoff until page 300. So while none of us can know exactly what is going to happen at the moment we already have markets with differing tops and bottoms. On smaller time scales this usually leads to choppy action. I think 2008 is going to be very tough on longer term trend following methodologies but should be a trader’s paradise. Our methodology is perfectly suited to catch the shorter swings.
In wrapping up the year, our elongated 89-day cycle with the August pivot produced the turn right on schedule Wednesday afternoon. This turn also coincided with the intraday charts as the NQ topped on the 163rd 15-minute bar off the Dec. 18 low. By Friday, the 60th intraday bar had produced a low and this same low was the 47th hour off that same December 18th low pivot. What makes this pivot interesting is the fact it is a 38% retracement of the move up from Dec. 18 to Wednesday's high. Something has to give here.
Here's what you should be watching. By now many of you should appreciate these 38% retracements on good time windows. This one is a 47-bar low to low cycle on the hourly time frame. The challenge of course is we are testing an 89 day cycle top. Normally, I'd suggest you buy this set up because it has the potential to go far, but this isn't a normal situation. The 38% 47-bar cluster should produce the bounce into the New Year which will be a retest of last week’s high. Beyond that, the big time players will be back from vacation and we’ll be back to a normal volume market. But that’s as far as my bullish feeling goes. I think we are very susceptible to a hit in January now that the holiday euphoria and shopping season is behind us. But in the bigger picture the lows in August and highs in October are very powerful and we could spend the whole first quarter in a trading range.
I am getting ready to unveil a brand new web site. It’s not live yet as we are working on the finishing touches. Stay tuned to the evening updates because we will be migrating away from the Fibonacciman site in January.