On Wednesday night, New York Mets manager Jerry Manuel stepped up to the podium to talk about the events of that evening. “We didn’t draw it up this way,” he laughed nervously. You see, the Mets had blown a 7-1 lead and needed 7 pitchers to get the final 12 outs in a critical 9-7 victory.
Didn’t draw it up this way!
When I wrote last week’s column, I already had the benefit of knowing about the AIG debacle and what it would do to markets on Monday morning. As you know, the prior two weeks started out with good news, the markets erupted only to give it all back within a day or two. This time we had the polar opposite. I reasoned the market would get killed but in this environment that is neither kind to bulls or bears, it would probably come back.
Who knew they would have to save the republic for it to come back? But since the chart is king around here, the only result we care about is scoreboard. Last week the Dow closed at 11,422, this week it closed at 11,388. The high to low was 11,483 to 10,459 for a range of 1,024 points. It was just your average, ho-hum, routine stock market week.
You have to wonder who had a tougher week, John McCain or Jerry Manuel.
But this is one of the few times the chart isn’t king around here as the situation came perilously close to a total economic disaster in this country. But Maria Bartiromo interviewed President Clinton this week and he said every time the United States seems to hit one of these major crisis points; we band together and somehow pull through it.
He’s right. We’ll pull through it. Perhaps things won’t be a tidy as they were before and we surely will be inconvenienced in many ways. But whatever it is they are concocting in Washington is preferable to the alternative.
Let me say that in no shape or form do I agree with a ban on shorting stocks but history suggests it will be temporary and we’ll get through this one, too. Tough times don’t last but tough people do.
This week our timing model was extremely battle tested and came through with flying colors. I’ve been telling you for five years our timing model was based on Universal principles and those of you who were in the Webinar saw charts dating back to 1929. The methodology that worked 80 years ago will still work 80 years from now. But in the past week we saw reversals in the gold market at 127 days, oil market at 47 days and the stock market in the 232-37 day window.
The only thing I’m unhappy about is dating back to July 2007, the media, economists and government officials told us there was no recession, the housing mess was contained and everything would be fine. Then one day we wake up to learn the biggest insurance company in the country was toast and a couple of days later they needed an RTC type institution to fix the country.
Contrast that to the important work we do here, where my readers were told six months ahead of time in April 2007 we would have the most important pivot of the decade in the fall. I outlined four high probability dates and time has proven all of this to be true. We are still doing it, evidenced by our timing work of the past week. I can’t imagine how we will ever be challenged by a tougher week.
Let’s look at the action. Do you remember in February and then again in late March or early April those 90 point days in the NASDAQ? Do you remember the volume on those days? I don’t have the exact figures but they were about 2.2 billion. Do you remember I told you that a 2.2 billion day was probably good for a 40-50 point day, but for a 90 point day we’d likely have to answer with a day of reckoning? Here we have a 75 point day on nearly 4 billion. That’s right; the actual figure was about 3.9b. I can’t even count that high. Seriously, do you ever remember a 4 billion day in tech? It was mostly buy volume. You can say there was short covering and I’m sure there was. You can say they banned short selling but that is financial stocks. Even the SOX recovered. The true accurate measure of volume on Friday was in technology.
This would be enough buy volume to kick off a new bull market with some follow through. But I wouldn’t go that far. But let’s just say that until October 2nd, bulls will have the wind at their back. I don’t care if some say it is artificial. It is what it is. I’ve come here in past weeks telling you that housing stocks and many banking stocks had decent charts. I’ve shown my subscriber base where the strength was in the banking sector. No, it was not on the Citigroup chart.
The real reason for last week’s debacle was the biggest part of moves usually come near the end and we were at the 232-237 day window to last October’s Dow top. Also, housing, banking and retail all hit key intermediate term resistance. Once those levels were hit I told you there would be trouble. However, you can never tell what exact news event would manifest just by looking at a chart. But the chart does give you a great clue, if you know what to look for.
Finally, a look at the Dow will show you another one of those extension points near the low. That’s what this week’s chart is all about. Once again, we have an incredible price and time cluster. This is still September and while we’ve had a year’s worth of selling in one week, we are not totally out of the woods. This week we have another one of those pesky Mercury Retrograde periods upon us. It starts Wednesday and what it should do is slow the momentum of the new pattern. It also should not be lost on you the moratorium for short selling is set to expire on October 2, just when we get to the 233 day window off the late October 2007 NASDAQ high. From now until then the bias shifts to bullish or at least neutral, the Mercury period could give us some good whipsaw action.
Keep in mind that bailouts and sentiment such as this do materialize at or near market bottoms. Think back to the bottom in 2002, the day we were told on CNBC it was finally safe to short stocks. Compare and contrast the mood not only on Wall Street but around the country last week. It is certainly the sort of thing we need to see at a wash out point.
Don’t expect prices to accelerate up from here. We need backing and filling plus a follow through day to create a bullish rotation. With the Mercury period upon us, that might be difficult.
We offer subscribers a cutting edge model that is extremely battle tested. Why not give us a try? We also offer a coaching mentorship program as well as a free month of the Greenblatt Time Zone plug in library on the Genesis software. I’m doing an all day seminar in Chicago on October 25 where I will show participants pattern recognition setups from the last 80 years of Dow history and how these patterns are applicable today to give you a tremendous edge in these markets. All information is available at www.Lucaswaveinternational.com
