Every form of support was violated last week. There were warning signs. A week ago Thursday on Nov. 13, conditions were on the verge on getting out of control. Most people pay strict attention to the stock market but what they fail to realize is the fact they are being held hostage by the currency markets. You should be very well aware of the US Dollar Index which broke out of a triangle and moved higher while the stock market broke support this week. You should also be aware of the Yen Futures contract. Additionally, the Libor Futures chart had reached the 144 day and 62 week cycle and that finally retreated in the wrong direction.
Last Wednesday the Dollar sold off sharply on the hourly time frame as the commodity complex attempted to stage a rally. One of my subscribers emailed wanting to know if it was time to go long. At the time he contacted me the dollar had already retraced about two thirds of the big drop and was retesting the-200 hour moving average. I suggested that if he wanted to go long, he was most likely early. What followed was brutal two day sell off in stocks as the dollar chart spiked straight up. Within an eight-hour period, it went from a low of 86.37 to 89.25. That sequence inspired the SPX to break the 2002 bear market low and the rest of the market broke the October/November support levels.
The 261 day support levels were also broken. Let’s understand what that really means. I’ve told you for the past four years these time windows work the same way as price support and resistance levels. Their importance is such that they create the forks in the road of where markets can turn. For the most part they did, especially on the one created by the Dow window from Oct. 11, 2007 top. That window inspired a rally from 845 on October 28 on the SPX to 1007 on Nov. 4 which is a move of, well do the math, 162 points. The new challenge is these turn windows are creating moves that used to take weeks are now materializing in days. That’s why our time lines are breaking support the way they are.
This is a pattern recognition game and when important time windows do break the only reason for it is something much larger is materializing. If you listened closely to the Big three automakers get grilled on Capital Hill last week you should have noticed they were being blamed for every ill in the auto business dating back to Henry Ford. Seriously, they were taken to task for every one of their business practices dating back to the time Japanese cars became popular in this country. What does that mean? It means this bear market is correcting at least a generation’s worth of excesses. The fact the cycles were taken out validates this view. That being said, our cycle points have acted as an aerodynamic drag to slow the rate of change of the speed of the collapse.
But the dollar did reverse on Friday on an excellent price and time cluster. It remains to be seen how much and how far it can go. This was the reason for the big move in Gold on Friday as well. We are at the seasonal time of year where a technical bounce can be expected. Not only that we are looking at the 261 day cycle in Google which put in a lower tail and doji on Friday which was the 263rd of its bear market. If Google can get a leg here it will lead tech into a potential Santa Claus rally.
The dollar set up looks good enough to help the stock market through the holiday season. As I did my scans on Thursday it was the first time I’d seen stocks that were elevating on the recent bounces fade and anything that was forming a base start to collapse. It was as close to capitulation as I’ve seen. In other words it’s the first time I couldn’t find anything that was even worth keeping track of on a watch list for long consideration. Since everything was hit, the implication to me is we are likely at a short term turning point. We are not calling for any bottoms here. I’m looking at this bear market not in terms of many months, but in terms of many years.
I was running discount specials last week on my web site but there was a glitch in the free email newsletter/promo that went out. The result is I’m extending the sale through the holidays so all pricing at the web site is discounted off the regular subscription rates. That goes for the coaching program as well. Such is the state of technology. Hope you have a great holiday.
