We speak often about the pause that refreshes. At least once a year it applies to us personally as we don’t get a Friday off very often. Just don’t let that lull you into complacency or laziness. This figures to be a very important week.
Let’s start off with the time windows. We are entering the week at 377 trading days off the grand top in the Dow back on October 11-12, 2007. That seems like such a long time ago, doesn’t it? We are going to find out a couple of things from this level of ‘time resistance.’ First of all, we are about to find out just how much influence the cycles of the bear market still have on this bullish sequence. On the weekly scale we start the 76-78 week window off the end of October 2007 NASDAQ top. That also takes us to 79 weeks off the Dow top, but we already have that covered with the daily count. The window actually extends to the 38.2% retracement level so we extend it all week to day 382.
Then we look at the best chart this market has to offer, the High Grade Copper chart which will be entering the 76-78 day window on Wednesday, of all days. Everyone knows the government has greatly expanded the balance sheet with TARP at a time the taxpayer is more stressed than ever before. Wednesday is the day the bill comes due. You don’t need me to tell you that. What I find interesting is the potential for sentiment to get really concerned about the government’s inability to keep up with expenditures because of their capability to collect tax revenue this year. The point is we all know it to be the current reality, but Wednesday may be the day we get to read about it in the papers.
The interesting aspect here is all of this materializes right on the time window.
Next we should take a look at pattern resistance. The Copper chart has had an incredible run and it is exactly the kind of price action you want to see. The action has been tight with several bullish polarity flips. It took out the trend channel line containing the bear market but now is in striking distance from it’s 200dma at 225. In the same area is reflective resistance at 218. Here’s the bottom line for Copper. This isn’t necessarily a top but a place where the action should take a bigger pause. If it gets the 200dma, it will be a 100 point move or a 79% increase since December. Who can complain about that? But let’s say we could have a bigger move. What usually happens is we look for the traditional cup and handle pattern. We’ve had the cup; it is time for the handle. In the best case scenario, a pause would be normal and positive.
Turning back to the stock market, the Dow has climbed safely above the Oct. 10 pivot low at 7,884. I think it’s very important to realize the markets are coming back to the level where the Lehman and/or TARP news materialized. Certainly the collapse started from a much higher level as the Dow was at 11,416 on Sept. 15 but it started a fear cycle that didn’t abate until it got to 7,884 on Oct. 10. What I’m trying to say here is even if the rally keeps going; I doubt this will be easy territory to recover. The easy money has likely been made in this rally.
The SPX has finally hit the upper declining trend channel line when we connect the dots from Oct. 14, Nov. 4 and Jan. 6. If it’s going to fail, this is the place for it. As we look at the ‘finer detail’ there is a 16-day high to high cycle from Oct. 14 –Nov. 4. The next high to high cycle to Jan. 6 is 42 days which when we do the math from those cycles the latter has a 2.62 ratio. This is intelligent hypothesizing but by Wednesday we’ll be another 68 days from the January high and 42/68 gives us that 1.618/.618 (very close) ratio. This falls squarely in with the 377-382 day window to the top and the 76-78 day window with Copper. You can see the not so obvious relationships are lining up with the obvious trend channel lines.
It doesn’t have to fail, but my concern during this whole sequence is we’ve only made 2 thrusts to a bottom and an ending diagonal triangle usually requires 3.
The NDX has led this rally along with the SOX very effectively. Even the NDX is due to run into 3 levels of pattern resistance, quite possibly this week. There is the November 4 high at 1382 and wouldn’t it be interesting to see the NDX hit 1382 on the 382nd day off the top? That would be a week from Monday. There is also a 38% retracement line at 1411 off the June 2008 pivot. Finally the gap down off TARP hits at 1440.
While there is still room, we are getting to the point where all charts are close to where they need to be to change direction. The issue is whether the sequence which follows is a resumption of the bear or the pause that refreshes.
Hopefully now that you’ve had a pause that refreshes, you’ll be dialed in at the switch and be ready for whatever happens.
We’ve been doing a lot of interesting things lately at Lucas Wave International. We are not only weathering the storm, but thriving through it. But you may know we’ve had issues with the web site since the beginning. We have begun a complete overhaul of the site. While it is under construction, it won’t affect subscribers at all. However, we are addressing all of the issues everyone has had from user friendliness to delivery of the product and my biggest issue which is I don’t think the true message of what we do gets through. If all goes well, the new Lucas Wave International should launch just before I go to the Traders Expo in Los Angeles on June 5. I’m doing two presentations that day and you can check it all out in the following link:
Register FREE by call 800/970-4355 and be sure to mention priority code 014023 or go here to register online!
