To bounce or not to bounce, that seems to be the 64 thousand dollar question. There have been several setups in the past week that could have spawned a larger dollar bounce, but failed to do so. Consequently, the rally keeps on ticking. As we wrap up July, one thing has become certain as far as the cycles go; markets had an opportunity for larger pullbacks but used the 161/1597/89 day window this month as acceleration points, not reversals. The implications are bases are starting to form above former resistance. A basing process is not bearish.
What that means is this rally is not over.
We had an event late Thursday with the Microsoft news that caused the NQ to take a 30-point hit in the aftermarket. The question circulating around the news shows was could the rally be over? It’s a reasonable question considering the lightning speed of the turn. Most panelists asked this question were guessing or hoping but I really have to wonder what calculations those assumptions are based on. At Lucas Wave International, we might end up being wrong, but for the most part our readings give us a yeah or nay.
This one is a nay.
The rally is not over. Now, if this Mister Softie event hit on the big time window I’d likely be telling something different, but it didn’t. I spent the better part of Thursday afternoon crunching the readings to come up with something that looked like a top, but I couldn’t. You see, we can now go through history and compare important highs and lows because they leave footprints just with the price/time clusters and percentage changes. What I’m getting is a bunch of smaller degree readings. What these readings are suggesting is we are at great risk for a change of direction, but not a top.
That could change, but with the information we have at Friday’s close, the numbers are just not there. Putting the numbers aside, if a picture is worth 64 thousand words, this group of technical conditions speaks of a market that is not done going up.
Of course, there are implications to this, but we can bury them under the rug to deal with on a different day. For instance, we did not get the benign pullback over the summer while the dollar rallied into the middle of the range. The dollar never rallied into the middle of the range. Consequently, we have a watered down rally just like we did for the whole decade. I’m not going to pour cold water on it because every time the market goes up, people feel better about themselves and the future of the country. So I suppose that’s a good thing. But I wonder how good that will last if the dollar keeps plummeting.
When I look at the oil chart, I also see a chart that wants to go higher. We separate the news events from the technicals but anyone that has seen or heard my presentations from this year know the underlying structure of markets lead to news events that just seem to manifest. We are at the time of year where oil on a seasonal basis, should be peaking. But it hasn’t. Why hasn’t it? I can’t answer that question but what I can tell you is the price and time clusters have not lined up to such a place where we should expect a big turn. If we want to play amateur meteorologist, this might mean the news event that manifests over the next eight weeks might be a Gulf hurricane. Real meteorologists are suggesting this should be a mild season. But all it takes is one and the potential fear it may cause could turn out to be the topping event of the season.
We may have to wait until Labor Day to see that play out. Just for kicks and giggles, the crude oil chart will be 144 days off the bottom on about Sept. 3. This is not a prediction, just a projection concerning a chart that doesn’t look ready to top. Right now, oil is hitting some key overhead resistance based on the June 23 low near the 68 handle. But that doesn’t mean we can’t have a pullback and on Monday oil will be 233 hours off the July 13 low.
The August edition of Futures magazine will be out shortly and my cycle work will be featured in Tech Talk. We have some interesting cycles in August. The jury is still out as to whether they create a high or a low. If we are hitting a peak into the middle of August I can turn bearish faster than a NY minute. But if somehow we can invert and create a low, it could set the stage for a fall rally. We still have three weeks to go. But I’m sure you are wondering if it’s even feasible at this point.
Once again, it depends on the U.S. dollar. For some reason, it always depends on the dollar. Once again calculations are setting up, this time on a daily time scale for the dollar to be a good bounce candidate. The possibility suggests we could have a near term bounce that could last upwards of a couple of weeks. Now I know what you are thinking, we’ve had readings before and the dollar continued to fizzle out. Yes, you are right. But every one of those readings did lead to a one- or two-day bounce in the current down draft. This one is the best of the bunch. In a normal market the dollar would be spiking off this low and if it doesn’t it will tell you just how weak it really is. Of course, the calculation from June 26th is so strong (360 hours, 6.100 price and time square) off the June low that it continues to exert its influence to this day.
But if the dollar were to bounce it would mean for the time being one needs to hedge their stock trades or at least in the near term be long the dollar, short the stocks, oil, gold just to name a few. We don’t see evidence of it yet, but that could change by Tuesday. In order to see the evidence the dollar needs to hold Thursday’s low. If it does not, forget this entire conversation. But lets just say for this week, markets are more vulnerable than at any time since day 161 a couple of weeks back.
On another note, tech has cleared through the TARP mirror image event on the chart. What that means is the recovery slowly is taking root. Why is this happening? In case you haven’t noticed the BTK is retesting the bull market top. Yes it is and that is a very good thing on two fronts. First of all, it means speculation has come back into the market. If computer chips in the form of the SOX are the brains of the operation, then biotech is the heart. Don’t ever forget people get involved in stocks because they erroneously believe they are going to get rich. In biotech, they do have a chance to hit the big score. Separately, the one area of genuine advancement in commerce is the breakthroughs achieved by medical science. Biotech happens to be the one area you can genuinely say can be the leadership of a new bull market. If a new bull market is ever going to materialize it can’t come from the same old tired companies from the last 2 bull cycles.
Where’s the new bull market coming from — Citigroup? I don’t think so. Bull markets can only come from technological breakthroughs. Another thing we’ll have to watch is whether the BTK gives us a double top.
Look for me to speak at a couple of webinars this fall in new places. No official announcements yet but this methodology is starting to gain a wider acceptance. We are getting close to the completion of the new lucaswaveinternational web site. What we are actually doing is a modernized/simplified version of Gann. If you want to learn how to take your understanding of financial markets to the next level which will give you a big edge in your trading you should strongly consider taking one of our subscriptions and/or signing up for our coaching program.