It looks like we survived the beginning of the autumn trading season and end of summer. I mean this literally. You’ve seen studies concerning the stress levels people have on the usual Monday morning after being in slow motion all weekend. Magnify that times 10 when you consider some showed up at their desks last Tuesday after two weeks at the beach. I’m here, you’re here and glad it’s September, the most exciting market month of the year. It’s bound to get more interesting this week.
But we are only four days in and one news item really got my attention. On Friday night I’m waiting for dinner with my date (Fibonacciwoman) when a distressing alert came over my Blackberry. It was a Wall Street Journal report that said the Obama administration was going to enact stiff import duties on Chinese tires that go on passenger cars and light trucks. This is an effort to stop a flood of products coming on the market here that have cost Americans thousands of jobs.
I have no doubt that jobs have been lost. The cynical side of me wonders if this is just another back handed ploy to get the Chinese to buy more of our debt. In case you haven’t noticed, the long bond has now elevated from 110-00 to 120-00 and at an important resistance level. There are a couple of points to keep in mind. First of all, the “Western” mind will never understand “Eastern” philosophy which is both tough but flexible at the same time. I don’t think they can be bullied. Second, is this any way to treat our creditors?
Finally, in case you’ve noticed, I stay out of the political debate and limit my commentary to that of socioeconomic observer. That being the case, my official stance is against any tariff war. Above all else, we don’t need this kind of mindset metastasizing in Washington, Beijing, Moscow or anywhere. This is the kind of thing that can derail any recovery and whatever loss of jobs is hitting the tire industry are small potatoes compared to what could happen. This is not a donkey or elephant issue, I’m against any administration starting a trade war.
The other major event of the week is the greenback breaking the back of the 61% retracement level of the move up off the bottom. Due to this 61% line, I thought we’d get more traction off that last bounce potential sequence. But I told those of you in the Elliott community not to get too excited or bullish over dollar prospects. My anticipation was more modest and even if we did get a rally going, my geometric resistance points were never going to allow it to get to deflationary depression levels again. I had a short discussion with one of the editors of this magazine early last Tuesday when the greenback broke. I explained there were no real price and time squares that would save the dollar just yet while whatever was materializing in the metals was only squaring up back to the Aug. 17 pivot. What that meant was whatever corrective activity was developing was to be small in duration. On the Gold chart that meant upper tail and a two-day slide. By Friday we were at a new high again.
But I am looking for a change of direction within the next week because we are coming to the 233-day window which starts on the Gold chart by Friday. We could be at a dollar target of 74.50 by then. If these charts pull back starting tomorrow (metals down, greenback up), it would likely be an inversion and continuation of the trend. If not we could get a real turn next week.
Turning to the stock market. The NDX answered our Elliott issue by violating the 1,668 4th wave overlap issue. The next issue is the 200-week moving average. I think it will much tougher for tech to get through the 200. Think about what happened on the way down. Let’s examine the same NDX; prices flirted with the 200 in January and violated in March 2008. Granted, more was at stake back then. In my many forums, I said that a real breach of the 200-week moving average would be a sign that not only were we in a more protracted bear market but also confirm the recession many were already feeling for months. The 200 was breached for good last September and it wasn’t until the end of the year the government told us we had been in recession since the prior December of 2007.
1 courtesy genesisft
There’s no doubt we are in recovery, but it is an embryo at this point. There are many factors in the sustainability of this recovery. If you look back on the Great Depression, the Roosevelt administration got a bit complacent and took their foot off the pedal. The advent of labor unions (a byproduct of the New Deal) in the auto industry caused the recovery to weaken. Labor unrest was unintended consequence before the ship was totally reversed. As we know, the ship was not able to totally reverse course until we ramped up war production. Prechter’s primary cycle 3rd wave didn’t kick in until 1949, when we were the only power unscathed by the war.
These conditions are not likely to repeat. Oh, there might be a bigger war at some point where production will ramp up, but 9/11 demonstrated the homeland will not be unscathed in the future. The point for today is I wouldn’t anticipate markets to just keep flying through the 200 without a fight. If it does get through, I believe there has to be a choppy period where the line is secured. If it does pierce through, I think we’ll have a mean looking retest of it at some point.
Finally, we have the BKX which was retesting key resistance a week ago. Last time I told you to watch the 46 area and its potential for failure. It hit a high of 45.95 three separate times on the hourly chart last week without breaking through. The week and the month may very well ride on the outcome of BKX 46 and the NDX 200 week moving average.
2 courtesy genesisft
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