This is the “To Tell the Truth” market. I may be dating myself as a fossil but some of you may remember the old game show where 3 individuals would field a bunch of questions from a bunch of washed up celebrities. Remember the scene in DiCaprio’s Catch Me If You Can where Kitty Carlisle tries to figure out who the real Frank Abagnale Jr. was?
We’ve had a series of imposters and now its time for the REAL correction to stand up.
I don’t know about you but I’m tired of playing Kitty Carlisle. We’ve been getting readings for the past month. The markets have teased and threatened but sellers have not appeared. We know what the culprit is. We can go back to June in this space where I told you the Greenback had the best set of technical conditions to bounce and if it didn’t serious trouble would materialize. June became no better than a sideways consolidation so the Dollar did show us the potential to bottom at some point. The logic being if that pattern was a triangle, triangles are usually the next to last sequence in an overall trend. We may be getting that payoff now.
But since the Dollar couldn’t rally, the stock market wouldn’t sell off. Then the Dollar threatened again last month as it tried to bounce off the 61% retracement line. Another imposter bit the dust.
But my readings are starting to sprout like weeds. We have very good square readings on the SOX, BKX, and NDX with very good percentage change readings in the SPX and Dow. The SOX was averaging about a point a day since the February low right until the spike on the 144 day window which turned the direction. Even Gold turned in the 233 day window.
One condition that never materialized in September was the whipsaw action I anticipated. That was strange but it is what it is.
But we come into the new week and end of the quarter with the same question. Will the real market correction please stand up?
It’s not likely to do it on Monday as it is the Yom Kippur holiday and we may not get it on Tuesday or Wednesday since it might be end of the quarter window dressing. So the end of month/quarter seasonal factor could give us retests of the high or sideways action. We’ve had a September to remember after last year’s September to forget. If September is a pivotal follow through from the summer than October can a termination point for good and bad. We’ve had lows in 2002 and 2005 but a very important high in 2007.
Whether the real correction is showing up now has a lot to do with whether the Dollar is willing to get off the floor. Once again, we had a turn right on the button, right on the 144 day window to the March top. It’s been higher ever since. There is more to go in this rally but for now no bottom is confirmed. I’ve just done my internal readings and what they are telling me is that Gold and Silver have not hit the low for the new leg off the high. Simply put, the hourly calculations suggest there is more to go on this leg. They could turn early Monday or Tuesday but as I’m writing this on Sunday afternoon we are not there yet. Gold could drop as far as 950 before there would be any technical damage.
When we look at markets as complex as these, there is no such thing as a vacuum. All of these markets are related and play off each other. When you look at the stock market, you must look at the interlocking pieces because the stock market is tied to the Dollar which is tied to Gold which is tied to the Euro and the Yen and ultimately oil. So if Gold is not ready to bottom, chances are the Dollar is not ready to top which means stocks haven’t reached their bottom.
But we are in a seasonably bullish time this week.
The Dollar rose 1.63% off the low before it pulled back exactly 60 cents and it is in a buffer zone of support down to about 76.50. If it drops below 76.50 it runs the risk of testing the low or negating the bounce. As long as it turns up in this general area a near term low will be confirmed but it needs to get up near 79 to actually confirm this bottom.
But more interesting is the pattern we have in the SPX and the Dow. It looks like a wedge has formed. Whether it can give us another high remains to be seen. But you can see from the chart (below) it is on the verge of a major violation. If we do get the violation the high will be confirmed. If that were to happen chances are very good we’ll revisit the July low near 880. From this entire move you can see that level appears to be the balance point for the entire rally. The balance point is very good support and until that level is taken out, there is no point in discussing any ‘sky is falling’ scenario. The rally has gone up 61.99% off the bottom so it is one of the readings I have which should be a warning right now. We’ll be at 144 days from the March lows this week and that will be another test of what sellers can bring to the table.
So nothing is confirmed yet. That being said, this is the best chance for a real correction in any of the sequences we’ve seen in the past few months. Technically, we had a key reversal day in many of these charts this week. The last time the NDX (market leading) went above the prior day’s high and closed below the prior day’s low when it was in an uptrend was all the way back in March. We had a blended two day key reversal in May but the last real key reversal was March 16.
So if the real Frank Abagnale Jr. is going to stand, he may be right at the edge of his seat.
I’m in the process of putting my final touches on my Russell 2000 Internet seminar on October 28. It’s what I call an advanced introductory seminar. It’s introductory because it’s only an hour. We don’t do Free Week at Lucas Wave International because the work is on the cutting edge and extremely precise. It’s advanced as we’ve come up with a methodology to determine the degree of a correction which is likely an industry exclusive. Since we don’t do Free Week this is your chance to take a peek behind the curtain.
http://futuresmag.com/web-seminars/fibo/Pages/default.aspx
And it’s not too early to make your plans for November in Las Vegas where I’ll be at one of the ICE FUTURES workshops at the Traders Expo. You know the place; there is no place like the Mandalay Bay in November. If you are the only trader among your friends and want to meet like minds the Las Vegas Traders Expo is the event of the year.
