All of the speculating and histrionics is over. Its time for the show to start. Well, yeah, it is the big week of the webinar but that’s not what I’m talking about. We are wrapping up all kinds time windows in the markets.
We are done with the 161-day window off the March low as of today. Today is 231 days off the tech low of March 9 but 234 off the SPX bottom. Not to be outdone, this is also the conclusion of the 233-day window off the November NDX bottom. How often does all of this line up together?
I checked, the last time window at Sept. 23 is still holding in the Russell 2000. That one was severely tested last week but held by mere cents. This weekend was also the 233-day calendar window for the U.S. dollar. Things are not going to stay the way they were, something’s got to give. This is the week for it to happen (see chart below). Why shouldn’t it happen? There’s precedent for it as the metals bottomed just at this time a year ago.
Sentiment is also off the charts. Unless you have a super bearish agenda, you’d have to admit to yourself we’ve finally reached a point where the only way for the market to go is up. I’m not talking about what you think of the market, but how you feel about it. This market has a feel that it doesn’t want to correct.
This is just the opposite of the way things were in March. They kept going until conditions lined up to set a reversal in motion. If you want to see just how well they really did line up, check out my Russell 2000 chart on Wednesday. That Russell chart is THE GOLD STANDARD in understanding how market symmetry leads to great reversals. We do have some of that in place here.
Here’s my concern for the market. I don’t think the inverse relationship between equities and the dollar goes on forever, nothing does. I started telling you back in June the market needed a benign correction to propel it higher, not for now but for the longer term. It never happened. We’ve been the beneficiary of a weaker dollar since March. Some of you might think this is a good thing and if it lifts social mood to keep the market rising, I suppose it is.
But look at Australia. It’s been doing just fine with a rising currency. Our market is going up while the value of the currency is going down. It does stifle the truth wealth effect. Wouldn’t it be better if the country was getting wealthier while the market was going up?
That’s one reason they talk about a jobless recovery. Okay, here’s my concern. Today is Monday the 26th of October in the year of 2009. I told you last week the dollar has a propensity to turn on calendar days as opposed to trading days. The trading window is closed. We are closing the 232-237-day window on Tuesday. It is off the low. The dollar either rallies here or we are getting an inversion spike to conclude these windows. Let’s just say, the end of last week was a good first step, but we are not out of the woods yet. The initial indication from the Sunday night action suggests the low can hold.
I don’t really see any conditions that could help the dollar out on the horizon if it doesn’t elect to rally out of this sequence. I’m not talking about banks, politicians, traders, all of them and none of them. These cycles are bigger than governments and whatever they choose to do is going to be because decision makers know deep down it was the right look and time of the pattern. The lesson from last year is Lehman and TARP hit on 233-day windows and accelerated down. Coming out of TARP, that big bounce came on day 238 off the tech high because the whole window was an acceleration down. The dollar is not accelerating down here; thus far it is behaving normally in this window. But until Wednesday comes and we don’t see a spike with a drop we remain at risk for a reaction. The bottom for me is if we stay sideways to up and don’t start turning down by Wednesday, the potential for a storm has passed. The bottom line is the dollar can’t stay the way it has been the past few weeks. This is the time something important to happen, one way or the other.
A rally in the dollar likely leads to the correction we’ve been looking for in the stock market. This isn’t necessarily a bad thing. We’ve heard just about everyone weigh in on the subject the worst is behind us. That could very well be the case. But anyone that tells you that is just guessing and hoping at this point. I’m hoping the worst is passed as well. But the only time we are really going to know is if we do end up with a 2nd or B wave which either tests a lower retracement level or the actually bottom and we hold. As much as that might be painful (if and when that ever happens), that is really the only technical confirmation we could have that would assure us that sunnier days are ahead. A rally phase in the dollar accompanied by a phase where consolidation takes place could be such an event.
However, if the dollar were to drop here like some think, I don’t know how that can continue to be good for stocks. My concern is at some time the crowd would realize everything is happening with smoke and mirrors and run for the exits at the same time. That hasn’t happened and the initial indication is positive but we’ll see.
I’ve been doing these windows for 10 years. What usually happens is they wait until the last possible moment, the time where we give up on the possibility of something changing. It is usually just when we give up on the possibility of a real reaction does one actually materialize. It’s not as important to predict what will happen as it is to understand where the forks in the road are. We are wrapping up an important one this week.
First of all, my website should have all new text by tonight. It highlights just what we’ve been doing over the past year. We are also starting a new blog this week. Why? Because I’m very proud to be the speaker for the Fibonacci Code Webinar on Wedensday Oct. 28 (see below for details) and represent three great organizations. First of all, thanks to Futures for putting on this event. I’m also proud to represent Global Futures and ICE FUTURES U.S. I’ve stepped up and materially improved the site. I hope you like it.
Anyway, the whole idea for my involvement in this project is to show you different applications of Fibonacci numbers. Many of you are aware of retracements and that’s it. But the simple truth is if you are only using Fibonacci numbers for retracements, you are missing the boat. Those of you who have my book know the symmetries from counting the bars. But there are more and I’m going to show them to you in this webinar. I’ve gone beyond the book and this is my first presentation where I show you these concepts.
These cycles present unique trading opportunities. If you know this stuff, you can have the courage of your convictions. Just this past month we used this methodology to pinpoint turns in both natural gas and corn.
The concepts are simple, if you know what to look for. I’m going to be sharing this information using the Russell. If you trade the Russell, you don’t want to miss it: The Fibonacci Code: Unlocking the Secrets of the Russell Index, Wednesday Oct. 28, 4 p.m. CST.
