Every developing pattern has a specific point in time where it decides what it wants to be. It was the sage wisdom of coach Denny Green, whose team just blew a 23-3 lead, told the world, “We knew who they were and we let them off the hook.” The team, of course was the Arizona Cardinals. That infamous night continued a long bear market for the Cards. The irony isn’t lost on me that the west coast, warm weather Cardinals went into New Jersey last Sunday night in front of a national television audience and came home a winner.
The parallel of course is to the U.S. dollar, so long a loser, having blown the equivalent of that same 23-3 lead so many times, exploded to the upside less than 24 hours after the Cardinals left Giants Stadium. Yes, it is a new day. While the long bear market may not be over, the dollar is no longer going down. Living in my cave out in the desert, I have ample time to follow both.
Last week was the week where new paradigms have emerged as patterns are now following through. We completed all of the time windows and in the very least we have highs in the market and a low in the dollar in place.
But it didn’t come without some extreme volatility. Things were moving along in a very orderly fashion for bears when a violent snap back materialized. The apparent buying frenzy was credited to the good GDP number, a reading the economy had grown for the first time in over a year. That made buyers happy for the day but there were whispers a good portion of the growth had come from the Cash for Clunkers program.
In this space we don’t really care where the number comes from, although we are glad for any good news. In this space we don’t even believe the buying materialized because of the news event. As it turns out, Thursday was the 261st trading day off the bottom for the Gold chart. That is a count that included pit and electronic trading which reflects partial days for holidays throughout the year. For some reason separate pit and electronic day counts appear to work. Whatever the case, the big spike came right in the window signaling a potential inversion low for the overall cycle. As it turns out we have a similar cycle in the EUR-USD and consequently Thursday was a day we had an inverse reaction with the Dollar and the crowd celebrating by buying stocks.
Have you noticed that banking, housing and the semiconductors have been lagging? While all of this was materializing the Greenback violated the intermediate term channel line. Look, the dollar was up for a week straight. For a chart that couldn’t get out of its own way since June, did traders suddenly expect the dollar would never have a down day?
That’s almost like thinking a football team that has had one winning season since 1947 can actually win the Super Bowl?
You mean that almost happened? Anyway, on first down day for the greenback traders suddenly and complacently automatically assumed the reflation trade was back on.
See how fast complacency can creep back into the psychology? One down day in the dollar and everyone assumed its back to business as usual. I’m here to tell you that in sports and in life the only thing you can count on is change. The Cardinals won in New Jersey and they are a different team. When Friday came, the dollar held firm. Even I thought it would retrace more, but it now has an underlying strength that is surprising to many and probably most people. My readers shouldn’t be surprised because we’ve been pointing towards this time window for days and weeks.
Throughout the year, there are one or two really good time windows and the one we just had was one of the most powerful of the entire year. I told you that if the dollar didn’t turn in this time window something was horribly wrong, in fact, historically wrong.
For cycle watchers such as myself, there is always such a day when an aging cycle fails to exert enough influence to turn a market. Many of you are familiar with price support and resistance. During a bull market, prices always pull back. For instance, they’ll come down to the 20 or 50dma and bounce back up. After a long move, there will always be one pullback where prices come to support and they break through. Time resistance works exactly the same way.
First of all, Friday was a day where the NDX broke through the 50dma in a meaningful way. In terms of time, a cycle normally does one of two things. Take the 261 window for instance. It will peak like what happened in terms of the weekly cycle in October 2007. But along the way, prices will pull back several bars before the target window and make a low instead of a high. That is called an inversion. However, when the trend ages enough, we’ll come to a window that neither creates that top or is strong enough to invert the trend back up. Nevertheless it will still create noise or turbulence. That appears to be the case with the 261 day business on the Gold chart. It appears all it has done is create a leg strong enough to be a B wave up in a likely ABC down or ABC flat pattern. That explains Thursday’s action and Friday’s reaction.
In the near term, as I’m writing this column prior to Monday’s open, it appears there is more to the move before we can expect another bounce attempt. It could happen on Monday but with the information we have before the open, we are not there yet. But after Friday’s action, chances are very high we’ve seen the high price in the stock market for whatever is left of this year.
What about those Cardinals yesterday? It just proves what we know about the stock market. Anything can and will happen at any point in time and some things are beyond our comprehension.
Thank you for taking the time for the webinar. It will be posted on this web site soon and will be here for 6 months. Next up for me is the Las Vegas Traders Expo on Friday, November 20 where I have a different presentation planned which will be built around the Dollar and there will be some very interesting historical charts as well.
If you haven’t been to my web site it’s totally refurbished. Last week I announced the Training Program sale was until Oct. 31. We’ve extended it to November 5 where you can get a healthy discount as well as savings on our subscriber based newsletters. November 5 is the end of the sale.