The focus coming out of last week was the potential sovereign default by Dubai. Just because you didn’t hear anything about it the past week doesn’t mean the crisis is in the past. That likely is to be an issue that will continue to bubble just below the surface. Speaking of bubbles, the gold market pierced into bubble territory this week but was not confirmed by the silver chart. But you say these charts are already in outer space. What separates them from being in a bubble?
It’s a good question but every chart that is extended the way the metals are do not constitute a bubble. But when you look at the path of least resistance as defined by median lines, once price action gets into a certain lane there is an 80% chance it will continue. The problem is most charts get repelled when they get to that specific breakaway lane. Gold closed just below that lane showing us that all we have at this point is an embryonic bubble.
For once I come here and have something new to report. Usually, it all comes down to the greenback. That’s still true but when I dig one level deeper I have to look at the long bond. We’ve reached a point that we can’t have a rally in the dollar if the bond market keeps going up in price. The bond market has been in rally mode since May and recently key resistance was tested. We ended the week testing important polarity support levels as well as intermediate level median channel levels.
Why are we talking about the bond market? It peaked prior to the big news event on Friday so here we go again; the fundamentals are not leading technicals. Thought you had me, right? Here’s one bit of technical information which did not appear in any headlines. On Friday, the NDX was squarely in the 261 trading day window off the November bottom of a year ago. It never fails that when we hit these windows something interesting always seems to materialize. Fibonacciwoman wanted an ‘elevator’ explanation of why this seems to work. It’s really very simple. When the correct amount of time passes, we are wired as a crowd to change sentiment. That’s why the best turns materialize on a really good cluster of price and time. When the chart ‘looks’ (price action) and ‘feels’ right (time) trend change. Our DNA is wired to such a degree we are not even aware of it on a conscious level. If you want to know more about this, Prechter has done the definitive work of compiling these scientific studies in Socionomics.
But we all know the bond market traditionally flourishes in lousy economic conditions (see chrt below). On Friday we actually had some excellent economic news. As a matter of fact, it was the best day the United States of America has had in at least two years. I know there are tons of people still out of work or have even given up. I’m not sure where the next generation of jobs is coming from. That being said, something better is starting to materialize. That doesn’t mean some event can’t come along and derail the recovery. I look at the oil chart and see a pattern that could give us trouble in 2010 but we worry about that today.
The bottom line is the job losses have to stop before the numbers head north again. The bond market tends to be allergic to good news. So if the bond market breaks its uptrend line, the chances are the dollar is finally going to rally and if that happens, you have to think the inverse relationship continues with the stock market.
There was one brief moment of clarity on Friday morning where we had no less than Joe Kernan on CNBC tell his viewing audience that we’ve reached a point where he would prefer to see stocks go down if it meant the dollar would go up.
I really do appreciate his statement since I’m the guy that reported this dynamic to you way back in June. The dollar has reached a point where if it doesn’t turn up it has the potential to create some serious technical damage, after years of being in a bear market! In other words, a currency crisis.
In their moment of clarity, the dollar was actually in rally mode along with the stock market. That was in the pre market activity when the dollar spiked and the Dow futures were up well over 100 points. Naturally, it led to a good open and the media suggested it was finally time to see the stock market rally along with the dollar. Members of the media actually thought they were witness to a new paradigm. It would be a new paradigm as that is the way the citizens of that country become better off.
You know the way it happens in Australia and other countries that are actually increasing their wealth. But it wasn’t to be as all good things must come to an end. Markets gave the gains back but did recover near the end of the day. Why did they recover? The dollar actually reached a set of calculations that suggested the spike up was tired. The Dollar rally hit a price and time square of .01265 (rounded to a 1.27 derivative) and 2.41%. The 241 is a key astronomic figure and you should check out the reference to all of the numbers at the I-Show.
But now the problem for the stock market to continue rising with a dollar rally is the fact it’s already critically extended. I just don’t see this dynamic changing anytime soon.
For now, we just have to see the nature of a pullback in the dollar this week. You can expect some kind of reaction to the spike straight up but beyond that we are at the critical point where the Greenback can’t keep failing after these repeated bounce attempts. That should lead to a decent stock market at least to start the week. But if there is underlying strength to the greenback it ought to begin to reveal itself no later than Wednesday.
On Wednesday I’m appearing in the Futures I-Trade Show and this presentation will be different from the one you saw last month. Folks, I don’t do the same presentation twice to a similar audience. This one is showcasing the work I do every weekend in the commodities market. You’ll get to see how we had a world exclusive in exposing how the Corn chart bottomed and Nat Gas crashed and finally turned back up in September. Nobody else has this information. Nobody else is even close. This is an excellent introductory seminar into the world of price and time squaring as it relates to markets like Corn, Cocoa Rough Rice, Oats, Soybeans and others. Since it is Christmas as well, all Lucas Wave International newsletters and our training program are on sale this week.
My I-Trade Show page also has a sample Futures report as well as my recent interview segments which are hot off the presses straight from the Las Vegas show. There is a sample chapter of my book in English as well as German. I haven’t told you this because I just found out myself but my book is now available in the Chinese translation. Put my name in that Chinese Internet stock Baidu.com (their version of Google) you love to trade and you’ll see what comes up.