We’ve come to yet another interesting fork in the road. It seems like we have one of these every other week. If I didn’t know any better, I’d say we are climbing a wall of worry. We probably have been, since we’ve been almost straight up since March. The latest event that may be sending investors to the Maalox cabinet is the business with Dubai.
I told you the Monday after the event you did not hear the last of it. If you are crafty enough to build the world’s biggest playground, you are probably wise enough to tell the world you can’t pay for it when the world isn’t listening. With respects to Asia, the news was released when most Americans were heading to or from an airport or more concerned with basting the turkey.
I need to remember that maneuver in case I ever buy an island in the Pacific that I can’t afford. Then again, if I ever get to buy an island I’d be happy to put up a straw hut, let alone gaudy hotels as far as the eye can see.
But my interest in all of this isn’t so much the news event, it never is, as much as it is the latest time window. You see, we just hit the 610th trading day off the Russell 2000 top and ever since my Russell webinar; I’m glued to that thing everyday. What is important about this day is not the positioning of the Russell but the significance of where we are in the larger scheme of things.
I point back to that July 13, 2007 sequence as the day the party really ended. I live in one of the states that benefited most from the sub prime go-go days and you can make a case that Arizona has suffered the most since. That was the day real estate and mortgage people out here point to as the day business began drying up.
We are a Fibonacci 610 days down the road. At this stage of the game the dollar has stage a furious bounce and the long bond is threatening to seriously violate its multi-month uptrend. The dollar issued a wonderful buy signal on Friday as illustrated on the chart below. However it closed at a point where it was up 2.53 in 250 hours before the volume rollover early Monday morning. That is a dangerous 1-1 relationship at about a penny an hour that could kill off the rally or confirm the bottom. I find it really hard to believe that it could off the rally after an almost perfect buy the dip sequence on Friday. But if it takes out Friday’s high or has a really benign pullback after this sequence I’d be technically satisfied the bottom is in for now.
On another front, we don’t need to worry about a bubble in Gold for now. The whole sector failed right at the accelerator point. Those of you who look at sentiment as a way of recognizing a bubble should duly note too many people were asking the same question and a good number of them were coming up with the conclusion that it was a bubble. I happen to have an excellent tutorial on bubbles in my Saturday newsletter. What I can tell you here is when a real bubble hits nobody asks whether it’s a bubble and if some wise guy does ask, everyone denies it. What you hear is this is the new reality. I told you too many people were snooping around and asking about bubbles. Being the detective that I am, I started snooping around as well and came to the conclusion that if the path of least resistance turned up after the big move, then it would be a bubble. We even identified the point on the chart where the path of least resistance would pass the point of no return. Silver and the XAU never did get there and Gold was there for a handful of days but couldn’t hold it. Gold looks like its going lower with the next big test near 1080. If that doesn’t hold, it’s probably good for another 80 points after that. That’s not a big deal after such a run up but it would technically destroy any possibility of a bubble. What should have concerned you was this talk about Gold going to $4,000.
Last time I checked this was still a free country so anyone can say what they want but they still frown upon people screaming ‘fire’ in the movie theatre. Do people realize what has to happen for gold to get to $4,000? I’ll let your imagination fill in the rest but I’m not part of the doom and gloom crowd. All I’ll say is if Gold ever does get to $4,000 you won’t be able to crack open a cold one, sit back on the Lazy Boy and watch (fill in the blank) on Sunday afternoons anymore.
So let’s get to the reality of watching some other sovereign have trouble paying their bills.
The one thing that should be concerning everyone about this rally is the positioning of the BKX. Lately this has been a laggard at worst and non participant at best. Every time we get into trouble it’s the banks leading the way. Housing has been just as absent these past few weeks. In tech land I told my group to watch the biotechs as the most intriguing play on the board but it has yet to get off the launching pad. One area of tech that can keep going is the semis and since tis the season, we may continue to see prices stay elevated until the clock strikes 12 at Times Square. It is what it is, but we are now in the middle of December with one week to go before the kids are out of school and markets are still elevated. Unless they start tanking by Monday or Tuesday, the higher probability now suggests they stay elevated until January where all bets are off. I don’t think 2010 is going to be the kind of year 2009 was. It started bad, real bad but this should be remembered as a good stock market year.
But now it appears the clock is about to hit midnight on that wonderful city built with a sand foundation as I write this late Sunday night, it appears a $3.5 billion bond will not be paid on Monday. Unless some knight in shining armor suddenly appears at the 11th hour we appear to be entering the next phase of this adventure since July 2007. Happy Fibonacci day!
If you really want to be introduced to the true nature of how the market moves with universal numbers please check out either of my seminars now available on this website. I’ve showcased my commodities work in the I-Show and we have some incredible charts. My Russell seminar is also here with equally excellent charts. Do you like E-mini or commodities? Try them both and if you want to dig even deeper you should try our newsletters where our charts are getting better all the time.