This is not an easy environment because I know many of you were just getting used to being short and then you had to turn around and deal with a change of direction. As I work with a lot of traders one of the biggest problems for people who play the short side is they don’t recognize the selling phase as being intense but short. Historically, it’s the bear that takes up about 35% of the time that a bull does. Why? Hope drifts along and dies hard. Fear drops like a rock. One of the best examples of this was that short but intense selling wave in July 2007. That actually was the top in the Russell 2000. The rest of the market needed time to put in the final top. As I covered that important time window on a weekly scale, there were 4 important high probability dates where the market could have topped. As we know it picked the last one because it took time to work off the oversold condition. That could be happening again right now.
We originally hit a high in the US Dollar a week ago Friday which gave me a very good idea a change in the direction was upon us. What ended up happening is the Dollar hit median resistance but did not collapse. Unfortunately for some traders, they were just settling in to their shorts the prior week when the Dollar did not pause but instead picked up steam to the target. Keep in mind these median lines are an 80% probability. They don’t have to stop there. But we had decent price and time readings which allowed prices to back off. Consequently, the stock market was able to put in a low. Throughout the course of the week, the Dollar did not collapse and actually put in a new print high. So it continued to hug the line while the stock market did not collapse. Now we have a double high situation. The probability here is the rally or technical bounce continues.
We know this partially because Gold and Silver made decent recoveries and almost did a Jason from Friday the 13th. Gold made a serious technical breach that could have taken it in down to 950. It still may get there but the key point to keep in mind is NOT NOW! Silver is slowly making progress through technical turbulence in the form of overhead resistance as it battled 2 median lines and the 200 day moving average. You should know that both of these charts have calculations that take it back to the secondary high set on January 11th or the week the Dollar blasted off again. What does that mean? This is not likely to be an outright reversal since the readings don’t come from the top but rather the secondary which implies a nice technical bounce. It is probably now more than just a little technical bounce because everything seems to be fighting its way through near term resistance.
As I told you last time, it was the tech charts that had the best reading off the low. The SOX still looks good and should move slightly higher before hitting its own serious turbulence. The banks are also fighting back. But perhaps the most interesting condition of the week is the 261 day window on a continuation chart for crude oil. The chart is going to rollover in the middle of the week which may change some of the calculations, but as I write this, it is scheduled to hit the 261 day window off its 2009 bottom this week. Want to know if the oil market is hitting a seasonal bottom? If it survives this window without inverting and turning down you may have the trading opportunity of the year.
There is much overhead resistance to deal with on many charts but from what I’ve seen this bounce has a chance to continue through this week. I don’t think the Dollar has made a final top. From the long term charts I think it can rally into the middle of the year. That’s not set in stone but just a higher probability. That means we should be selling again at some point but getting back to my original premise, this is likely to be a larger B wave that many people anticipate or expect. I’ll take it one week at a time and for now it looks more bullish than bearish. I’ll be watching for signs of a crack. Right now I see strength where I could’ve seen weakness.