Last week at this time I described a scenario where the dollar was at key median support and also had a decent enough reading to hold support. It was in a key point on the chart in order to end the recent slide. The fact that it ended the week higher than it began was something I had anticipated. How it got there was not anticipated.
On the way to the strong finish there was a sequence where last Monday was bullish, the middle of the week had prices breaking support then an 11th hour recovery just at the point of no return. Had the Greenback dipped any further it likely doesn’t inspire the confidence to get that recovery. It’s all good for the Dollar, right?
I actually liked the price and time balance prior the break of support. This one is okay but lends itself more to a sideways trading range pattern than a sustained rally higher. When I look at some of the most important relationships, the Euro topped and burned last week after reversing right in the 262nd hour of its bounce with a really good geometric reading. Once that happened, the worries about Greece came back to the surface again. That’s what a perfect balance of price and time will do for you. But the Dollar is likely to stay flat overall against the Yen as right now it is a market without conviction. So the advance may be muted.
That brings us to the stock market and we had another one of those weeks where the action was decent from Monday through Thursday and Friday was the predictable round of profit taking. But on the intraday basis, prices hit the near term median set and bounced well at the end of the day. But Friday was not your normal end of the week. Markets are now wrapping up their 261 day windows to the bottom last year and will have day 618 off the top in 2007 this week. Thus far, the bear window at 610 do not net very much. Remember what I told you about the boulder in the lake? The 610 window didn’t produce much of a ripple.
But we enter the new week at the back end of the 261 day window, the Spring Equinox and the Gann Master Timing Date (March 21). For those of you who don’t know what that is, Gann determined this particular date is the equivalent of New Years Day in financial markets. Follow some of you favorite charts from now on. What you will find is some of them will give you turns not based on a high or low, rather based on some universal number of days (calendar or trading) away from this window. The Spring Equinox is a place where markets do change direction.
Should it really surprise you that the Health Care debate climaxed at this seasonally important time of the year? I’m not going to engage you in a debate upon the merits or demerits of this legislation. All I know is as I sit here writing this on Sunday night waiting on the passage of the bill, the overnight futures is not acting favorably. Some of you will tell me it’s the news event. Once again I have scoreboard and scoreboard gives me this big fat time window. In this case the time window is worthy enough of a big news event like Health Care. But I will tell you this much. For one of the most important issues of our lifetime, we have a country so divided that we will not have bipartisan support to get it passed. We have 2 things going on. First of all we have the time window and this week’s market.
Then we have the long term implications. As I look back at the 1930’s there were unintended consequences to some of the legislation in the New Deal. The main precedent I see to this is something called The Wagner Act which established the National Labor Relations Board. Basically it was set up to investigate charges of unfair labor practices and gave unions the power to have collective bargaining and the right to strike. I think it’s fair to say that back in those days working conditions in this country were not very good in many instances. Legislation was enacted to stem the flow of abuses. Do you see the parallel to today with our current health care system? Without getting into solutions I think everyone can agree the current system is broken.
Going back to the 1930s, even a year before Wagner was passed our society saw escalating violence in addition to strikes. I’ll give you one example. On May 9, 1934 the International Longshoremen Assoc. developed a citywide strike in San Francisco that ended up closing down ports up and down the West Coast. By July 130,000 workers in 63 unions (other than longshoremen) walked off the job in San Francisco in support which effectively closed down the city. This is just one case. By 1937 strikes started taking their toll on the country. I won’t say that Labor alone caused Great Depression II which is what the next bear was called but it contributed to it. If abuses of the American worker went too far in one direction, the solution swung the pendulum too far the other way as well. By the way we are going about this, I see the same potential for that pendulum swinging too far back the other way again.
The bottom line for me is I think there will be unintended consequences this time as well. It may not play out for several years but I do think there will be long term implications here. Since many of us don’t know the finer details of this legislation it remains to be seen what consequences those might be. But we all know the markets do not like uncertainty.
So in the long term, we’ve had a great rally but I do take a historical view of things and believe there will come a day when the low is retested. I don’t know if it will be next year or 5 years from now. But let’s get back to the current situation. Here’s where we are at in the framework of this time window. On this chart of the June SPX E-mini (ES), prices have come down to median support which is also the 200 hour moving average. This cluster of technical landmarks gave us our late Friday bounce. The readings are not there for a bottom. However, we could bounce to test key resistance at the mid line and polarity near 1156. If prices fail and give us the next leg down, that is the high probability point. On a 15 minute chart (not shown) prices already gapped down as Sunday night trading commenced. What you do see is the last bullish candle near 1156 accounted for the close on Friday and the first bearish candle was how the market opened on Sunday night. This does not have a bullish feel to it.
While the jury is still out, there is a reasonable chance all of these windows I’ve been talking about may contribute to a high in the market. What kind of high it will be remains to be seen. But given everything we’ve discussed for this time of year, it has the chance to be important.