We’ve been talking about time windows for the past two weeks. We know what they are and if we were only to look at the stock market we may come to the conclusion the cycles didn’t validate. I agree the jury is still out on the market. It would also be an error in judgment to think that just because the windows didn’t fire the way some of us would have liked that they don’t work anymore.
So here’s the big news of the week. We did get a big hit in one particular market which may end up having long term implications. It’s the long end of the bond market. The 30-year bond hit its peak for this cycle on day 321 (Lucas 322) off its December 2008 top but more importantly on the 613th trading day off the top of the bear market in October 2007. Any day between 610 and 618 is important but the two in particular that are most important would be 615 which is the Venus ratio. We’ve categorized for you that the Dow bottom in this market is .615 price retracement of the move up from the crash low of 1987 to the top in October 2007. The number 613 is also interesting to those of you who are familiar with the Cabbala. Then again we know last weekend was the Equinox and the Gann Master Timing Window.
Up to this point the stock market was a dud but the Bond market was an absolute bulls-eye. What you should also know about the continuation chart on the long bond is on the day it topped it was up 5.375 in 54 days. In Gann circles, we consider that to be an almost perfect 1-1 relationship if we consider a movement of .10 per day. Followers of my work know we have to adjust the decimal point because this is another situation where we will never get a move in the bond market of 55 points in 55 days. At least I hope not. The fact that we have such a strong price and time relationship at such an important time window. Since that happened prices have crumbled. For good measure this high is also right near the 61% price retracement of the move up from Dec. 31.
Click on chart to enlarge
We know the biggest sponsor of the bond market to this point is the Fed. We’ve also been signaled they plan to pull out around this time. That’s fine but the chart did not pick that up until March 18 when everything lined up. Conditions are lining up in bonds a lot better than I’ve seen on a lot of charts in the past few months. It comes close to being a textbook pivot for all the relationships it has.
But for all of the windows, conditions are still not lining up that good in the stock market. Why? Who knows the reason but it isn’t. The best reading I get to support these windows is a 90% change in the NDX off March low of a year ago. My subscribers know we had a target on the NDX of exactly 1976 for the past month and it was hit and that is the high as we speak. But this is not really supported by the BKX because that one pierced a very long term parallel warning line of resistance. The problem is the day it did it was the same day it left a big upper tail (Thursday) and it wasn’t sustained. But as we come into the new week, the banking index has pierced long term resistance. Any way you slice it, that line has now been weakened. By the way, this is the same line that repelled the action in the banks back in January. But prices did not collapse, instead had enough to challenge the line again. So you have to wonder if there is a major rotation out of bonds and into certain areas of the stock market. Right now the stock market is not totally on the same page. Simply put the banks have taken out resistance and technology expressed by the NDX has not.
If I erred at all this week on the side of caution it was in the Greenback which broke the range to hit another new high. We knew it would hit a new high eventually because when we were at the prior high of Feb. 19 the only readings we had were off the Jan. 13 SECONDARY low and not the absolute bottom. With all the cycle work I do, that might be my most important and unique contribution to the field of technical analysis because when we get readings off a secondary pivot and not the absolute low (or high) the probabilities go way up that the pivot in question is not the end of the pattern.
Right now the Dollar once again is hitting median resistance but as of this high I did not see readings that would top it out. Nevertheless, we do have important median resistance that has tested and validated before so it has to be respected.
The bottom line is I think the jury is still out on everything except the bond market. I’m not comfortable we’ve seen the high in either stocks or the dollar. So let’s explore one more concept. We haven’t seen the dollar and equities go the same way very often in the past year and a half. Since they are both at relative highs, if this condition were to continue and crystallize we can likely put to bed the notion of a deflation depression. Think about it, everyone who provides good and services is scared of having to provide those products at lower prices. Who wants to work for LESS money? So if the market and the dollar were to go up together it means a lot of the debt from the sub prime mess is being washed through the system. The flip side obviously is a stock market which declines with the dollar. That would not be good. It would represent a sea change in sentiment where the market would be telling us it fears inflation or hyperinflation.
Click on chart to enlarge
I think we have the potential to be all over the map this week. It’s a short holiday week so good trading to all and may everyone have a great holiday.