I hope you had a great holiday. I had an interesting surprise. I was a caller into a Sunday afternoon radio show here in the basin of the sun and actually won a raffle for a silver dollar from 1885. I have no idea what its worth but there’s my hedge against hyperinflation. I will tell you, this is the very first time I’ve ever been concerned about it.
I haven’t been too concerned about the "H word" as long as the dollar did not meaningfully violate price and time relationships in 2009. It came close, but it held the line. As you know I’ve been pretty bullish on the dollar since around Dec. 1. I’ve been bullish for good reason, my technical channel lines have been a model of precision since then. But this past week, for the first time since the November bottom, the dollar has violated readings more than once on the way down. On Tuesday night, the dollar not only had good readings at the low but had violated the downtrend median channel on the hourly chart on a burst up. Forget MY calculations for a minute. The median channel lines operate under an 80% probability of success. Not only did the dollar violate MY great readings, it also violated Andrews work as well. So I’m in good company.
What does that mean? It does not mean the rally is over, it doesn’t even mean we have technical damage to the chart simply because all that has happened is prices have fallen back to the mid line of the uptrend. Yes, I know it bounced off that line on Friday morning. But how reliable was Friday morning? Markets such as the dollar were open for a token as whoever was dialed in was in a celebratory mood to buy up the fact that 1/3 of the jobs created in the latest report were temporary Census jobs. All that really matters is what happened on the chart. But you have to admit that for months of dealing with losing jobs at five and six figures, it was suddenly amazing to hear projections of job gains in the six figures.
What would we do without the Census? While we are moving in the right direction, this jobs number is not as good as it appears.
Support on the dollar is holding for the time being but we don’t know for how long that will be valid. What the continued violations of high probability under the hood readings means is this is the first shot across the bow in a trend that could weaken from here. In other words, while I don’t think the rally is over, I think the best part of the rally is over. As I thought this rally could consume the first two quarters of the year, the first quarter is gone. My long term projections based on our median channels is roughly 85. At 81, the dollar could be there in a couple of weeks if it really wanted to. But for it last into the second quarter, it would need to waste a bunch of time doing anything except going north. But if it didn’t waste time, hit the target and failed that would be the end of it. Do you see where I’m going with this?
The other point to note is that on Wednesday, equities were down along with the Greenback. When was the last time we saw that condition? See, the flipside of both going up together is they can both fall together. Of course, one day doesn’t make a trend but do you really think this inverse business will go on forever? What to make of the dollar holding on Friday? It is at the mid line and it is 90 days off the bottom. That might be good enough to keep the rally going for now but for the first time my under the hood readings show weakness. You should view this column not so much for today or this week but in context of the overall trend since November.
Going around the horn, the Russell did not confirm new highs in the other markets by the end of the week. Not that much of a big deal yet because the pattern looks benign but it’s something to monitor. The week before last the BKX took out a long term median resistance line. This was the same line it could not take out in January. That was a week ago Thursday on the day it left that big tail. But it has not collapsed. That seems to be the story of the markets these days. They are running head first into important resistance, getting repelled but not reversing. The NDX also took out key resistance at 1976. Okay, it was only by three points but that one refuses to follow through to the downside as well. The biotech index also looks benign but the SOX has the kind of readings that could top it out right now. If in fact that were to happen, I doubt biotech could advance on its own. If markets operated in a vacuum, I’d say the biotech arena could still go considerably higher. The other area that has taken out long term resistance is copper. Copper is one of those charts that hit monthly long term median resistance and fell back in January. It came right to the cusp of a serious collapse but didn’t. Is that starting to sound familiar?
So I’m looking all around and the only really important part of the market we count on for leadership that could fall back is the SOX. So here’s my concern. As we come back from the holiday we enter the 610-18 window for the Nasdaq as that topped three weeks later than the Dow did in October 2007. I won’t say the big windows have been a dud up to this point because we did catch an important pivot in the long bond and without the benefit of hindsight won’t know how important is for several years. But I think it might be really important.
So we move into the stretch drive for the important cycles at this time of the year. Long term followers of my work will remember back to 2007 where we had the big windows from the 2002 and 2004 bottoms spread out on four key dates from the day after Labor Day right to Oct. 12. Each of the dates gave us a smaller degree turn until the bull market ultimately ended on Oct. 11 as we wrapped up week 262. Why was Oct. 12 targeted? It was the start of a Mercury retrograde period. As we know Merriman has done great timing work on Mercury retro periods and we know that statistically up to the eighth trading day that condition can chew up the prevailing trend. Our day 618 off the Nasdaq top is April 15. Isn’t that poetic? Anyway, the Mercury period commences on April 18. This is not a prediction but I can only hope the market doesn’t follow historic form and give us yet another big time reversal on a key time window just as the window closes and opens a new door for the Mercury period. But with markets making new highs, you certainly can not rule it out.
At this point I don’t even think it’s a given that an inverse relationship between equities and the Greenback is a sure thing anymore. But if the market does decide to top in April, what you should look out for is bearish divergences from this point on. The best place to start is with biotech, banks and semiconductors.
Finally, after a Greenback rally of four months and the fact we are more than halfway to our targets it means there is the probability that when prices do get to the target, they can fail. If they fail, there exists a good possibility they retest the low. If that were to materialize inflation and beyond would be a major concern. For me, it might be time to consider seriously expanding my new coin collection.
Once again we are discounting our programs and newsletters at www.lucaswaveinternational.com which will last until Tuesday night.