Now that the Dow hit 11,000 all is well, the economy is back on track, unemployment is under control and the Democrats and Republicans can all be friends again. Actually, I can’t remember such fanfare for a big round number that wasn’t 10,000. The actual 11,000 number isn’t really all that important by itself, but given the positioning of the median lines, it is more important technically than many suspect.
The past week has been characterized by very small pullbacks followed up by spikes through important resistance areas. Take the BKX for instance. Two weeks ago Thursday on March 25th the BKX broke a long term parallel warning line. In fact it was the same line of resistance that repelled prices back in January but only from a higher level. But that day ended leaving a huge tail with the potential for a top. But the selling never came, prices stayed flat a few days until this week when support held and the action actually made a new high. If we haven’t covered it a hundred times, we’ve covered it a thousand times. Those of you looking for the resumption of the bear market are not getting it unless the banks are leading on the way down. I’ve never shown you this chart but here’s a sneak peek at what subscribers see on a regular basis. Along with the Dollar, this chart gives us our edge and has been driving markets for weeks if not months. Notice how the parallel warning lines captured the real bottom. This is the invisible resistance most people don’t know exist.
I know there are a lot of people online looking for a crash. My question is, what market are they looking at? It certainly is not the market I’m looking at. Stubbornly or otherwise, the market I’m looking at refuses to quit. The biggest problem the major averages had this week was the Dow falling back to the mid line of the median set driving this market from February 5. On Friday it held that level of support to allow prices to pierce the magic 11,000 barrier.
What we look for in order to determine the end of a trend is a remarkable symmetry, like you’ve seen in my Russell webinar. What has been remarkable this week is the lack of anything really remarkable to report. If there is anything remarkable, it’s been the market’s ability to fix itself and technically put itself in a position to continue going higher.
Last week I told you the Dollar finally lost some of its luster. What saved it at the mid line for the uptrend was an inversion at the 89/90 day point off the bottom. But by late in the week, those gains were quickly melting away. The biggest beneficiary has been the Gold market. We don’t spend a lot of time on Gold here but the mining stocks, as represented by the XAU finally broke through an important long term resistance line that it couldn’t get through either in February or March. Now it is testing an intermediate level downtrend line since the high late last year. As prices got close to this line the real candle bodies started getting smaller, which signifies an important test is coming. It’s important for another reason because the Silver chart is also testing the secondary high in January. My calculations have suggested this leg off the February low was testing the secondary high as opposed to the top. So Silver goes first as it is closest to the January high.
All of which leads us to the end of our important time windows since the middle of March. So far they are remarkable in the fact that markets have kept going. The only reversal of note has been the bond market which in the end run may be very important.
But the Dollar appears to be in trouble for the first time as I look at the Sunday night action. So what does that mean for the stock market? Given the inverse relationship still is in force on many days, it means the stock market is likely to start out the week higher again. This is subject to change, but I don’t see really good readings on Sunday night for the Dollar as I’m writing this. Monday can change but it can very well break support. The only thing that was a little surprising was how well it bounced it the 90 day inversion. I told my subscriber base it should have trouble with the mid line. Now it is.
If you’ve noticed, you are starting to hear talk about a bubble. There is no bubble as when there is one; there is no discussion of such a condition. As you know, anyone that really knows their way around a chart knows the correct play for the stock market has been up. Now we are starting to come to a place where it ‘feels’ like the only way the market want to go is up. I’ve even read an article in the New York Daily News (not the standard for financial information) where the writer stated he believed traders on Wall Street were starting to come to the opinion that something ‘supernatural’ was happening on Wall Street. By that he didn’t mean ET, rather extracurricular activity by the Fed. I’ve heard a few murmurs on CNBC to that effect as well. The only time I ‘almost’ fell for that sort of talk was the first time the Fed said they were going to buy up Treasuries to keep that market going back in March of 2009. That didn’t last very long as prices peaked the day they made the announcement. The bottom line is any entity large enough to even try can keep markets elevated for a spell but when a market really wants to go, like in 2008 there isn’t a power on Earth that will stop it. But if you want a good discussion on this particular topic, I suggest you read “The Dollar Crisis” by Duncan. He states that governments do have the power to at least postpone the day of reckoning for several years. I don’t engage in the discussion, just a casual observer, but many of you expressed concerns or interest in the Plunge Protection Team throughout the last decade.
For my money, I only think markets can go when the timing is right. I’ve provided you with ample of evidence of that since I’ve been doing this column and the best example was Dow day 233 off the bear top at the Lehman BK and NASDAQ day 233 right on the TARP vote. Conditions were ripe and nobody was going to stop that avalanche. Now we come to the end of our time windows as this week we hit NASDAQ 618 off the bear top. I’m starting to come to the conclusion that if the rubber band doesn’t snap by the end of the month, we could stay elevated all summer and set ourselves up for another serious stumble in the fall. For those of you looking for the crash, realize there are only certain times of the year where the market does have a tendency to drop. There is the ‘go away in May’ tendency and there is the September and October to forget. We know the latter only too well.
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Click chart to enlarge