It turned into the week that wasn’t. Markets don’t line up like they did in the past month very often. I would even go so far as to say they only line up like this once a decade. I’ve done a study on this sort of thing and in decades where we don’t get turns on significant time windows, namely in the 50’s and 60’s, those markets went a lot higher. Decades like the 70’s and 80’s had lots of turns on different kinds of calculations. Even the past decade topped out in 262 weeks.
This particular window was strange as we got the turn on the right day and even had evening star formations all over the place. For those of you who’ve looked at hundreds if not thousands of such formations in your career you’ve probably seen many of them validate on time windows you may not have been aware of which were no where near the market precision of a week ago. Evening/morning stars validate all the time on minimal price and time ratios, let alone a great calculation off a long term bull market top.
So why were we watching in the first place and what does it all mean? I look for relationships within a market. Take this bull phase for instance. The February low bottomed out at 233 days (SPX) off the March 2009 bottom. That’s known as an inversion and gives us a very clear relationship to the start of the pattern. For you ‘random walk’ people out there, day 233 was a very clear cause and effect event. It shows a pattern that is still very well organized. In my book Breakthrough Strategies, it’s described as a low to low cycle with clear cycle rotation. The further out we get from the origin of a pattern, the less influence it has. By the same token we look to see if there is a relationship remaining to the 2007 highs. If there is a reaction, how strong is that reaction?
That might be the best test there is to see if the bear still has any gas in the tank. Honestly, in technical terms, can you think of a better test?
That fact is we did get a reaction on the right day and again, random walkers; there is no such thing as coincidence when it comes to financial markets. Think about the earthquake in Chile. There were tsunami warnings as far away as Japan. This earthquake did not create the kind of tsunamis the one is 2004 did. But let’s say you would have had a decent one hit Hawaii, by the time it got to Japan it would be much smaller. When we did have the real thing in 2004, that tsunami crushed everything in that region but by the time it got to the African coast it was just a big wave.
Here we are, over 620 days out from the top of the bull market, survived the biggest financial tsunami of the past 4 generations and all we might have just experienced is that wave which washed ashore off the coast of Somalia that late December 2004 day.
Does that mean we are immune to pullbacks? I think you know the answer to that but when the markets hit 61 weeks off the bottom like they will pretty soon, there won’t be as strong a relationship to the top anymore. In the past month, we had an opportunity for a high to high cycle to the top of the bull market much in the same way we had a well developed 233 day low in February but this one produced almost zilch.
So now let’s talk about the bottom. Those of you who have seen my Russell seminar know it is the gold standard for pivots. We very rarely ever see a low form on such excellent market symmetry, in fact it formed in 4 different types of methodologies. The Dow also has an excellent relationship to the 1987 crash low. We covered it before but the Dow has a perfect .615 retracement from that low to the 2007 top and last years low. Those of you who don’t know the significance of a 615 retracement should Google it. This one is taken right off the NASA tables as a Venus year is 224.7 Earth days (.615). What that means is we have a perfect low to low relationship from the 87 bottom to the 2009 bottom.
By the way, that one lasted more than a couple of days.
So all of this is shaping up and pointing us in a direction that is more significant than many people realize. It doesn’t take a rocket scientist to understand the market is almost straight up for a whole year. But what is in doubt is what kind of bottom we have. There are a lot of people who are looking for that bottom not only to be taken out but blown out of the water. Since Christmas I’ve run into more people who were looking for the market to crash than I can ever remember. In fact, more people have been looking for a crash recently than when the market really did crash in 2008. When the market turned in 2007, there weren’t many people looking for that turn. I’ve attempted to stay the course, keep an even keel and take it one step at a time. A week ago Thursday, when everything was lining up and Google was taken to the woodshed, I told my subscriber base to be ready for ANYTHING.
So far anything has been more of the same except for one blip on the radar screen. But think about it, the bear market was about the sub prime mess, fraud, negligence and stupidity. Institutions that were the fabric of our culture failed and our financial system almost went over the cliff. The news event about Goldman Sachs is about events from that time. In other words, there is nothing new going on here. No matter what comes out of this Goldman news, it’s not likely to affect us going forward. It can affect financial regulation legislation but there is no immediate threat to the economy either way. The bear seems to be a shadow of its former self.
Now that the time windows are out of the way, let’s get back to our favorite topic in this column, the Greenback. Last week it surged above a double mid line and having hit a .0144 reading on an hourly chart, it has pulled back. The first order of business this week is a retest of the same mid lines just penetrated. That will go a long way in setting the tone for the week. You can see from the last 2 lows there is a cross current going on as we can make a case for a near term sideways market.
I’ve been invited by my friends at ICE Futures US (the home of the Dollar Index and the same folks who sponsored the Russell webinar) to appear as a guest in The ICE Zone this Wednesday at 1 PM eastern time. The ICE Zone is a webcast that takes place every Wednesday at 1 Eastern Time at www.dtitrader.com. This week’s topic will be the US Dollar. This event is free; all you have to do is go the site and register.
Finally, I’m moving next weekend so we’ll have an abbreviated column next week.