I picked a great week to move, didn’t I? I still managed to stay on top of business. It was a big week, so where to start?
Let’s start with the Euro. As you know I had two scenarios, terrible and more terrible. Last week you saw what terrible looks like (see chart below). But as I’m writing this the EU came up with TARP II. For those of you who are against any bailout, I’ll leave you with one thought. If the Chinese ever come to the opinion the United States is not too big to fail, we are done.
Is that enough for you? The bottom line here is the Euro hit the brown median line on the weekly chart and news event manifested itself. Do you need to know any more? It appears here this level should hold. How long it holds I have no idea but now we need to monitor resistance and see if it can pierce. What is going to end up happening are technical conditions will take precedence and news events will follow. I have an even longer term chart which is not applicable right here but the Euro broke support on a monthly chart a couple of weeks before the first whispers of trouble in Greece rose to the surface.
Now to the dollar. You’ve seen this chart before (see below). It’s the same one that has been guiding us since Dec. 1. My projections were for the price action to hit the brown line sometime in the 2nd quarter. We are there and the initial indication is prices have been thrown back. What is significant about the brown line? It’s a long term chart which supports the bear market in the dollar. If the dollar sets up camp north of the line you can make a case for a new bull market. It would be shame, simply because a new bull market in the dollar would happen by default, simply because Europe would be in crash and burn mode. If I can be so bold to bring up some of the events that are manifesting, we have a flood in Nashville and an environmental disaster in the Gulf. I know bull markets climb a wall of worry, but this is ridiculous.
If the dollar is going to be in a bull market, one would think something really positive is going on in this economy. Of course, things are better than a year ago but then again, if China stopped buying our debt, you might just kiss the recovery good bye. That’s not a bull market.
I think you can read the tea leaves to see if the euro gets a stay or even a recovery that takes root, the dollar should back off and if the inverse relationship holds, then last week would be the wash out in the stock market. Let me qualify that by saying it would be a wash out for now. If we’ve learned anything technically from the last phase down, it takes the market a while to work off an extremely oversold condition. Now let’s say this does take root, the last correction that wasn’t a bear disaster was the July/August 2007 phase and it took about six weeks to work off an extremely oversold condition.
Here’s another thing to think about. Just because the dollar hit the brown line does it mean the rally is over. If what is happening right now takes root the dollar might still need to test the blue uptrend line and it may not get there for a couple of months. We are coming into the summer months and could have a lot of back and forth action. That being said, let’s talk about fat fingers.
People are probably wondering what went on this past Thursday. I have no idea and those of you who think believe the mistake theory probably also believe the “Lone Gunman” theory at Dealey Plaza. We are not going to get to the bottom of it anytime soon. I see the various institutions all pointing fingers at each other. For my part, all of the major indices had the usual symmetry at the low. For example, the NQ averaged 1.62 points per hour off the top. That doesn’t happen by mistake. The Dow was also down about 60 hours at the low. That doesn’t happen by mistake either. So I don’t buy any of this stuff. Folks, the symmetries in the market do not lie. Procter and Gamble is a different story. I have no idea what happened there but something is wrong with the chart (see chart below). I find it hard to believe the price action made a ‘generational low’ and came back in the time Jim Cramer had coffee with Erin Burnett. In sports they have instant replay. They can tell if the puck went over the line or not. Dan Collins raised a great point in his blog on Friday. What do you do? Unfortunately, if the powers that be won’t come across or figure out what really happened you have a perfect right not to trust the technicals and never trade the stock again. If they are trying to rebuild the public’s trust. This is not the way to do it. Something like this happened at the worst possible time.
Just think of any situation. If you think a pattern is questionable, you stay away, don’t you? This is the same thing only taken to the extreme. If you are curious, what you can do is take the last print prior to the ‘event’ and use that as your low. It might take a while but the market will get back into a rhythm and react off a certain price. You’ll start to see symmetry develop and it may very well be the last price before the event. Somehow I don’t see them changing the chart. Think about the NFL before they had instant replay. Whatever call the ref made always stood and if the league found the refs blew the call, they apologized to the team that was victimized, but the game went into the books.
So let’s put all of this together. The Euro low was 1.2520 and as I’m writing this it has a 1.29 handle. That’s a big move. Important charts have hit intermediate term targets and are reacting to them. You should take all of it very seriously. But you can also look at this from a different perspective. One of my favorite books of all time is “The Dollar Crisis” by Duncan. It is no way related to any of my work but the author makes a good case that governments have the power to postpone the day of reckoning for years. Given where we are on the charts whatever was going north might be pointed south and what was south could be heading north and stay that way for a while. Then also consider the equity markets had some decent price and time ratios at Thursday’s low.
Those of you planning to come to the Traders Expo in the Los Angeles area next month, I’ll be there after all. I’m going to appear in a Futures panel discussion as well as my own breakout session. More information will follow in the coming weeks. We are also running a special on our training program this week. This is the last time it will ever be offered at this price. For more information check out www.lucaswaveinternational.com.