Friday was the strangest day I can ever remember. As technicians we are trained to follow the pattern. Quite honestly, the equity market didn’t look all that bad coming into the day. With the possible exception of stocks that spiked straight up off the phantom bottom of a week ago, the market looked okay. Of course, in an ideal market you’d like to see that strong kickoff type day followed by a few days of digestion but who’s going to quibble over a few bullish days!
You take them where you can get them.
But there was this nagging feeling I had that I knew the markets would be hit on Friday. There’s a lot of factors involved but the bottom line is you do enough left brain analysis by looking at a million charts over the years and the right brain sends you a message you don’t even know why its there.
This time it didn’t take a rocket scientist to figure out. Last week was one of those rare times where the euro and the dollar were hitting intermediate to long term resistance lines. By late Thursday it was the higher probability both would be pierced. So if that was going to happen, what do you say for stocks?
One of my new favorite movies is 21. In the classroom scene at MIT Professor Rosa discovers the brilliance of one young Ben Campbell who ends up becoming part of the group that took Vegas casinos for millions by counting cards at blackjack tables. But early on they agree one always has to account for ‘variable change.’
See, we are not dealing with linear markets. I know this is tough for most of Wall Street to put their brain around but these are non linear markets ruled by quantum physics and can pretty much do whatever they want whenever they want. But in that seeming disorder there is a perfect order in the chaos. In Friday’s world, the stock market was held captive by breakdown below our ‘less terrible’ scenario in the EUR/USD.
Talk about doing whatever it wants. With last week’s test of the line and nice burst up I would have thought we’d get more bang for the buck. But by late Monday the Euro was up exactly 4.5% (45 derivative) and that was the end of the party. I study these events very closely and the tendency in a bear phase is when a bounce stalls out at some good internal calculation it usually means something important is going to follow. Some of you might remember last June when the dollar was going sideways the pattern was stoned as it hit 360 hours with a move that averaged 6.1 e-3 for that pattern. All you need to know is the 61 derivative and E -3 meant a lot of zeroes in front of it. That calculation led to the mean sell off that only culminated in November when it hit our longer term mid line.
Well, it finally hit the other end of our median channel this week. By Thursday it had overtaken some darn good calculations to do it. In the process of setting a new high the greenback overcame a 14.14% move off the bottom which is significant as a geometric root 2 derivative (1.414) and it was also up 161 calendar days at this point last week (see chart below). So if you think these calculations are just a bunch of mind numbing numbers remember my methodology is based on physics. If I tell you we have good calculations at a particular pivot, it will take a stronger wave to take them out. You need to realize that a strong pivot was taken out by a stronger wave. That’s all you really need to know.
Which is why we now have a crisis on our hands. I will tell you the situation is serious but not fatal. Not yet anyway. As the dollar has taken out the brown line it means we have a bout with deflation looming. It doesn’t really become a serious issue until that twin peak on the chart near 38% is pierced but you have to admit the Dollar has been really strong this year and it does not appear to be a case of the same old same old routine. My projections were for the dollar to get to this level sometime in the second quarter as you know. But that could’ve been June 30 also. It could have had some real corrections along the way and got to this level as late as November or it could have faded and not get here at all. The dollar most of us have come to kick around this past decade is better known for not getting to bullish technical targets.
But here we are taking an important one out. It’s kind of like the Phoenix Suns finally beating San Antonio in a playoff series. It’s not the same old Suns and it certainly isn’t the same old greenback anymore.
Now the door is open to that ‘more terrible’ scenario where the euro has a shot at par with the dollar. Kudos to Jon Najarian for mentioning that possibility I believe it was Monday on Fast Money as he was the only person I heard on CNBC with such an opinion. Here at Lucas Wave International we’ve been monitoring the situation for several weeks. That being said, we are not extremists and take technical events one step at a time.
You start putting the pieces together and a theme does start to emerge. On Thursday, the long bond even got into the act. Here’s a chart that spiked straight up only to stall out at the 89-day cycle. One would think action/reaction where what goes straight up comes right back down. Only what materialized was a 3.765% (rounded Fibonacci 377) drop, which spawned a very nice looking morning star on an hourly basis. I immediately started wondering what the bond market was trying to tell me. It said something lousy was coming down the pike and by Friday morning, U.S. Treasuries were once again the ‘safe haven.’ Imagine that!
The next condition of concern is the gold market. Yes, the gold market. It really is to the point where folks think it’s a sure thing. There is no such thing as a sure thing. Let’s remember, these are financial markets we are talking about. I have some calculations on gold that are similar to the type of readings I had earlier in sugar, natural gas, corn and cocoa. All of them experienced important turns shortly thereafter. I go through this every time I get these kinds of readings. Is the market in question REALLY going to turn on this? It usually does but nothing is guaranteed. The significance of the gold chart would be a support system for a deflationary environment. Considering it was just 6 months ago everyone was so concerned about hyperinflation it appears we may have been worrying about the wrong enemy.
So we start the week with a higher dollar and lower euro once again. We are also looking right down the barrel of a retest of stock market lows made on Procter and Gamble Thursday. Luckily, there were some darn good calculations and symmetries at that low. That’s the potential good news. The rest of the story which has not been written is if those very good readings are violated we could have a major mess on our hands.
I’m going to be at the LA Traders Expo on June 11 and 12. On Friday June 11 I will be participating in a panel sponsored by Futures Magazine on technical indicators. That discussion will be hosted by Dan Collins and I will be accompanied by the excellent Toni Hansen. On the 12th I will be doing my own breakout session and I might have a surprise or two.
For now today and tomorrow are the last days of the special on my training program Due to overwhelming demand the price is rising on Wednesday and won’t be this low again. Nobody else in this industry combines the power of cycles and median lines the way we do at Lucas Wave International. If you want to acquire a serious edge in your game, this is your last best chance to get in at this price level and get one on one attention with me.
One last thing, I’m not often really saddened when one of our celebrities passes on. But I saw Ronnie James Dio for the first time in 1975 when he was the front man for Ritchie Blackmore’s Rainbow. Little did I know at the time what kind of icon he would become. Consider me a big fan and a lot of people will miss him.
Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.
Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.