We begin this week by acknowledging the passing of John Wooden, the Wizard of Westwood. He will always be best known as the legendary coach who created the UCLA dynasty of the 60’s and 70’s. But he merely used basketball as a metaphor for life. According to Kareem Abdul Jabbar, “But he taught in a very simple way. He just used sports to teach us how to apply ourselves to any situation.” His teams were the most fundamentally sound of that era. They were taught to do everything correctly and not worry about wins and losses; those would take care of themselves.
Is it any wonder his teams were the most successful in the history of college basketball? If you really study the Lucas Wave approach to mental toughness and mastery, it has a strong influence from Wooden. He is one of my role models.
This is no ordinary week. Many times the stakes are high at a particular support or resistance point. We cover them in stride and without getting overly dramatic this week the stakes are even higher than usual, if that is possible.
But before we get to that last week I covered a new theme of sentiment. The theme is much different than the one discussed this time one year ago.
This week I read a quote from someone in the Prechter organization who said something to the extent that prices won’t find a low until sentiment is there to match it. I think they said that prices won’t find a low until people feel really low.
I agree with parts of what they were saying. I think sentiment was there in March 2009. America was on its knees like we’ve never seen in our generation. But a not so funny thing has happened since then. People got a case of amnesia and got arrogant again. You see it in our politics as political parties can’t seem to work together for the common good. You see it in the lack of decent financial regulation.
Can’t we agree that business as usual is what got us into this mess? Arrogance is fine but it doesn’t go hand in hand with stock market bottoms is all I’m saying. There’s also sentiment against any form of bailout. I know people have had 4 generations worth of bailouts in two years and they are weary of it. However, everyone is against bailouts unless its happening to you personally and you own the BubbaGump Shrimp Company in the Gulf.
Don’t want bailouts? Fine! But that lack of compassion doesn’t go hand in hand with stock market bottoms. You can take any of our complex social issues from Afghanistan to Arizona that is the bottom line. It’s a recurring theme. Where people can come together, they are moving apart.
But this week I saw the first hint of reconciliation on Friday but we’ll get into that in a few minutes.
Right now, we have bigger problems. The markets are on the ledge and on the cusp of the point of no return. Look at my dollar chart. This chart is the rest of the story. There was no point in dealing with this mid line until the prior trend line we discussed the past few months was taken out. This mid line has repelled the important dollar rallies of the past decade. We are right there. I’ve pointed out to you on numerous occasions that a chart that takes out a 38% retracement is going to 50% for certain but likely 61% as well. That translates to a move in the dollar to above 100. Considering most of the debt we have collectively and individually created with easy money dollars from 2003-07 and again to keep the ship floating after the crash, to have to pay back those obligations with ever more valuable and hard to come by greenbacks in an era when most municipalities and families are already stretched is a condition that may be incalculable. It also may be irreparable.
As incalculable as the situation is in the Gulf I don’t think any of us truly understands what will happen if those computer models about the flow of the oil through the jet stream are correct. Once upon a time the Florida real estate market crashed because of a hurricane back in the 30’s. What happens if Florida’s beaches were to be closed for the entire season?
Back in the day, they used to have a show called Candid Camera; I’m sure most of you remember it. One time they did a gag where they set up shop on a state border and told all approaching motorists the state was closed. That’s right; they made up some bogus excuse and told people the state was closed just for that day. No one can enter.
People were perplexed, some questioned it and most of them turned around to go home. Finally, they got some interesting reactions and said, “Smile, you’re on Candid Camera!”
The only problem here is there is no Candid Camera. This is real life. The problem can go beyond Florida. There’s 2 ways to look at this. On Sunday morning the point man for the government stated on CNN the computer model was a low probability event. Maybe it is and for our sake, I hope it is. In market terms this may be translated into the ‘sky is falling’ mentality we see to see at a bottom. Then again, maybe not. We’ll see how levels are violated. We don’t know what the oil will do but we do know how to recognize a pattern.
So we’ve reached a situation in the dollar where it is almost as high now as it was in March 2009. The problem to the equity market is the SPX was at 700 or lower the last time the dollar was this high. Now I’m sure we’ve worked off SOME of the debt in the past couple of years. I know a lot of the TARP money has been repaid but the challenge here is equity markets still go down when the dollar goes up. Last time I checked we are not even in the same universe in terms of price as at the March 2009 bottom. Yet the dollar is on the verge of breaking through right here.
The next problem is the euro in terms of the dollar is failing the retest of the recent mid line violation. The ‘more terrible’ scenario of par between the two currencies is very much a possibility (see chart below). At this stage of the game this is more a problem for China than it is for us because their downturn is in a more advanced stage and my proprietary indicators are showing it has no margin for error. A breakdown from here for Shanghai will give the rest of the world the flu or worse. Copper started acting very weak last week. I was looking for turbulence but instead support broke. It’s not terminal yet as my long term Copper chart is sitting right on the cusp of a big drop. Since that drop would be attributed to China we can see the potential for something very serious to develop. A breakdown in Copper is traditionally the best indicator of recession.
So in a country that is squarely against bailouts, we better hope China doesn’t get the same idea. Do you see what kind of vicious circle is developing?
Now it doesn’t have to be this way. We have decent readings right now on the dollar and euro which could reverse the potential of crisis. We are at resistance on the Dollar and the Euro could turn back up here. China is still at support and if you are wondering what kind of proprietary indicator I have for that chart, it is taught exclusively in my training program. But if something larger is going on, the dam will burst.
Let’s just say we are at the inflection point that could spell the end of this correction off the top or a serious return to the bear which will get us that retest of the place nobody wants to go.
Here are the details for our Futures panel discussion this week.
We’ll also have show specials at www.Lucaswaveinternational.com
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.