School’s out and the first round of test results are in. Last week was the first major test for the dollar against the big long-term mid line.
Europe is still standing and the stock market came off the floor. The dollar pulled back from the line which tells us in the very least that things aren’t as bad as some would like you to believe (see chart). But that doesn’t mean we are out of the woods by any stretch of the imagination. I don’t know about you but in stock market life I live by certain truths.
Truth number one is until the United States of America flushes the debt through the system the only way the recovery can take root is if the dollar stays in a trading range between the bottom and approximately where we are now. You’ve heard this line of thinking consistently in this column since the market crashed a year and a half ago. As long as it stays in the range we stay away from a serious deflation or hyperinflationary problem. So far, so good.
Truth number two is nothing really bad happens to the stock market when the banks don’t lead to the downside. This is a bear market created by a banking and housing disaster. This is a different kind of bear market than the one we had early in the decade, which was fueled by speculation in Internet stocks that had no hope of ever making a profit. Since a new technology like the Internet rolls around once every 500 years or so, we don’t have to worry about THAT happening again.
That being said, something very interesting happened to the banks last week. They turned back up in the 233-hour window of the move off the top with an excellent reading averaging (see chart below) .055 points per hour for the entire leg down. What does that mean? While the banks continue to improve, we continue to get relief from the wave that started in late April. We are looking at a 38% retracement near 51 and the parallel warning 61% retracement near 54 so that’s what I’m looking for out of the leg that started last Tuesday.
That means I think the market could have a decent week at best and avoid the disaster scenario at worst. In the bigger picture the SPX has been in a range just slightly below the bullish trend line that supports the uptrend from the past year and below the mid line for the current leg off the April top. I suspect we could have a week that stays in that range. We are in the middle of June already and close to paint drying season. When this month started my outlook was for June to be better than May. I know it didn’t start out that way but sometimes a little patience is required to see these things play out.
But there is something else I need to tell you. After some careful study of the April top I’ve come to the conclusion that top is more important than originally thought. All I can say is one of my clients sent me a very interesting email concerning the top. He figured out a lot of the calculations but it took my expertise to bring it over the finish line. The bottom line is there is a really complex calculation driving this top and there is a very high probability we’ve seen the high for the rest of this year. Since we are dealing with Quantum Physics you can never rule anything out but it would take a very strong leg to get above the April high. So I’m now of the opinion that should the April high get taken out we are very likely in a new bull market.
But the April high hasn’t been taken out and probably won’t be taken out anytime soon. Where does that leave us? With an excellent top in place and a really decent reading in the banking complex we could be setting ourselves up for a summer trading range. The important support levels I’ve shared with you concerning China are holding so that should keep Copper from falling off the face of the earth.
The euro came off the low on decent calculations as well. First overhead resistance was 1.2110 and as I’m writing this the price action is already higher so that’s a bullish omen. Look for the Euro to test our ‘less terrible’ scenario line which is now in the 1.23 handle.
Last week everything came right up to the ledge. There’s a group of perma bears who are rooting or banking on prices to collapse. I can understand being short in a market like this. Business is business but what I can’t understand is some of these people who are rooting for the market to absolutely melt down. I have news for you. Should it melt down some of you might have trouble getting your money. Oh, you’ll get credit to your trading account. But if the system were to melt down one level worse than October 2008, you might find your debit card doesn’t work at the supermarket. You know I don’t talk like this very often but some of you need to appreciate how close we came to going beyond the point of no return. Some others of you need to appreciate that it didn’t happen, not yet anyway. For now the Republic is saved and I think we have a shot at higher prices in the near term. The problem will come later on if and when we test the top because I don’t think we are going to be able to break through it.
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.