Hope you had a great holiday. Last week at this time I urged you to watch key support levels. Coming into the week I was looking for the end of quarter seasonal bullish bounce. Mind you, here at Lucas Wave International we have no illusions about the kind of market we are in. Our calculations show a very definitive geometric top in place. We've spent a lot of time in space and in my seminars over the past year discussing the geometric calculations at the November and March bottoms. That hasn't changed. But we haven't discussed is the fact there is a firm price and time square that has a direct relationship to the bear market also in place. The significance to you is the fact we do have a very strong pivot in place on April 26. That's really all you need to know.
That being said, the higher probability was for decent action leading into the end of month/end of quarter through the holiday. It started that way a week ago Friday as the BKX turned up on a fairly decent price and time calculation. Our concern for a week ago was the fine calculations on the BKX and the SOX. You'll recall that not only did we have decent readings on the preceding Thursday which led to the one day wonder but also on June 8 where the banks averaged .055 points per hour in the 232 hours up to the point but the SOX has also had a reading of 2.615 in that same sequence.
Both were violated in the past week. We have not had a major violation of this pivot but the fact it did not hold is of great concern. Remember our mantra, as long as banks are not leading to the downside, nothing bad can happen to the market. We thought lows could be tested here but the higher probability was they'd hold over the seasonal bullish period. It certainly was the lower probability outcome but it is what it is.
As a technician one of things I look for is clues of new information. Since they don't ring bells at the top or bottom I have to take any clue I can get. If a market has a tendency to behave a certain way at a given point in time AND DOESN'T, that's a problem. If we are supposed to see strength and instead see weakness, that's a problem. For the first time, this includes the May 6th Flash Crash and June 8th retest, we have serious technical trouble. Oh, I know the perma bears will tell you we've been in trouble since the market topped. But they always tell you that. They told you last year the market was in trouble when there was no indication of it. My concern is I can't come to you right here at the new lows and tell you we have great geometric readings at these lows.
The concern for the first time is markets don't hold the line all summer. The model here is 2008 and I dislike comparing this market to 2008 so let's just take this one step at a time. In 2008, the first half of July was horrendous. But you may remember that by the 15th they hauled Bernanke before the Senate Banking Committee, read him the riot act about the sub prime mess for the first time and the same day the SEC issued its first ban on naked short sales and a general temporary ban on shorting many financial names. That was the same day I came here with a price and time calculation for the BKX and it started a 10 week rally the very next day. Markets did hold up through the summer of 08 but did so from a more volatile pattern.
In case you've noticed our markets are still going down despite the fact the Euro is now safely above our 'less terrible' mid line. For the time being Europe has dodged a bullet. Now we have a new problem to worry about. It's called C-H-I-N-A. Another of our recent mantras is those of you in the political world who are against the 'Too Big to Fail' doctrine had better hope China never gets that idea. I warned you that China needed to hold the May bottom as it was key intermediate to long term support. The SSE broke that support level and you see the results. China broke down from its level and the whole world caught the flu. Make no mistake about it; this is a serious breach of support. It's so important that for the time being it has taken intermarket relationships that we are familiar with and turned them upside down. Suddenly, the stock market is declining with the Greenback. Just as suddenly we saw the Greenback going in the same direction as Gold! Speaking of the Greenback, it has made a serious technical violation of the uptrend lines against the Yen and for the first time we have one technical event that suggests the big rally in the Dollar could be over. Its one thing for the Euro to rebound to the north side of the mid line. It’s another for the USD-JPY to violate the intermediate trend in place.
All of this can be blamed on China breaking down. If they are our creditor can we also state they are the world's creditor? I don't know this is a belated reaction to Europe because now Europe is now going the other way. What the Chinese market is trying to tell us is they have some bigger structural problems developing beyond Europe, but the good news here I think they are in position to bounce in the near term. The bad news is I don't see anything of a long term nature that could turn their market permanently.
Thus far the good news side of this scenario is materializing as the Shanghai market has started out with a better tone to the week. As I’m writing this it’s sitting around 2400 which is key near term resistance. The tone of our week should go the way of China and if it can hold the 2400 level we have a good chance at a relief rally this week. If not, the beginning of July will be off to the races on the downside. But on Monday night on the West Coast, things appear to be slightly better than I would have thought. But let’s not get out the party hats just yet.
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.