I’m a firm believer in how you do anything is how you do everything. This applies to individuals as it does to societies. It was a slow news week and the Lebron James saga dominated the news. For once it was an entertainment story as opposed to the BP mess. There is something seriously disturbing about how LJ ended up in Miami. Mind you, I’m not the biggest basketball fan around so I’m not concerned where he ended up.
But I will tell you this; I never understood so much hype for a guy who never won anything. I was taken aback by the fact he chose to ride shotgun in a “Dream Team” type scenario as opposed to being the centerpiece of a franchise on his own. Don’t get me wrong, Lebron can do anything he wants. But I think his decision is a symptom of the larger problem in society. You were probably wondering how all of this relates to the stock market but bear with me (no pun intended) for a minute while I sort this out.
I’m the guy who was on board for a Roosevelt style attack to cure what ailed the country not in 2008, but in 2001. That’s right. It may seem like a long time ago but once upon a time the NASDAQ crashed, the airline and hospitality industry ran a slogan called “Thanks for Travelling.” They begged much the same way teams and cities made fools of themselves for the self proclaimed king.
You may remember it. I thought W would have seen fit to fix the infrastructure as a way out of the last bear market. We needed it as since that time a bridge in Minneapolis collapsed and New York City had a major blackout. It was reported at that time every major city in the Northeast needed their electric grid rebuilt. So I’m not so far out in left field. It might have been the slow way but the country would have been rebuilt for the money as it was spent anyway.
But we know what they did instead. They went for the quick fix. Easy money led to the housing bubble which was created by people buying houses they couldn’t afford because they were lent money by banks who were selling the mortgages anyway. Regulators looked the other way and everyone had a party. Other people saw the purported returns Bernie Madoff investors were getting and wanted in. What ever happened to due diligence and learning how markets really work? It is the era of the short cut. Instead of building a championship team one brick at a time Mr. Lebron elected to short cut the process. I don’t think it’s a stretch to say he did the exact same thing as millions of homeowners and thousands of investors over the last seven years. What upsets me is since this sort of thing was still in vogue LAST WEEK, as a society we haven’t yet learned our lessons and could doomed to repeat it. That’s part of why the stock market remains in so much trouble.
Last week markets were up for the same reason they were down the prior week. It’s all about China. In technical analysis, the higher probability is for a pattern to retest an area it just violated on the upside or downside. In this case, the SSE (Shanghai Stock Exchange) broke the 2482 low from May, an area I told you it could not afford to break. Once it did, it took the whole world with it. My readers were not surprised. But before the real crisis kicks in, the polarity line around that 2482 area had to be retested. It spent all of last week doing that. Consequently, commodities and copper did better. The stock market also had a good week. It’s the action reaction game as it had one of the better weeks in recent memory. I told you that as long as China stayed elevated, our markets would too. So the scenario of a weak July into the middle of the month never materialized. Unfortunately, the flip side of that is now possible. We could rally into the middle of the month and spend the rest of July heading south. There is precedent for that as well.
This week we are back to watching the dollar and the Euro. As I’m writing this on Sunday night the EUR-USD is experiencing a nice drop while the dollar finally starts to rally. The Dollar is down 5.30 in roughly 534 hours which in price and time terms is roughly a 1-1 ratio when we consider a move of .01 per hour. Just as important is the wedge shape to the pattern on the hourly. We’ve become used to dollar weakness already. Once we get used to something its time to change. On the EUR-USD, prices made it as far as the mid line of a new median channel for this rally. Prices were also up .003597 per hour which rounds to .00360. This is why both charts are starting the week in opposite directions.
The BKX is also in bounce mode and nothing bad happens when banks go up But I’m looking for a target of about 51.33 and if it does validate this market is going to be in big trouble. So what does all of this mean? Last week on CNBC the feeling I got from a lot of people was there was a chance a bottom was in. How soon they forget! Wasn’t it just a week ago there was so much carnage and blood in the street the NY Times had a magazine cover moment with an article that said the Dow could go to 1000?
You can’t have it both ways. If sentiment is already bullish only 4 days into a rally then we are in trouble. My indicators are suggesting we could stay elevated into the middle of the week but much of this depends on how China reacts to polarity. But here’s the worst case scenario. As we know, the markets had a very tough time alternatively when the dollar has rallied and then when the euro collapsed. At this stage of the game nothing is guaranteed. The inverse rules of engagement with the greenback may no longer apply. If markets are looking for an excuse to sell off, they’ll do it not matter what China does because either the dollar will go up or the euro will go down this week. That could be a problem. There is also no guarantee China breaks thru resistance.
These charts show the challenge at polarity on the SSE and the situation in the dollar.
Click on chart to enlarge
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.