Was it really the largest fine in the history of the SEC? You could’ve fooled me. The way they were buying up Goldman on the close Thursday made one think they just financed the cure for cancer. Someone got over on the rest of us and a small group figured that out. Too bad for them in the bigger scheme of things it won’t amount to a hill of beans.
What I wrote in my Thursday night Short Term Update was the buying panic or frenzy or whatever you want to call it hasn’t changed anything about the relationship of banks to the rest of the world economy. The only thing that changed is Goldman Sachs is still in business and they are going to continue doing business as usual. That’s more of a reason to short the stock than buy it. I’ve written this point 50 different ways lately but the bottom line is this bear market can not end until arrogance and business as usual is wiped out of the English language. Coming into this bear, bullishness and the hunger for stocks was at an all time high. A NASDAQ bubble pop did little to change it.
I’ve always wondered what would change it, never imaging even for one minute that a Bernie Madoff scandal would come along and extinguish that desire. Since that time we’ve learned about 100 other little Madoffs and their Ponzi schemes feasting on a financially illiterate public. But you can see they’ve done only part of the job, because if they totally wiped out the desire to own stock, Thursday afternoon’s buying frenzy would not be possible.
But thankfully not everyone is financially illiterate. You can congratulate yourself by taking control of your financial destiny by reading magazines and websites like this one. I would doubt than anyone who educates themselves as such would ever become victim of such a scheme.
What makes this sequence in the banking sector all the more remarkable is our new ability to uncover some of the Gann mysteries. Some of you know I’ve been working on my Gann project for several years and it is starting to bear fruit. Tuesday was a good day in the market and I put in my update there would be strong price resistance in the BKX at 51.33. I got that calculation working a Gann square of 9 and on the surface of it, didn’t appear that it should work. Prices were above the prior high and it was not at a Fibonacci retracement level. But the actual price high for the sequence turned out to be 51.14, a mere 19 cents off my target price. Not only that, but Thursday’s Goldman frenzy did not even make one dent in that square of 9 calculation suggesting there is something much more going on in these markets than news events. Friday came along and the Gann high was confirmed. It turned out to be the most important sequence of the week.
As you know we were looking for the rally to spill into the middle of the past week at the latest. We’ve been tracking the SSE and true to form, polarity flipped at 2500. This is a bearish omen but US markets were slow to react. That could mean that China really is attempting to find a bottom at the recent 2319 low. There’s only one problem with that view. Didn’t they just announce Chinese GDP at 11%? The actual number for the first half was 11.1% which is off the pace from the 11.9% for the first quarter. But that’s not exactly BAD NEWS for a country whose stock market peaked nearly a year ago. Aren’t market’s supposed to bottom on bad news? The kind of bad news I’m envisioning is Chinese GPD falls 5% after Europe achieves parity with the US Dollar. I think 11% growth is still on the good news side.
The SSE is now in a position where it will test its bottom just as the BKX will test its June low. The chart below shows you the bounce off polarity and the vertical lines are specific Gann square of 9 dates. You can see the low has a perfect relationship to the August 2009 high.
But there is another area of concern. Gann was very interested in anniversary dates and for good reason. In case you don’t know, the Gann calendar looks at the trading year in terms of a big circle. One trip around the calendar is equal to a 360 degree circle. The Russell 2000 originally topped on July 13, 2007. That was the REAL beginning of the bear market. Markets topped this week for the most part on the 13th. While that is 3 circles its also 1095 calendar days. Do you know what the closing price of the SPX was on July 13th? That’s right, it was 1095. I couldn’t make this stuff up if I tried. With the exception of a couple of newer print highs elsewhere, we’ve been lower ever since. It’s exactly this kind of symmetry that usually turns a market. Unbeknownst to the late buyers of Goldman Sachs, they were going against the grain of this kind of symmetry on Thursday. They tried to take it up without ever realizing they never had a chance. I think that 1095 level in the SPX is going to be strong resistance going forward.
Such is the power of good information.
But for a change we have not discussed the US Dollar. The reason is simple; it’s no longer driving the bus. If you look closely at the USD-JPY the intermediate channel line that supported the rally since November has been violated. The EUR-USD is now safely above our ‘less terrible’ mid line so one more black cloud has been lifted from the market. But if the Euro is better, where exactly is the Dollar going to gain ground?
I think the Dollar is going to have to get it where it can. There is a very good chance the Greenback has topped. It came to our longer term mid line and backed off. It’s the same mid line that has been the rally killer before. But before I go there is something I want to bring to your attention that we don’t discuss here very often. Due to the fact we have a considerable following in Australia, we pay closer attention to the Aussie Dollar than most. Understand the Aussie economy is a commodity based economy with mining stocks like BHP Billiton being very important. The Aussie market is really tuned into the progress or lack thereof in China. I know a lot of you trade things like coal and steel from one week to the next. These commodities have a spillover effect into the energy markets. The Aussie dollar topped on July 15, 2008 and there the relationship is again as it topped on the 14th.
The Aussie Dollar has some outstanding textbook relationships at this high. It is confirming by the sell off on Friday. To start the week, the ASX got hit really hard. As far as the Aussie Dollar goes, last week’s high has some textbook Gann square of 9 relationships. In terms of time it has moved 90 degrees, in terms of price 261.8 degrees and finally in terms of our price and time ratio its .00235 per day. What that means is commodities ought to take a hit this week. I think banks are going to take a hit as well. So if commodities and banks get hit, there stands a good chance the markets get hit as well. Luckily there is good symmetry at the low of the Aussie Dollar so whatever is coming down the pike should mitigate as far as our summer trading goes.
So here’s the bottom line, we could be in for one rough week. At some point the US Dollar should stage a bounce attempt but that is no guarantee the inverse relationship with stocks will hold. What I told you about the Aussie Dollar would have guaranteed a nice long position in the Greenback just a few short weeks or months ago. That relationship is no longer set in stone. We have to take this market on a case by case basis.
Long time readers should notice a shift in our terminology here. As I said above, my Gann project is starting to bear fruit. That doesn’t mean we are abandoning everything we’ve done to this point. Quite to the contrary, we look to a seamless incorporation to our already excellent methodology to make it even better. At Lucas Wave International we are committed to continuous improvement. Last year we incorporated median lines with great success. We look to do the same with our Gann work. But I will tell you this, we are teaching our subscribers the Gann square of 9 and exposing people to rare and valuable tools it might take years to figure out on their own, if they ever do. More information and tools concerning our Gann work is available at www.Lucaswaveinternational.com.
Click charts 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.