Support levels key to financial market direction this fall

August 8, 2010 07:00 PM

It’s that time of the month again where we have to look at the employment picture. Believe me, I’d rather not but it’s an important component of social mood.

There are a couple of things to note in the post Census era jobs report. First of all, the government sector LOST 38,000 jobs in the local sector. A good portion of these were teaching jobs. You hear the talking heads bluster on about cutting spending. Yes, they are cutting spending, at just the place they can ill afford to do it because cutting education spending only puts us further behind our Asian counterparts whose better educated youngsters are starting to blow the doors off American kids.

I tend to take a different view on things. I look at the economy in the near term but I also look at what we are doing in the long term because I look at society the same way I look at any business or even how I run my life. If you don’t plan for the big picture you will always be at the mercy of whichever way the wind blows. If you don’t take control of your own destiny it will automatically be taken care of for you. There was only one person who mentioned the education card on television on Friday. That was Robert Reich.

The other problem was the report revised payrolls for May and June to show 97,000 LESS jobs than was previously reported. It just gets back to the same thing we’ve been harping on for a whole year. The United States government has to make a commitment to following the Outliers playbook but they seem to be doing the exact opposite. The Outliers playbook? Doesn’t that sound absurd? I know it does. But that’s a book that shows what happens in societies that make a major commitment to educating their young. We used to be that way but not anymore. We are not even close. But we are going off on a tangent. They don’t listen to me. They just don’t seem to have the intention, the will or the money anymore.

We are now in August and this is 145-46 weeks off the top for the NASDAQ in 2007. We have a couple of interesting Gann levels here. First of all we have a 450dg move in the NDX at 1912. The high for the week was 1911. The 360dg move off the bottom in the SPX is 1141 and we did not get there yet. We have the potential to be all over the map this week. The end of the week didn’t play out exactly as I thought because I was looking at tech to stall and perhaps the SPX to continue on to the 1141 handle. That may still happen but everything uniformly dropped and then recovered on Friday.

Remember, this is August. The feedback I get from people is they expect something dramatic to happen. Take it easy, have patience. As we get deeper into the month more people become interested in the pennant races, NFL training camps and their vacations to Europe. Maybe I shouldn’t tell you this but nothing of consequence happens in August.

That doesn’t mean you should go away. Here’s what does happen in August. Things start setting up and taking shape for September. If you go back over the past few years you’ll see what happened in August. Here are a few events just off the top of my head. Back in 2002, a bear market rally ended which led to the last leg down of the old bear market. The set up was August, the big event was October. In 2004 a very important secondary low formed. In 2007 a low formed which led to the last leg up of the bull market. Then again, the big event was in October. Things can materialize between now and Labor Day which can set the tone for the rest of the year but we may not realize it for a few weeks.

We are one week in. There were 2 storm clouds we’ve been dealing with since the April top. One is called Europe and the other is called China. Neither one of them is barking at us right now. Both are in the best technical shape they’ve been in for several months. So I’m not concerned there for the time being. My concern is closer to home and tends to tie in with subject matter at the top of this column. Last week, suddenly it was the housing sector that became a non participant in this nice summer rally we’ve had. As we know, the banks and housing sectors go hand in hand. Banks have been better lately but are at risk of getting dragged down by housing. This is only one week and subject to change but it’s a situation we’ll have to monitor. If it turns out that housing and consequently banks can’t get going while the rest of the market does okay the payoff is likely to come once the kids go back to school. If the market doesn’t do okay and the banks/housing doesn’t get their act together it’s not going to be bullish anyway.

On the chart, banks have stayed in a range. Since our Gann test and Goldman got relatively off the hook banks have not confirmed new highs and look to be forming a triangle. A triangle at this level is not likely a bullish development.

The next issue is the US Dollar. We’ve had a target at 79.92 which represents another important Gann level for the move off the top. It’s a target we’ve had ever since more important support was breached a couple of weeks back. If the Greenback can’t hold this level then it suddenly is in danger of testing the bottom. That’s right. Long time readers of this column know I’ve told you for the past year and a half the recovery can continue on its merry way IF the Dollar stays in that range from 72 on the low end to 90 on the high end. I don’t know what you want to call it but the Dollar has held serve and things have continued to improve from where we were back in the bad old days of late 2008 and early 2009. Now we are right in the middle of the range. The Dollar has an opportunity to hold key support. If it can’t do it then we run the risk of a test of the bottom likely in October again and could set off a September not to remember.

If the Dollar responds here, we are likely to keep the inverse relationship to equities in force and the rally could flame out. If not we can continue on or go sideways. As you know the market likes to go up when the Dollar goes down. But there will likely reach a point where the Dollar and the stock market drop together. The market will sniff out hyperinflation and I don’t its going to like it one bit. Since its August, the new issue of the magazine is out and many of you should have received. In Tech Talk I have a very interesting set of calculations you should read. I’ve made my case for the high being in for the year.

This week we can be all over the map. We closed well but the SPX is about to hit important resistance. My scenario since June for a sideways market has come to fruition and I expect more of the same for this month.

Click 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 ( 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.

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