The Hindenburg people are really coming out of the woodwork, don’t you think? That means one of two things. A crash really is a self fulfilling prophesy or since too many people are expecting it, that automatically rules it out. I never put too much stock in it because I think crashes are rare events and it takes more than a reading that measures highs and lows in the market to cause a panic. But the attention it’s getting is noteworthy.
In this business, you can never rule anything out but what we can do is manage probability and uncertainty. Curtis Faith points out the emergency room doctor can do everything right and the patient can still die. But let me say this about a crash. Could we all agree that a crash is caused by a panic? Isn’t a panic caused by everyone being taken by surprise when they all head for the exits at the same time? Way back when, before they had satellites, hurricanes used to rip into the coasts and kill thousands of people. I can’t imagine to even have the slightest understanding of the panic that materialized. I suppose the closest thing we can compare it to was the tsunami in 2004. But when we see an Andrew or Katrina coming we can prepare and avoid a panic. Disaster still hits but the panic is avoided because we see it coming. Can we draw the same analogy with the Hindenburg Omen?
I believe that only the smartest of the smart saw 2008 coming. We were told the sub prime mess was contained and a week before disaster struck, one of the Presidential candidates told us the US economy was sound. Who expected the economy to implode and almost go down like the Titanic?
That was more like Galveston in 1900 than Katrina in 2005. Don’t get me wrong, as bad as Katrina was, more people lost their lives in Galveston.
All of which brings us to the current situation. As we come to the end of August, my mantra for the month was to observe and digest any clues the market might be giving us. It was a month of mixed messages. Well, it’s not done but we are coming up on the slowest 2 weeks of the year except for Christmas and I will be on vacation next week so I need to speak my mind now. First of all China and Europe did much better. In May and June those were the problem children and it appears we’ve put those crises in the rear view mirror. So all should be well, right?
Not exactly. Lately I’ve seen a minor shift where our markets would respond to what materialized in China about a day and a half later. Now China is starting to respond to what we are doing. For those of you who were worried that China was taking too much of a leadership role, aren’t you glad?
The reason everything is starting to take a back seat to us again is the banks. Let me spell it out for you. I’m really concerned about the banks again. For those of you who keep score of such things, the BKX topped on July 13 while the rest of the market did so either on August 4 or 9th. At first it appeared the housing index was dragging banks down. But lately housing has behaved slightly better but the banks look like they don’t need any help, thank you very much!
Now we are in the unenviable position where the BKX has made a new low for the cycle off the April top. You know what I keep telling you about the banks. I’m going to be consistent. In January while the rest of the market was falling like a rock, it was the banks that were somewhat neutralized and didn’t confirm. I told you nothing bad happens to the market while the banks are not confirming the downtrend. The market caught a second or third wind (I stopped counting) and continued higher into April.
Now it’s late August and the shoe is on the other foot. We have the polar opposite of January and I’m concerned that shoe is about to drop. We’ve had scant banking participation for a whole month and you have to wonder why banks can’t do well in a decent market. In the overall scheme of things, the market has hit a high point in August in the 144-46 week window as I’ve outlined in Tech Talk. Keep in mind that column was written a month ahead of time. The reason we can have this kind of accuracy is because we do use the time windows as leading indicators. So let me give you one other thought. We’ll be at 161 weeks off the bear top around the time we’ll be at the NDX anniversary bottom from 2008.
But this has also been one of the choppiest patterns I can recall in recent memory. Now that I’m more aware of the Gann calendar I’m more aware of the potential for market turning points in any given month. Thus far, August has been a month that has taken advantage of every potential turn. Last week I told you about the potential for a turn right in the middle of the week, we got it. Now that you are getting comfortable with that, we can even start this week with yet another turn. It looks to me like oil is trying to put in a low and the Dollar is trying to put in a high. That absolutely doesn’t speak to a bottom in the banking index but yet another twist and turn as we come down the stretch of the dog days of summer.
Why am I concerned about the Dollar? This move is up 224.5 trading hours (Gann 225) and averages out to .0145 per hour. These are the kind of readings we see either close to or at an important turn or in the very least a change of direction. Crude oil is sitting at the 61% retracement as well as a near term mid line on the pitchfork. It’s also very close to some Gann support numbers. I’m of the opinion that conditions are extremely ripe for a bounce right here and if it doesn’t happen the oil market can have an outright collapse. Support is that good here so the higher probability is for a change of direction this week.
The move south in Copper is averaging .549 points per hour which is almost .55 and an important Fibonacci number. What’s the theme emerging here? Conditions are ripe for the Dollar to take a break, commodities to do better right here but keep in mind many traders are more consumed with going to the beach, lake or Europe before the kids go back to school. It’s that time of the year. Oh yeah, one other thing and its important. Mercury just went retrograde again and will be in this condition until September 11. What that basically means is this is a natural period for wild swings and traders need to take profits too soon. This is another of our natural indicators we’ve been following for years and those of you who ignore it do so at your own risk.
But with all of the fine readings we see on commodity related charts, the readings aren’t that wonderful in the BKX. What the BKX is testing is an important low back in July which just so happens to be important support on a Gann Square of 9 indicator.
As I’m writing this on Sunday night, the charts are supporting most of my calculations.
So the bottom line is we can still go better here but if the BKX doesn’t get some horsepower going September will live up to its reputation. Next week I’ll be gone so we’ll have a very short column.
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 (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.