We survived 9/11 and that might be more important than people realize. As you know the first handful of years after the event people were downright emotional as they should have been. Then we hit a point for the lack of a better word the crowd seemed to have become complacent about it. It probably had something to do with the bull rally years, the euphoria and the smoke and mirrors economy we all seemed to be enjoying. Then the crash hit and here we are at a point where sentiment turned really serious again. Lots of politics at the surface and anger bubbling right up to the surface. I think we came really close to a situation where an explosion could have occurred over the weekend but thankfully cooler heads prevailed and we dodged a bullet.
I don’t know how the mosque project will turn out but Pastor Jones finally has a chance to go back to the obscurity he came from. But the reason I bring this up is we may end up using these events as an analogy for what can happen in the markets this fall. This is, after all, the seasonally weakest time of year. Double dip fears are not far from the lips of many and we are all trying to figure out if we are going to have one. In my work, that is to be determined between now and Thanksgiving. By the end of November, the 161 week cycles off the 2007 top will be complete.
Last week’s big window was on the US Dollar and the epicenter was Wednesday. However, the Dollar had a bullish development in the premarket activity over the Labor Day holiday and seems to have put in at least a partial inversion and turned a day and a half early. As it stands on Sunday night as I’m writing this the Dollar is retracing most of the bullish activity from last week. This doesn’t surprise me as I’ve told you in my various forums I expected the Dollar to be a in a range that may not reveal its hand for another week. Whatever inversion the Dollar has given us has been enough to keep equity markets elevated.
As amazing at it seems markets are now elevated approximately 2 weeks since the 89 day cycle off the April 26th top hit. We were looking at 2 windows. The first which had the power to kill off the rally was the Dollar cycle which does not appear to have done it and the next one comes at the autumn equinox in a week from now.
Here are the potential scenarios. We could rally into the equinox and that’s where it ends. We could pullback this week; find a low and boomerang which very few people expect. Or we can accelerate whichever way we are going and gap either up or down as we hit the very important September 22 time window. Quite frankly, the gap scenario is the lower probability but lets go back to 2008 when we had the Lehman Bankruptcy around September 15 or an anniversary that is just a couple of days from now. As you’ll recall the September 15 time period of that now infamous period in our financial history turned out to be the 233rd trading day off the Dow/SPX top. That window was neither a high nor low but the acceleration point. To make matters worse, 3 weeks later we had the 233rd trading day off the NASDAQ top which lined up with the TARP vote and that turned out to be an acceleration point down as well. Granted, the fact we could have had one 233 day acceleration is a lower probability but to have 2 of them together just shows how extraordinary the 2008 pattern really was. The only other time I’ve seen a gap down on a 233 period pattern was earlier this year on the Nat Gas chart where one of its bear legs gap down and accelerated 233 hours off its high. It happens.
The question here is whether we are going to see that again this year? Everything else being equal, it has to be the extreme lower probability. Since it already happened I would think of the 4 possible scenarios that would be in last place and there is a much greater chance of acceleration UP then down. Whether we realize it or not, most of us are scarred by that event and our generation is always going to be scarred by it. Think of your parents and grand parents. The Great Depression changed the way they looked at life even decades after the fact.
Believe me, at Lucas Wave International we’ll do what we have to do and make the tough call if that is necessary but I don’t think any rational or sane person wants to see a repeat of the events of a couple of years ago. It’s a major reason why I think a crash this year is the lower probability outcome. Too many people are looking for it.
But as we go around the horn, I told you that if the BKX took out 45 on the way up and held it, chances were good it could make a run at 51. After Tuesday’s shake of the trees prices recovered at a low of 45.14 to a high at 47.23 so we are on the way. The problem is the divergence where Wall Street names like Goldman are looking much better than regionals which are not confirming the move higher. You have to wonder what fundamental event is bubbling under the surface to keep the Goldmans of the world looking good.
Last week we put up the long term Copper chart and of all the areas of the market people were concerned about the fact Copper didn’t make much of a move. The interesting news is it did not drop off either. So that one spent a week going sideways. It contributed to an SSE that came within 14 points of my 2719 target. Look for the dynamic of the Copper chart to lead whatever happens in China this week. I’m highlighting the Copper chart again simply because it put up a fight all week and you can see we are in roughly the same position as last week. Why is that? Simply put, the parallel warning line.
This could be a pivotal week simply because I think the traditional change of season where markets have a high probability of changing the trend is stronger this year than most. For you Gann aficionados, you know September 22 is 180dg off the March 21 start of the calendar year. That’s reason enough to look for a change of direction. This year we have a cluster simply because of the April 26th top. September 22 is 145dg from April 26 so we have 2 important natural cycles working. It that wasn’t enough, that window is also 161 trading days off the February low in gold.
We don’t normally cover these particular charts in this post but we also have interesting long term calculations working in Nat Gas and Cocoa. In case you don’t know, we cover charts like Cocoa, Sugar, Nat Gas Corn, Wheat, Heating Oil and others in our Futures update. So we are right on top of a couple of potentially interesting opportunities in those arenas as early as Monday.
The bottom line for me is I don’t think the market has truly played its hand yet and it may not do so until next week at this time. But I do have some good news. The Mercury retrograde period has ended so the whipsaw should be close to subsiding and markets should start to clear and go into a trend again. I think we have an outstanding chance of staying up into the equinox. Perhaps the fact that we came out of 9/11 may be an omen of better things to come.
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.