Simply put, this is what we’ve been waiting for. There are a handful of important time windows in a year when the complete direction of the market is capable of changing. I don’t say this lightly because it doesn’t happen very often. When it comes to timing cycles we know several truths. Markets tend to bottom either in October or March or both. Disasters usually materialize in September or not at all. The ‘double dip’ word is not far from the lips of every economist you see as a guest on one of the networks. I’m not here to debate the fact as to whether or not the economy has been rough. Everyone knows someone seriously affected by the last 2 years. If you don’t have a job, it might as well already be a double dip recession.
But I think the term ‘double dip’ refers to a return to the frightful conditions we had 2 years ago. Right now we are not there and since we are hitting the 3rd week of September and the market has been up, there’s a chance we can dodge a bullet. According to my cycle work, if the ship doesn’t go down now, it’s not going down this year. There will be another chance in March but we are starting to come to the time of year where people buy stocks. Sell in May and go away happened on April 26. The market topped in April and since it had an excellent calculation, I’m projecting it’s the high probability top for the year.
After this week, the next important cycle points hit in late October and into November as markets will hit their 161 week windows from the bear market top in 2007. So here’s what is riding this week. According to the Gann calendar, September 22 is the 180 degree point of the year. What that means is the earth has made a half circle in its orbit for the year. I know many of you think in terms of the normal calendar but the stock market does not. This year, the 180dg marker is more important simply because of the April 26th top which is a 35dg day. Do the math and you’ll see 180-35=145 so we’ve also had a 145dg move off the top. Given the fact that’s one off Fibonacci 144, this year’s autumn equinox carries extra weight. There can be no doubt we are rallying into this window. Be advised that many charts have a relationship to April 26 or are hitting important time windows on their own. Gold, for example is hitting 161 days off the February low.
Gold is interesting because sentiment is getting to the extreme. I heard one Fast Money contributor tell viewers that it has now become the end all, be all. Not only is Gold up in terms of the Dollar but the Euro as well. Not only is it a hedge against inflation but deflation as well. We’ve learned that Gold is now the ‘new’ reserve currency for the world. That’s all fine and nice but it does fit in with the sentiment of ‘this time its different.’ When any instrument becomes the cure for all that ills the world, get nervous. Don’t get me wrong, Gold can go to the Moon for all I care, but it needs to do it under the radar. Once sentiment gets to the point where participants think the only direction is up, there’s a problem.
Last week was interesting because it was another instrument that was headed for the Moon. I poked fun at the Japanese Finance Minister who must have had a severe case of indigestion given how high the Yen contract hit. I was watching CNBC Asia when it started selling off and started laugh. What usually happens when the government, any government intervenes they usually make progress in the short term. But I have to tell you that after I ran the numbers I stopped laughing. They seem to have hit lightning in a bottle. The Yen contract reversed on some good price and time numbers, actually .00159 per day. It also turned on a longer term Gann square of 9 resistance point.
This event has the potential to be really serious. I’m sure you can appreciate the value of a Greenback suddenly taking off against the Yen and right now the only thing standing in the way of a complete reversal in the commodity/risk trade is the Greenback’s performance against the Euro. The Dollar just isn’t cutting it against the Euro right now. But that chart is close to near term resistance and has to prove it can go to the next level.
If the Dollar were to take off, chances are equities would fall back. It hasn’t happened yet simply because the Euro is the last guard at the gate.
Oddly enough, the banks still look fine. I’ve told you in this space that if the BKX can hold the 45 level it can make a charge on 51. It got as high as 48 before backing off when the Yen backed off. But here’s my concern. Wall Street names like Goldman Sachs still look fine, national names like Wells Fargo are fairly neutral and regional banks are all over the map. Then I look at housing which did not perform very well last week. The HGX is barely on the side of neutral but if it has a bad start to the week, it can spread to the banks. Since this is the week where important things are capable of materializing I have to tell you that if the housing sector doesn’t hold up it probably will take the BKX with it. In this column we seem to always be on the right side of the market when we stay tuned into the BKX.
The market looks fairly decent here but can still turn on a dime. There’s still one other possibility not many people are talking about. It is possible but not probable that we gap up by the middle of the week and never look back. Given the fact September is supposed to be the weakest month of the year and markets turned at the end of August on the 89 day window for the most part, it can’t be ruled out. I will go with the seasonal tendency and the final chance the markets have of a significant sell off is the window change of season autumn equinox that is being helped along by a couple of strong Gann clusters.
I’ll leave you with this analogy. There’s 2 minutes left in the game and the bears are down by 4 points but in the red zone. Brett Favre, the master of the 2 minute drill was in the exact same position yesterday. How many times has Mr. Favre converted the game winning score? He couldn’t convert yesterday. The bears now have a similar opportunity this week. It’s late in the game and it’s their last chance. If they can’t do it here, the markets and economy will dodge a major bullet.
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.
