It’s a rally not many people believed in. I’ll throw myself in that group. After the banks tanked in the latter part of August it was hard to believe we’d have anything but a disastrous September. History was made in September, just not the kind most people were anticipating. Fast forward to the Autumnal Equinox. Banks may not have cratered when the kids went back to school, but they didn’t set the world on fire either.
At the time of year when we look for important reactions at the equinox, prices weren’t even on the same page. The NQ inverted and by the end of the week for the equinox the pattern had violated a very important high. The tech side of the market gave us an inversion low. The problem is the BKX did top right in that time window. We’ve had a split market for the past few weeks with tech looking good and banks lagging. If the banks weren’t lagging I’d put up a total green light on a move that might go much higher.
We always look to sentiment behind the technicals because I do come from the Dick Arms school of technical analysis which states that everything you want to know about a market is represented in the pattern. All of the hopes, dreams, fear and greed are written into that pattern all the time. However this is one of those times where it is important to dig a little deeper and try to figure out what these tea leaves might be telling us.
First of all, there’s this little issue about an election coming up in about 3 weeks or so. I don’t know that the market doesn’t like this President, but it sure doesn’t love him. When I talk about the market I’m actually referring to the collective mindset which is the herding instinct which lumps all of us together as a universal mind. The market really is a living and breathing organism because it’s made up of all of us. I’m slowly coming to the opinion the market likes the idea that Republicans are going to regain a measure of Congress which will raise the probability of gridlock which in turn will lower the amount of uncertainty we have to deal with.
My next door neighbor tells me he thinks the Republicans are going to win so that would set off a big stock market rally in celebration come November. It doesn’t exactly work that way. It appears the market is celebrating NOW as this has the feel of a classic buy the rumor sell the news event. If you remember, the fickle market actually appeared to have been rooting for Obama just 2 years ago and interrupted its crash to rally in the days prior to Election Day. Once Obama won, the market resumed its downward spiral, all the way into the end of November when the Dollar topped and Geithner was named Secretary of the Treasury. The same thing could happen this year.
As it turns out, markets are within weeks of the 161 week window off the 2007 top. The window begins around Election Day and runs throughout the entire month given the fact technology topped 3 weeks later as you know. How might that affect the apple cart?
At the rate we are going right now it would not be unreasonable to think we could rally into Election Day and sell the fact throughout November until the 161 week window expires in the early part of December. That would mean we could have both a high and a low in this big window. Ultimately that would be bullish but we could get a mighty shake of the trees. I think if we survive October in a neutral to bullish fashion I think this rally that started just before Labor Day will continue in 2011.
The other scenario could start as early as today. Right now, the Dollar is in its 90 trading day window off the June top. This is one of the last opportunities it is going to have to bounce prior to its anniversary of the bottom and top of the last couple of years in late November. If the Dollar does get out of the ditch here it can rally for several weeks. What that could mean is the stock market could get a shake of the trees this week and bottom out sometime in that 161 week window. That could be even more bullish than the other scenario because if it hits a low 161 weeks off the bear market top, that’s the kind of inversion that could propel prices higher until the Spring Equinox next year.
How are we going to know? If the Dollar is going to bounce, it needs to get on the horse real soon. How soon? I’d say at the latest it needs to be Wednesday. Then what you want to do is look to the BKX. The high on Tuesday, September 21st was 48.24. The high on Thursday was 48.18. Prices came within 6 ticks of the Autumnal Equinox high. IF prices were to take it out that would mean we’ve violated the seasonal turn window high. Folks, not all pivots are created equal. This one is more important than most. If the BKX pierces through right here on any decent amount of volume, that would be enough for me to give a green light on the market overall. So we have to watch this very carefully.
You may or may not know the SSE Shanghai Exchange has been closed for the better part of the last couple of weeks. There’s also a lot of talk of Quantitative Easing. Its more than talk, they are going to do it. I’ve heard reports they plan to crank up the printing presses to the tune of 100 billion a month starting in November for up to 10 months. It’s my contention this may not be good in the longer term due to the hyperinflationary potential. The only time we are really going to know is if the Dollar breaks down below the longer term median channel I showed you last week.
I think we can all agree one of our most important creditors is China. Everyone is so concerned about the effect of the flood of Dollars hitting the open market. I have an answer for you. The reason its being done is so we can collectively and individually pay back the mountain of debt with easier as opposed to harder to come by Greenbacks. The institution that can get hurt in a case like this is the creditor. In case you didn’t notice, China has come back from its break on a rally. QE doesn’t seem to overly concern them too much. So if they aren’t worried, I don’t think we need to worry.
But they may start worrying if the Greenback doesn’t start stabilizing soon. This is the week for it. Let’s see what happens. The effects can be profound given precious metals are as overheated as they’ve been in recent memory. This could be one of those weeks where everything that was going up at the start could be going down by the end. It doesn’t have to happen that way. All I can say is if it doesn’t, something historic may be developing.
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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.