The markets have reached the Great Divide. We are moving sideways in a number of key charts. Banks have been in a range since September but if you take a closer look since the end of May. In the near term, charts like the Dollar, EUR-USD, Copper, Palladium and the Aussie Dollar are all in sideways patterns on a 60 min chart. Have you looked at JPM? We thought that one might be in a triangle that began on July 1. Thursday’s action all but confirmed it as the lower tail stopped going down on a trend line when the dots are connected to the lows on August 27 and July 1.
If we are going to judge the market action on the basis of JPM, the chances are very good it will ultimately have another leg up simply because in a bullish triangle we would just be completing a C wave down. If it’s a bearish triangle, we are still looking at an E wave up to complete the pattern. Elliotticians know that E waves in triangles usually terminate with some important news event. How does Election Day in a week work for you?
Putting all of my cycle and calculations aside, I’ve come to the epiphany that the market wants to see gridlock in Washington. It’s not good for a President at the mid term elections. While we don’t believe news events drive markets, precise calculations do, we do realize the market is a living organism made up collectively of all participants and does have a mind of its own. We could be on one big buy the rumor sell the fact sequence which started at the end of August and culminates on Election Day.
Coming back to my calculations, last Monday was a very key market day simply because it was exactly 157.6 weeks off the October 11 top of 1576 in the SPX. That was the day in the aftermarket where Apple sold off and the NQ dropped 47 points in 3-15 minute bars. It looked like a lightning bolt on my screen. But by Thursday that high was taken out. But what you need to understand about these relationships is that we must keep time periods from important tops as places where price and time square. The intersection of those points creates important support or resistance lines.
If we take the NASDAQ, which had a high of 2861 back in 2007.At 288 days out, the summer rally and sideways pattern of 2008 ended which led to the disaster. If you do your due diligence carefully you’ll see that mid August pivot was the end of the long bear market rally in the Russell 2000. What was the high back in August on the Russell? It was 764. The high in April was 745.95 which is only 2.35% off the pace. The August high in the NASDAQ was 2473. The high this week was 2482. We have elements in place that respect that August 2008 high. We now have a new relationship in the SPX from last Monday which are basically in the same place. That makes 2 key price and time relationships in the NASDAQ in the same place.
If the future projects according to the way Gann saw financial markets we could spend an extended period of time at these levels. Technicians and traders who use moving averages always talk about prices reverting to a mean price. I am looking along the same lines with these price and time relationships.
If bears ever had a chance to take markets down, it was last week. The BKX was reeling after the prior week and after our “Apple Event” on Monday they had a chance to put this market away for good. They tried but just couldn’t take it down. We are not necessarily looking for banks to rally but as long as they remain stable the market can keep moving along like it has.
The area to watch now is the currencies. Of course, the G-20 meeting and currency wars are making headlines this week but the reality of the situation is these trends have been in place for several months. Perhaps it’s a good thing authorities are finally taking note. Last week I told the Dollar was setting up for a bounce attempt as it was down 13.20 in 130 days and by the time we hit day 133 to start the week the Dollar was on the move. But the most interesting chart happens to be on the EUR-USD which hit a key mid line as well as square of 9 resistance. But a pattern that had promising drop potential held the line and is one of those charts mentioned at the top that has greater sideways potential in the near term. How the Euro fares against the Greenback should dictate how the Dollar goes and you know how that inverse relationship will fare.
The wild card in all of this is the SSE which has quietly continued higher after having been closed in the early part of the month. How many of you realize the good folks in Shanghai also shut their exchange down on the spur of the moment back at the Autumnal Equinox? How crafty is that? The Chinese are very enlightened in these matters and certainly have a greater respect for market timing than the folks on Wall Street. But the SSE has finally reached a point where the square of 9 calculations suggests it could be time to take a break. If that’s the case we can see further decent action in the Greenback this week and a continuation in the new patterns in the EUR-USD as well as precious metals with the commodity/reflation trade staying neutral.
Overall, we’ve finally reached the end of October with no disasters. The bears last perhaps best chance just passed this week with the square relationship on Monday we just discussed which didn’t produce too much. The simple fact of life is sellers have not shown up for more than a day. Buyers have overwhelmed the action just about everywhere except banking. We still believe a selling wave is possible but now instead of a return to the bear, it would be something less extreme and brutal but strong enough to shake the trees and move stocks from weaker to stronger hands.
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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.